GERMANY Law and Practice Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
of EUR3.2 billion. Companies will benefit from expanded tax incentives for research, improved depreciation options, tax incentives for new resi - dential construction, enhancements to tax loss deductions, and the introduction of electronic invoicing. WIN Initiative: Growth and Innovation Capital for Germany The WIN Initiative, presented to the public in November 2024, aims to further establish Ger - many as a leading location for innovation and growth capital by 2030. Together with a broad alliance of businesses, associations, politics, and the KfW, the federal government intends to sustainably improve the overall conditions for growth and innovation capital in Germany. The participating companies together plan to invest around EUR12 billion in the German VC ecosys - tem. Founder/employee arrangements remain highly customised, taking into account various factors such as the negotiating leverage of the founding team, the complexity of the required structure, the specific incentives the company intends to offer, strength of desire for retention on the part of investors, tax considerations for employees, and the intricacy of technical implementation. Founders typically hold physical shares with - out restrictions on voting or other membership rights. Generally, transfer restrictions are limited to rights attaching to other shares under the shareholders’ agreement. However, in early- stage investment rounds, financial investors would typically require a renewal of the vesting schedule. 5. Employment Incentives 5.1 General
In respect of new hires, there are several forms of incentivisation for purposes of commit - ting employees to the venture – eg, options to acquire company shares (stock options), partici - pation via a VSOP, an employee stock ownership plan (ESOP) or so-called hurdle shares. With the distribution of stock options, employees receive a (call) option to acquire company shares at a predefined exercise or strike price, provided certain conditions are met and the options are vested. Transfer restrictions for options are gen - erally comprehensive and may further attach to the shares which are granted as part of a physi - cal settlement. Sometimes (untechnically) referred to as ESOPs, under “reverse vesting” scheme, the owner - ship of company shares is transferred to the employee. To ensure that the company is pro - tected against fraudulent use or transfers, the power of disposal ( Vinkulierung ) and the rights of membership are restricted. In general, vesting conditions (so-called reverse vesting) are part of the mechanism and grant the company the option to claw back the equity granted in case of certain circumstances such as a leaver event. VSOPs are designed to simulate the economics of a stock option while providing the advantage that no membership/governance rights attach to the instrument (pure cash settlement). VSOPs embody the right for a (deferred or contingent) cash payment claim if an exit event occurs. The payment amount is based on the (increase in the) company’s fair market value since the date of grant. In complex transactions, the determina - tion of the equity value underlying the transac - tion can be complex and prompt an acquirer to demand that settlement agreements be entered into.
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