Profit participation right

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Participation rights (English participation rights , participation certificates , non-voting equity securities ) are at emitting companies for mezzanine capital and financial instruments , as the law of obligations established funds with member have shaft typical property rights. As a form of investment, they are accordingly a mixture of shares and bonds .


Participation rights include such subordinated loan (English junior debt ), silence societies (English silent partnership ) and hybrid bonds (English hybrid bond ) for mezzanine capital, a hybrid of equity and debt . Participants are the investor (profit participation rights holder) and the issuing company as the borrower. As capital participation rights of the issuing company employees come under the employee share ownership , other individuals or institutional investors in question. All companies capable of issuing capital are borrowers.


Profit participation rights are a German construction. Taxation of profit participation rights in Germany was contested in November 1881, but in July 1882 a taxation similar to that of shares was established. The Reichsstempelgesetz of April 27, 1894 determined a tax liability for "profit participation certificates and similar securities entitling to a share in the profit of a stock corporation". The Reichsgericht dealt with this for the first time in its judgment of December 3, 1888, and defined profit participation certificates as “the change in the share rights embodied in the share as stipulated in the statutes and required by the drawing of the relevant share”. As early as 1898, Viktor Klemperer von Klemenau published a pioneering dissertation on the legal nature of participation certificates .

If in 1924 the shareholder of a stock corporation , limited partnership with shares or GmbH obtained a payment claim due to the conversion of his company to gold stocks , this was converted upon application into a claim to bearer participation certificates. Here there was the first legal definition: "The participation certificates grant no voting rights, but a corresponding share of the company's net profit and, in the event of the company's dissolution, a claim with regard to the company's assets to be distributed" (§ 12 sentence 2 Gold Balance Regulation). The revaluation law of July 16, 1925, triggered by the hyperinflation , granted the existing shareholders a profit participation right to compensate for the currency decline. The AktG of January 30, 1937 took up profit participation rights in Section 128 (2) No. 5, which was adopted in Section 221 of today's AktG in 1965 . In 1980, Bertelsmann AG was the first company to issue profit participation rights to employees; in December 1983, they were included in the first asset formation act as an investment form. On December 20, 1984, it was recognized for the first time as liable equity capital by credit institutions , followed by the insurance industry in December 1986.

Legal issues

The basics of profit participation rights can be found in the law of obligations . In addition, they are mentioned in commercial and company law (e.g. Section 221 (3) AktG), but there is no legal definition . The legislature wanted to give those involved the freedom to shape private law. Because of their contractual nature, profit participation certificates can be structured very differently in terms of content. In addition, tax law deals with the tax treatment of profit participation rights.

To increase the fungibility of profit participation rights, they can be securitized as profit participation certificates . Depending on the type of securitization, a distinction is made between bearer , order and registered papers or non-securitized participation rights.

civil right

A profit participation right is a purely contractual capital transfer relationship. With the conclusion of the profit participation contract, the Unitholder obliged the participation rights issuers to provide the profit participation capital. In return, the holder of the profit participation rights is granted property rights to which shareholders of the issuer are usually also entitled, such as B. a profit-related remuneration, a participation in the liquidation proceeds or option rights . However, it is not possible to provide administrative rights, in particular voting rights.

Profit participation rights are a form of participation that is only possible in Germany, Austria and Switzerland (here: participation capital). In these legal systems, the existence of profit participation rights as a form of participation is assumed (especially in tax law), but the possible content of profit participation rights conditions is not expressly regulated. Other legal systems do not know the form of participation right. Even with a choice of law in the conditions of participation - which always only shows effects in the internal relationship between the company and investors - the external relationship with the company's other creditors is always assessed according to national law.

Profit participation agreement

The term of the participation right participation can be regulated differently. Either a fixed termination date is chosen or a minimum term in the sense of a notice exclusion period. (Exception: accumulating profit participation rights, intervention by loss sharing).

The investor always participates in the company's results within the framework of a participation right. The reference value for the calculation of profit sharing can be either the annual result (annual surplus / annual deficit) or the balance sheet result (balance sheet profit / balance sheet loss). The profit sharing has a direct impact on the distributions to the investor and on the amount of the repayment amount.

The profit participation right conditions regulate under what conditions and in what amount distributions are made (so-called profit sharing). Usually, distributions on profit participation capital require a sufficient annual surplus or a balance sheet profit. If this requirement is not met, no distribution will be made for the financial year. It is common, however, for profit participation rights creditors to claim back payment for failed coupons from profits in subsequent years.

Loss sharing is an essential feature of profit participation rights. This loss sharing also serves as a criterion to distinguish it from other forms of participation such as a profit participation loan . Loss sharing regulates how any annual deficit / balance sheet loss is to be borne by profit participation capital. If the company generates an annual deficit in a financial year or shows a balance sheet loss, the profit participation capital participates in this loss in accordance with the conditions, usually in the same proportion as the total loss-bearing equity. The loss share determined in this way is deducted from the profit participation capital shown in the balance sheet. If positive annual results are generated in the following years, these must first be used to replenish the repayment claims of the profit participation capital or the book value. If, after a loss sharing, the profits of the following years are not sufficient to compensate / replenish the loss to be borne by the profit participation capital, the investor will not get back the full amount of the capital made available at the final maturity.


At least the following main criteria are regulated in the profit participation agreement. These ultimately decide on the allocation of profit participation rights to equity or debt capital of the issuing company.

