Profit participation rights

Profit participation rights are purely contractual participations in a company, with which the investor participates in the profit and also in the loss of the company. The holder of profit participation rights is not a shareholder of the company and as a rule does not have any membership rights. This means that they have no voting rights at the general meeting/shareholders’ meeting and no right to participate in the meetings.

Profit participation rights are not defined by law and are therefore largely free to be structured and negotiated. They can be structured similar to debt capital by agreeing on a minimum interest rate independent of the company’s profit. By contrast, profit participation rights are similar to equity capital in that they grant a share in profits and/or liquidation proceeds that is dependent on the company’s success. Profit participation rights can be issued by all types of companies. In the case of stock corporations, however, the approval of the shareholders’ meeting is required.

If profit participation rights are offered to the public, a sales prospectus is required, which must be filed with BaFin. The distribution requires a licence according to Section 34f of the Trade, Commerce and Industry Regulation Act (GewO).

Profit participation rights that are securitised are referred to as profit participation certificates. Profit participation certificates can only be offered to the public with a securities prospectus. The sale of profit participation certificates requires a licence pursuant to the German Banking Act (KWG). A licence according to Section 34f GewO is not sufficient.