Virtual Shares in German Startups

A virtual share is not a share at all in the legal sense. It is a right created by contract between the company and the employee, promising a cash payment calculated as if the employee held a certain number of real shares. This lets the company mimic the economics of equity ownership without touching the actual cap table or triggering notarisation, and it is the building block behind every VSOP, the German cousin of phantom shares used elsewhere in Europe.

• No entry in the commercial register or shareholder list
• No voting rights, no dividend rights, no formal information rights
• Value is calculated by reference to a defined formula, often tied to the price paid in the most recent funding round
• Typically only pays out on a defined exit event, not through open-ended liquidity

A grant agreement sets the number of virtual shares, a strike or reference price similar to an option's strike, a vesting schedule usually over four years, and the definition of a triggering exit event. On exit, the employee receives a cash amount equal to the increase in value between the reference price and the exit price for their vested virtual shares, often reduced by tax withholding before payment, similar in structure to other forms of German employee equity.