This glossary defines the equity, cap table, and tax terms a German founder or CFO actually meets when setting up incentives and managing ownership, framed for a GmbH rather than the US or UK. It covers the three instruments (VSOP, ESOP, and the §19a-qualifying EIP), the cap table and valuation terms around them, the §19a tax vocabulary, and the governance and exit terms that decide what equity is finally worth. Each term links to a deeper page where there is one.
Most equity glossaries online are written for a US or UK reader: they lead with 409A valuations, EMI options, and RSUs, none of which is the German frame. The terms below are the ones that matter for a German GmbH, with the German-law vocabulary (Gesellschafterliste, §19a EStG, Genussrechte) defined plainly. Use it as a map: skim the section you need, follow the link for the full treatment. Where a term has tax consequences, the definition stays high-level and points to the dedicated tax pages, which carry the precise figures and are refreshed quarterly.
Employee equity and incentive scheme terms
Employee equity. Any arrangement that gives employees a financial stake in the company's success, whether through real shares or a contractual claim that pays out like shares. In Germany the three common forms are the VSOP, the ESOP, and the §19a-qualifying EIP. See what is employee equity and why offer it.
VSOP (Virtual Stock Option Program). A purely contractual arrangement: the employee gets no real shares, only a right to a cash payment that mirrors what a shareholder would receive, usually at an exit. It is the dominant German model because it avoids granting corporate-law rights and needs no notarization. The payout is taxed as employment income. See VSOP vs ESOP vs EIP.
ESOP (Employee Stock Option Program). An option program: a contractual right to acquire shares later at a set price, typically exercisable at an exit. In German practice ESOPs are commonly cash-settled, so the employee often never holds real shares, which makes the ESOP closer to a VSOP than to genuine ownership. Like a VSOP, the payout is employment income. See VSOP vs ESOP vs EIP.
EIP (Employee Incentive Program). GAIA's term for a real-share plan structured to qualify for §19a deferral, the only one of the three that is genuine ownership. Real shares are issued, usually up front and usually with employees pooled in a separate entity so they sit off the company's cap table. Because the employee owns real shares, the later growth can be taxed as a capital gain rather than as salary. See how employee equity is taxed in Germany.
Phantom shares (virtual shares). Another name for the contractual, cash-settled claims that sit behind a VSOP. They track share value without conferring ownership, voting, or information rights. See phantom, virtual shares, and stock options explained.
Stock options. A right to buy shares at a fixed price within set conditions. In the German employee context, "options" usually means an ESOP, and they are frequently settled in cash rather than in shares. See phantom, virtual shares, and stock options explained.
Strike price (exercise price). The fixed price at which an option holder can acquire shares. For real-share plans the relationship between the strike price and the shares' fair value matters, because issuing shares below fair value can trigger an early social-security charge. See VSOP vs ESOP vs EIP.
Hurdle shares (growth shares). Real shares issued with a hurdle, a threshold the company must exceed before the shares share in value, so the holder participates only in future growth. They are one way to give real equity while limiting the value taxed up front. See hurdle shares in Germany.
Profit participation rights (Genussrechte). A contractual instrument giving the holder payment claims, for example on an exit, without share ownership. They are one of the two design models for an EIP and are mostly a German and European construct. See profit participation rights as an incentive.
Option pool (ESOP pool). The portion of the company set aside for employee equity, expressed as a percentage of the cap table. Pool size is a benchmark question that interacts with dilution and fundraising. See how big should your equity pool be.
Cap table terms
Cap table (capitalization table). The record of who owns what in a company: shares, ownership percentages, and the instruments that convert into shares. Keeping it accurate is the foundation of fundraising, exits, and equity administration. See cap table management for German startups.
Fully-diluted cap table. The ownership picture assuming every outstanding instrument (options, convertibles, the pool) has converted into shares. For a German company this, not "who owns what" on the register, is the real gap, because the notarized shareholder list already records legal ownership. See cap table management for German startups.
Dilution. The reduction in existing holders' ownership percentage when new shares are issued, for example in a funding round or when the option pool is topped up. Dilution is not automatically bad; it depends on what the new capital buys. See what is dilution.
Gesellschafterliste (shareholder list). The official list of a GmbH's shareholders filed at the commercial register; share transfers update it through a notary. Because it is authoritative, the German pain point is rarely "who owns what" but the fully-diluted view including incentive grants. See cap table management for German startups.
Company valuation. The assessed value of the company used to price shares and grants. Germany does not use the US 409A regime; valuations follow German methods, which matters for setting the entry value of a real-share plan. See company valuation for employee equity in Germany.
409A valuation. The US-specific independent valuation used to set option strike prices. It is often bundled into US-centric software but is not the German frame, so a German company can pay for workflows it does not use. See company valuation for employee equity in Germany.
Equity management software (cap table software). Tools that maintain the cap table, model scenarios, and administer grants. The European buying questions are the pricing model, data residency, and whether legal and governance work sits inside the platform or outside it. See how to choose equity management software in Europe.
