If you want to invest in a GmbH as an investor, you can choose different procedures. On the one hand, this is possible through a direct participation in the capital of the GmbH. The way there leads to a capital increase, which the GmbH shareholders must decide beforehand. Alternatively, profit participation rights or profit participation certificates, designed in the way they are often issued by public limited liability companies, are conceivable. This allows GmbH shareholders to retain control of the GmbH. You can also invest in a GmbH with mezzanine capital, but as an investor you either only get a share in the current or in the sale or liquidation profit. A fourth variant is the shareholder loan. This creates a silent society.

Anyone interested in investing in a GmbH can follow different paths to achieve this goal. Of course, this is usually always to be sought in agreement with the respective GmbH shareholders. But also from their point of view, the different options to invest in a GmbH offer very diverse possibilities, including advantages and risks. Therefore, the joint discussion and the consideration of all options in advance of an investment in a GmbH is very important.

For this reason, in this article we present you four options on how to invest in a GmbH. Here you will also find out which tax and company law aspects can be met in each case.

The first option we look at is probably the most common one, namely the investment of an operational investor. Often such an investor is also a GmbH. It is very likely that it is even set up as a holding company and would like to invest part of its profits in a profit-oriented manner. Of course, there may also be other reasons why an operating investor would like to invest capital in a GmbH.

The investment usually takes place by way of a capital increase. For this purpose, the GmbH shareholders decide that the share capital of their GmbH is increased. Now such a capital increase means that at the same time the number of shares increases – for each additional euro by another share. Normally, in the event of a capital increase, the GmbH shareholders pay in the additional capital. In this way, for example, you can provide the GmbH with more liquidity or vary the distribution of shares. In this case, however, the capital increase serves to add another GmbH shareholder (in the form of the operating investor).

But this also goes hand in hand with a redesign of the participation relationships. Finally, the investor receives new shares for his invested capital. In addition, each share of the GmbH also means voting rights. For this reason, the capital increase by taking in an investor is also associated with a risk for the existing GmbH shareholders. Because now you have to agree with another partner about matters of the GmbH. In addition, the dilution of the participation of the original GmbH shareholders means that they are now entitled to a smaller share of the profit on an exit than before the acquisition of the investor. You have to share any profit with him.

Having presented the investment in a GmbH directly, we now consider three indirect methods to invest in a GmbH. The first alternative we describe in this chapter can be differentiated further, but in the end it works in the same way.

profit participation rights are contractually agreed investments in a corporation for which capital is contributed in return as an investor. They are regulated by law in § 221 AktG, but also apply with regard to other corporations.

Basically, they are hardly distinguishable from direct participation. However, these participation relationships can be designed in such a way that an investor only has certain rights. So there is freedom of contract here. For example, one can thus restrict or even exclude the voting rights of an investor. In this way, the GmbH shareholders circumvent the risk lurking in the direct investment of another voting party at the GmbH shareholders’ meeting. Especially in the case of family businesses, which attach importance to the fact that only the family members involved in the company make the decisions about the GmbH, this can be a way to involve investors in the GmbH.

For investors, such agreements mean that they pay capital into a GmbH and are thus civilly involved in it. The consideration they receive for this, however, is exclusively a participation in the success of the GmbH, but without having a say. In other words, they are only entitled to a profit share. This involves a participation in both the current profit and the profit in a sale or liquidation of the GmbH.

If you are willing to invest in a GmbH via profit participation rights, you should regulate in advance how the profit distribution should take place as an investor with the GmbH shareholders. However, the big advantage for investors in profit participation rights is a tax one. Because a participation via profit participation rights is civilly equivalent to ordinary participation, taxation also takes place in the same way. So if you invest as a holding company in this way in a GmbH, then you pay only 1.5% tax on the dividend with a shareholding ratio of 15%.

All that you have just read about granting profit participation rights also applies 1:1 for issuing profit participation certificates. The only difference here is that profit participation certificates document profit participation rights. As a rule, however, the issuance of profit participation certificates is carried out by public limited companies, distinguishing between bearer, registered and order securities. In addition, the resolution on the issue of profit participation certificates requires a 3⁄4 majority of the shareholder votes in the shareholders' meeting.

Another form of investment in a GmbH provides for the provision of mezzanine capital. Mezzanine capital is a financial instrument with both equity and debt characteristics. It can even invite investors to invest in a GmbH in the form of appropriately designed profit participation certificates.

This means that the GmbH, if the conditions are appropriate, receives mezzanine capital from investors and can deduct the consideration as interest expense for tax purposes. For investors, however, this means, conversely, that despite the share of capital, which can be regarded at least partially as equity, the profit participation rights in relation to corporate and business tax have to be taxed quite regularly. Thus, a box participation is excluded, but in the event of possible losses of the GmbH, the investors can also use it for tax purposes in their own assessment; In the case of pure equity investments, however, this is excluded.

How do you get to invest mezzanine capital in a GmbH? Basically, you only have to eliminate one of two variables that create equity in your interaction contractually. Thus, the GmbH shareholders agree with the investor that either only a profit share or a participation in the sales or liquidation proceeds for the provided mezzanine capital is granted. In practice, however, agreements on the distribution of shares in the current profit of the GmbH prevail.

A further advantage for the GmbH shareholders is that this is also possible without providing sufficient collateral. However, this also means that investors expect a better ratio in return for this increased risk. However, since mezzanine capital also has characteristics of equity, in the event of insolvency a subordinated satisfaction vis-à-vis mere external investors is to be expected.

If we now talk about the possibility of investing in a GmbH as an investor with a shareholder loan, then we have achieved the variant in which the capital has the lowest characteristics of equity.

Basically, this is a special form of mezzanine capital, because investors can only expect shares in the current profit for a shareholder loan. Thus, participation in the sales or liquidation profit of a shareholder loan is excluded.

Therefore, it should hardly be surprising that our regular readers notice the similarity to a typically silent society. Another term for a shareholder loan is the participatory loan. In fact, this technical term best reflects the participation character of such an investment, because it is purely profit-oriented.

Therefore, as an investor in a shareholder loan you can agree with the GmbH shareholders that you are excluded from a possible participation in any losses. However, a shareholder loan for investors also means that they will be paid out subordinated in the event of insolvency of the GmbH vis-à-vis other financiers who have provided pure outside capital.

You’re probably wondering which of the previously described options is the most advantageous. However, this question cannot be answered in general terms. Too diverse are the possibilities, but also the respective ideas of the GmbH shareholders and investors in practice. Due to this situational dependence, one must always weigh the respective advantages and risks. Sometimes the right decision even leads to tax advantages for both parties, although these are rather small, for example, in the case of a difference in the trade tax rates at the GmbH and its investor.

But it is also clear that these can at best be secondary advantages, because the real interest in an investment in a GmbH is on the one hand the availability of the additional capital and on the other hand the appropriate consideration. Therefore, both GmbH shareholders and potential investors should thoroughly exchange their goals and then decide which option is probably the most favorable for all participants. Because if you want to invest in a GmbH, then this is only crowned with success if everyone benefits from it.