The notarisation constraint
Under German company law, any change to a GmbH's shareholder list, including new issuances and transfers of shares, must be notarised by a German notary. Notary fees scale with the company's valuation, so notarising a small options grant to a junior employee at a company worth many millions can cost more than the grant is worth in fees alone, which is why most companies route grants through a VSOP instead.
Because of this, German startups almost never issue real shares or real options directly to rank and file employees. Real option pools, sometimes called ESOP in the German market even though they are legally distinct from the UK or US concept, are reserved for founders, very senior hires, or situations where the extra cost and process is accepted, unlike virtual shares, which most employees receive instead.
Avoiding German notarisation with virtual option plans
A VSOP, virtual stock option plan, grants employees a contractual right to a cash payment tied to the company's share value at a future exit or liquidity event, without transferring any shares or options over shares. Because no shares change hands, there is no notarisation requirement, no cap table entry, and no shareholder rights such as voting or information rights.
- No notary involvement, so grants are cheap and fast to issue
- No dilution shown on the cap table, though it is economically similar to dilution
- Company retains full control since virtual holders are not shareholders
- Payout is contingent on an exit or similar trigger defined in the plan
GmbH equity instruments compared
| Instrument | Shareholder status | Notarisation | Typical recipient |
|---|---|---|---|
| VSOP virtual options | None | Not required | Most employees |
| Real stock options | Only after exercise | Required at issuance and exercise | Rare, senior hires |
| Direct shares | Yes, immediately | Required | Founders, co-founders |
GmbH equity basics, answered
- Why don't German startups just give employees real shares?
- Every share issuance or transfer in a GmbH needs a notary, and fees scale with company value, making broad-based real equity grants impractical for most startups.
- Is VSOP the same as an ESOP?
- No. VSOP grants a contractual cash right tied to share value, while a true ESOP or option pool involves real shares or options over real shares, which is rarer in Germany.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.