Employee participation and management participation
Employee participation and management participation
Participation programmes for employees and managers are becoming increasingly important. We can provide advice from the perspectives of employers and employees.
Definition of employee participation and management participation
What exactly are participation programmes for employees or managers?
The term “employee participation” is the generic term for all forms of employee participation programmes at companies and covers both contractual (e.g. phantom shares or profit participation rights) and funded forms of participation (acquisition of shares in the employer company). Management participation – also known as MPPs (management participation programmes) or MEPPs (management equity participation programmes) – is typically used in the context of private equity investments and generally refers to an equity investment.
Employee participation and management participation: For employers
Do you want to be an appealing employer for your employees and managers by meeting international standards? Then you cannot afford to ignore employee/management participation programmes, as these solutions are increasingly popular with employers and employees alike. Policymakers have recently recognised the importance of employee equity participation programmes and have decided to foster them more.
There are two distinct phases during implementation:
Planning phase
There are many different types of employee and management participation programmes. Finding the right type of participation for your goals and circumstances is therefore the top priority of a good legal advisor during the planning phase. Thanks to our specialist expertise, we can guide you every step of the way in developing the best participation model for you.
As an employer, you need to ask yourself the following questions to find the employee participation program that is right for you:
- How many employees would you like to offer an employee participation programme?
- What level of management do these employees belong to?
- Should these employees have influence over the company under corporate law? If so, to what extent?
- What impact should the participation have on your company’s balance sheet (equity interest? debt capital? hybrid forms of participation?)?
- What (tax) risks are associated with the various forms of participation?
Answering any of the above questions will involve choosing or rejecting a particular type of participation. We can guide you confidently through this process to help you find the type of participation for you.
Implementation phase
Once a decision has been made in favour of a particular type of participation, it is important to establish it within the company.
Depending on whether you have chosen a contractual or funded form of participation, different steps are required.
- In the case of a contractual participation, e.g. a phantom share programme, a contract must be drafted and then signed.
- In the case of a funded participation, the corporate structure for employee participation must be implemented. This may also require changes to the capital structure of the employer company.
In addition, we can design your employee/management participation programme with tax matters in mind. The (income) tax implications of employee participation programmes must be examined and considered both when setting up a structure and distributing income – and, if necessary, when winding up the structure. In many cases, it is also advisable to clarify the tax treatment of an employee participation with the tax authorities; in Germany, for instance, by means of an income-tax ruling issued by the Finanzamt to employers upon request [Lohnsteueranrufungsauskunft]). We do this in advance to prevent any surprises.
Employee and management participation: For employees and the self-employed
Has your employer offered you an employee or management participation scheme? Would you like a straightforward explanation of a complicated contract?
You can count on our years of experience in this field. We will guide you through the proposed contract, explain the meaning and implications of the clauses and, if necessary, suggest further structuring options and courses of action.
We will also address any tax implications of the participation scheme. Particularly in the case of an equity investment, you may be liable to income tax on both the acquisition of the participation and the inflow of income from the participation, as equity investments are not necessarily taxed as income from capital assets. It instead depends on the structure of the participation in each individual case. We will take care of that for you.
Employee and management participation: Taxation
We can assist you as an employer, employee or independent consultant in all tax proceedings or disputes that may arise from the conclusion of an employee/management participation agreement. This includes in particular:
- For employers: Obtaining a binding assessment (verbindliche Auskunft) or an income tax ruling issued to employers upon request (Lohnsteueranrufungsauskunft) before setting up and implementing an employee/management participation scheme or before distributing income to employees.
- For employees and the self-employed: Helping you to correctly declare your tax situation as part of your annual tax return. We would naturally be happy to work with your tax advisor.
- Providing guidance during tax audits
- Conducting appeals and proceedings in tax court
