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Focus on employee participation: Startups hope for more attractive regulations

The German startup world could be on the verge of a groundbreaking change as the German cabinet is expected to pass the Future Financing Act tomorrow. This law brings with it significant innovations in the area of employee equity participation. According to a recent survey commissioned by the digital association Bitkom, three out of four startups hope that the new regulations will make employee ownership more attractive.

Currently, 38 percent of the startups surveyed offer their employees the opportunity to share in the company's financial success. An impressive 48 percent of the companies surveyed can imagine introducing such employee share ownership schemes in the future. Only 6 percent of respondents are fundamentally opposed to the concept.

The survey reveals that 73 percent of startups would benefit from improved employee ownership plans. These are considered important for a variety of reasons: 87 percent of respondents would like to additionally motivate their workforce to make an active contribution to the company's success. A further 77 percent see them as a way of retaining employees in the company over the long term. Similarly, 63 percent of startups have been able to attract personnel on the basis of such shareholdings who would otherwise be difficult to recruit because of their salary expectations.

The current participation models show that virtual shares (33 percent) are currently the most frequently used, followed by share options (6 percent) and real shares (3 percent). Among the startups that already offer employee shares, executives are involved in 37 percent of cases. In 36 percent of the companies, selected employees participate alongside executives. In 27 percent of cases, all employees even receive a share.

The planned solution to the problem of so-called "dry income" is particularly encouraging. In the future, taxes will only be due when employees can actually realize profits from their shareholdings. Previously, taxes were already levied when employees changed employers, which affected the attractiveness of employee share ownership.

However, there are also critical voices. The planned flat tax rate of 25 percent was removed from the government draft, which raises uncertainties about the exact tax burden. This issue is to be clarified in the further parliamentary process.

The survey makes clear that many startups have so far refrained from employee share ownership, primarily because of the bureaucratic burden (30 percent), the complicated legal situation (27 percent) and the lack of tax appeal (26 percent). Despite these obstacles, 48 percent of respondents see the possibility of employee ownership as promising and could envision using this option in the future.

With the upcoming Future Financing Act, employee ownership in the startup scene could finally get the boost it deserves. The expected regulations could not only boost corporate success, but also help to retain highly qualified employees at the up-and-coming companies in the long term.