  • Loss sharing: The holder of profit participation rights can participate in the current loss of the issuing company as well as in any liquidation loss. These losses are offset against the nominal value of the profit participation capital.
  • Profit dependency: The profit participation capital can be dependent on the current profit situation of the borrower, whereby the annual surplus is the benchmark. Like the dividend, remuneration from this can be distributed to the holder of profit participation rights.
  • Sustainability of the transfer of capital : Profit participation capital should be permanently available to the capital-taking company. This is also the case with real equity, because this may not be repaid outside of a liquidation . Nevertheless, maturities are common for profit participation capital. A distinction must be made as to whether the lender's repayment claim is possible before or only in the context of the liquidation of the borrower. There is only an unlimited term for repayment claims in the context of liquidation. Limited terms weaken the equity character, as does a right of termination for the profit-sharing right holder.
  • Subordination : A subordinated profit participation capital may favor the real creditors and / or until the occurrence of liquidation / bankruptcy of the capital transferee are pronounced. This expresses the equity character of profit participation capital.

Given the large number of design options, it must be checked whether the issuer assumes an obligation to repay ( puttable instruments ) or whether profit participation rights are only given a right of termination by the issuer. A conditional repayment obligation only upon liquidation leads to the classification as equity, an unconditional one is to be shown as outside capital.

Commercial and corporate law

In commercial and accounting law, according to the prevailing opinion, the material definition of equity (function of capital) and not the form of transfer under civil law (formal definition of equity) is decisive. Since the holder of profit participation rights does not have a stake in the subscribed capital of the issuing company, there is no membership. If all of the criteria required to qualify as equity are met, the profit participation capital is recognized in equity with the amount received. In application of Section 265 (5) of the German Commercial Code (HGB), this is shown in a separate item within the balance sheet item “Equity” ( Section 266 (3) A of the HGB). Participation rights capital with debt capital character is to be recognized as " liabilities " with the sub-heading "Participation rights capital" according to Section 266 (3) C HGB .

Profit participation rights are generally classified as liabilities on the balance sheet according to IAS 32.11 if there is a repayment obligation. They are therefore debt capital in accordance with IAS 32.16 (a) and 32.17. As an exception, they can be shown as equity if they come close to the preference shares, do not contain a repayment agreement ( perpetual ) and do not include the investor's right of termination.

banks and insurance companies

In the case of insurance ( Section 214 (1), (2) and (4) VAG), profit participation rights can be recognized as regulatory equity if certain arrangements are made. The following characteristics are required:

  • Full participation in losses and suspension of interest payments in the event of a loss
  • A subordination agreement
  • A minimum term of 5 years that cannot be canceled by the holder of profit participation rights
  • Compliance with certain obligations to provide evidence.

In the case of credit institutions, in addition to these requirements according to Section 10 (5) and (6) sentence 1 no. 6 KWG old version, the profit participation capital may not contain any recovery agreements, according to which the redemption claim reduced by losses through profits that arise after the repayment claim is due is replenished (see own funds (credit institution) ).

Tax law

According to section 8 (3) sentence 2 of the KStG , the profit participation rights are part of the issuer's corporate income tax profit if the profit participation right grants a participation in the profit and liquidation proceeds of the issuer. In this case, so-called societal participation rights exist. If no participation in the profit and / or no participation in the liquidation proceeds is granted, the issuer's remuneration can be deducted from the corporate income tax assessment basis. If the profit participation rights are structured in this way, they are referred to as obligation- like participation rights.

Economic equity

If the profit participation capital has to be formally accounted for as outside capital, classification as economic equity can be considered for rating purposes by the company taking the capital . International rating agencies recognize hybrid forms of financing such as profit participation rights in whole or in part as economic equity . It is assumed that there is a long term and / or a high share of losses. The assignment of profit participation rights to equity or debt capital sends out a signal to the external addressees of the annual financial statements . The higher the risk taken by the holder of the profit participation right, the greater the equity character of the profit participation capital and vice versa. If the profit participation right has a term of at least 5 years, the economic equity character of the profit participation capital can be assumed. A longer term increases the character as economic equity.

Individual evidence

  1. ^ Klaus Luttermann, Enterprise, Capital and Profit Participation Rights , 1998, p. 53 f.
  2. ^ Reichsgericht, judgment of December 3, 1888, Az .: IV 215/88, JW 1889, 47.
  3. § 12 sentence 1 Gold Balance Regulation of March 28, 1924.
  4. Michael Lühn: Accounting and Taxation of Profit Participation Rights , 2006, p. 87.
  5. Michael Lühn: Accounting and Taxation of Profit Participation Rights , 2006, p. 88 f.
  6. Michael Lühn: Accounting and Taxation of Profit Participation Rights , 2006, p. 48.
  7. Ulrike L. Dürr: Mezzanine capital in HGB and IFRS accounting , 2007, p. 264 ff.
  8. Michael Lühn: Accounting and Taxation of Profit Participation Rights , 2006, p. 82.
  9. Michael Lühn: Accounting and Taxation of Profit Participation Rights , 2006, p. 38.
  10. a b HFA of IDW 1/1994, on the treatment of profit participation rights in the annual financial statements of corporations , pp. 420–421.
  11. Christian Bächer: Accounting for mezzanine capital according to HGB, IFRS and US-GAAP , 2009, p. 56.
  12. Peter Seetaler, Markus Steitz: Praxishandbuch Treasury Management , 2007, p. 267 f.
  13. ^ Fitch Ratings: German Participation Rights - Structures and the Credit Impact for Corporate Issuers , May 10, 2005, p. 5.