Issuing real GmbH shares through option exercise
A real stock option in Germany is a contractual right, sometimes documented alongside a conditional capital increase resolution, to subscribe for new GmbH shares at a fixed price once vesting conditions are met. Because the underlying instrument is a real share, both the initial grant documentation and the later exercise typically require notarial involvement, unlike a UK share option scheme.
Some companies use an employee participation vehicle or pooled holding structure to reduce the number of individual notarisations needed, similar in spirit to a Dutch STAK, though this is less standardised in Germany than in the Netherlands, and most opt for VSOP instead of building it.
Reserving real equity for senior German hires
- Founder-level grants where genuine ownership and voting rights matter
- Situations where investors specifically require real equity incentives for key executives
- Later-stage companies with the resources to absorb notary costs across a small number of senior grants
- Cases where the company plans a near-term exit and wants to avoid VSOP's cash payout obligations
Tax and the Section 19a EStG deferral
Real options are taxed as employment income when exercised, based on the difference between market value and the exercise price. Since the Fondsstandortgesetz and later the Zukunftsfinanzierungsgesetz, Section 19a EStG allows this taxable moment to be deferred, most notably to a sale of the shares, an employer-initiated event, or after a set number of years, easing the dry income problem for illiquid GmbH shares as explained in more detail on equity tax.
The precise deferral period and qualifying conditions under Section 19a EStG have been adjusted more than once by legislation. Confirm current limits with a German tax adviser before relying on them.
Real option questions for GmbH companies
- Do real German stock options need a notary at exercise as well as at grant?
- Generally yes, since exercise results in an actual issuance or transfer of GmbH shares, which falls under the same notarisation rules as any other share transaction.
- Why are real options less common than VSOP in Germany?
- The notarisation cost and process at both grant and exercise make real options impractical for broad-based employee grants, so VSOP is used instead for most staff.
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.