Virtual shares (profit participation rights) create economic equality between virtual shareholders and "real" shareholders, though without voting rights.
Holders have the right to participate in the economic success of your startup in the form of profit participation rights. This includes exit proceeds, liquidation proceeds, and distributed dividends.
These features make virtual shares economically equivalent to real company shares. Investors also receive a limited right to information through annual reports from the founders.
A key legal feature of the virtual shares is the put option, which allows investors to return their virtual shares to your company at specified times. You retain control over how these returned virtual shares are settled. Find more information here.
For you as a company, the combination of profit participation right, information right and put option offers an attractive investment vehicle that matches the economic value of real GmbH shares but does not include voting rights.
Unlike traditional GmbH shares, these virtual shares eliminate the need for notary visits, saving time and money. They can be transferred easily between wallets, making them tradable in ways traditional shares cannot be.
Virtual shares and rights are connected through investment contracts and a so-called "public award". A public award is a unilateral legal transaction under § 657 of the German Civil Code (BGB), representing a public promise of reward for specific actions.
Your company publishes this promise (typically on your website), ensuring that all virtual shares carry identical rights. This guarantees secondary market investors that previously purchased virtual shares were legally transferred. The award is fulfilled either by holding the virtual shares or signing transactions in the web app.
For your company, virtual shares are classified as equity in commercial accounting and as debt for tax purposes. They are not subject to VAT.
You can find more information on the tax treatment of virtual shares in our Tax Primer (available on request).
For investors, virtual shares are comparable to GmbH shares for tax purposes. Please note that Tokenize.it does not provide legal or tax advice, and this document does not constitute legal or tax advice. For specific legal and tax questions, we recommend consulting lawyers or tax advisors. If required, we will be happy to put you in touch with the experts who designed the legal and tax structure with us.
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