OLNS#8: ESOPs, VSOPs & Co – Structuring / Taxes / Practical Issues (Revised & Updated Edition)

German version  

Employee ownership (sometimes also called "employee participation") plays a critical role in attracting and retaining top talent for fledgling young companies and aspiring growth companies alike. Stock options and similar structures, reward employees for taking the risk of joining a company in a high‑risk and rapidly evolving environment and give them a stake in their company's future success. For start‑ups, giving "equity" is one of the main levers to recruit the top talent they need—because let's face it, they can't compete with the salaries or job security that more established players provide.

But here's the key: employee equity isn't just about getting people in the door—it's about keeping them inspired and committed for the long haul. Allow one of the more seasoned authors among us to make a metaphor: Employee ownership is like a marriage. Granting stock options is the fun and easy part—like getting married. But designing and implementing a scheme that keeps your best people engaged year after year (i.e., staying married, or even better: staying happily married)—that's where the real work (and reward) lies. In today's hyper‑competitive start‑up and tech landscape—especially in fields like AI and deep tech—retaining top talent can sometimes be an Olympic‑level challenge.

While employee ownership programs have been around for quite some time, the ground is shifting for them and their design and implementation requires constant monitoring and, where necessary, adjustment. Across Europe, and particularly in Germany, founders and investors now have new tools at their disposal and a mindset that increasingly values employee equity as a strategic asset.

Drawing on our experience with thousands of start‑ups worldwide and dozens of founders and investors we interviewed for this guide, OLNS#8:

• helps founders, and their investors, better understand what employee ownership is, why it matters, and how to implement it effectively
• lays the foundation for navigating the equity maze by explaining equity‑based and virtual programs, covering all‑important questions of smart implementation, tax treatment, and governance
• offers practical guidance on challenges German start‑ups face—like using employee ownership programs for international hires or making a U.S. employee ownership program work in a tax efficient way for German employees, and
• points out what to keep in mind when employee ownership programs intersect with financing rounds or M&A transactions.

In preparing the second, revised and expanded 2025/26 edition of OLNS#8, our cross-functional Orrick team again drew on experience representing more than 4,500 tech companies and 100+ unicorns as well as the most active funds, corporate ventures and public tech companies worldwide. Founded in the Bay Area, Orrick is one of the world’s leading technology law firms and advises on more venture transactions in Europe than any other law firm for nine consecutive years (PitchBook, FY 2024).

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