GmbH (Gesellschaft mit beschränkter Haftung). The German limited liability company and the most common startup form. Its share transfers require notarial form, which shapes how cap tables, grants, and EIPs are administered. See cap table management for German startups.
EIP and §19a terms
§19a EStG. The provision of the German Income Tax Act, expanded by the ZuFinG, that lets qualifying startups defer the income tax an employee would otherwise owe when they receive real shares. It is the mechanism that makes genuine-share plans (EIPs) workable. See how employee equity is taxed in Germany.
ZuFinG (Zukunftsfinanzierungsgesetz). The Future Financing Act that rewrote Germany's employee-equity tax rules, broadening §19a from 2024. Most older online guidance describes the pre-ZuFinG position. See how employee equity is taxed in Germany.
Dry income (Dry-Income-Problematik). The problem that transferring real shares creates a taxable benefit at the moment of transfer, even though the employee receives no cash to pay the tax. §19a addresses it by deferring that tax. See the dry income problem explained.
Entry value (Einstiegswert). The value of the shares at grant under a §19a plan, taxed as employment income but deferred. The later growth on the shares is taxed separately as capital income. See how employee equity is taxed in Germany.
Deferral (Aufschub). The postponement of the income tax on the entry value under §19a; it is a deferral, not a permanent exemption. The tax falls due at a later trigger such as a sale, with the full mechanics on the dedicated pages. See §19a eligibility: does your company qualify.
§3 Nr. 39 EStG allowance. A separate annual tax-free allowance for broad-based employee capital participation, distinct from the §19a deferral and able to work alongside it. See how employee equity is taxed in Germany.
Beitragsbemessungsgrenze (social-security ceiling). The income ceiling up to which social-security contributions apply. It matters for real-share plans because contributions on the entry value can fall due at transfer even while income tax is deferred. See how employee equity is taxed in Germany.
Konzernklausel (group clause). The rule, added via the Annual Tax Act 2024, that lets shares in an affiliated group company qualify for §19a, not only those of the direct employer. See §19a eligibility: does your company qualify.
KG-Modell. One of the two EIP design models: employees are pooled in a limited partnership (KG) that holds the actual shares and is managed by the founders. It keeps employees off the direct cap table while giving them real ownership. See VSOP vs ESOP vs EIP.
Governance terms
Vesting. The process by which an employee earns their equity over time, so that leaving early forfeits the unvested portion. See what is vesting and what is a cliff.
Cliff. An initial period, commonly one year, before any equity vests at all; leave before the cliff and you keep nothing. After the cliff, vesting usually continues incrementally. See what is vesting and what is a cliff.
Leaver clauses (good leaver, bad leaver). Terms that set what happens to a departing employee's equity depending on how they leave. In Germany these are subject to general-terms control, so a poorly drafted clause can be struck down regardless of what both sides signed. See vesting cliffs and leaver clauses in German plans.
Reverse vesting (founder vesting). Where founders' already-held shares are subject to forfeiture if they leave early, protecting the company and the remaining co-founders. See founder vesting and reverse vesting in German startups.
Shareholder resolution. A formal decision by the company's shareholders, for example to issue shares or approve a plan. Managing resolutions and their version history is part of the governance layer around the cap table. See cap table software with built-in legal and contract management.
Drag-along and tag-along rights. Drag-along lets majority holders compel minority holders to join a sale; tag-along lets minority holders join a sale on the same terms. Both are standard shareholders'-agreement protections that shape what happens at an exit.
Fundraising and exit terms
Exit (liquidity event). The event, usually a trade sale or an IPO, at which equity converts to cash or tradable shares. Most VSOPs and ESOPs are built to pay out only at an exit. See what is an exit and what counts as a liquidity event.
Liquidation preference. A term giving certain investors the right to be paid back first, ahead of common shareholders, when the company is sold. It can sharply change what employees and founders actually receive at a modest exit. See what is a liquidation preference.
Secondary sale. The sale of existing shares, by a founder, employee, or early investor, before a company-wide exit, providing liquidity without the company raising new capital. See secondary sales: selling equity before an exit.
Down round. A funding round priced below the previous round's valuation, which dilutes existing holders more sharply and can interact painfully with liquidation preferences and the option pool. See down rounds and what they do to your cap table and ESOP.
Convertible loan (Wandeldarlehen). A loan that converts into shares at a later round rather than being repaid in cash, common in early German financing. See understanding convertible loans.
Acceleration. A clause that vests some or all unvested equity early on a trigger such as an exit, so employees benefit from a sale even if they are not fully vested. See what happens to your VSOPs and ESOPs at an exit.
FAQ
What is the difference between a VSOP, an ESOP, and an EIP in Germany?
A VSOP is a contractual cash claim, an ESOP is an option to acquire shares (commonly cash-settled in Germany), and an EIP is a real-share plan structured under §19a. The first two are taxed as employment income because they are compensation; the EIP is genuine ownership, so its growth can be taxed as a capital gain.
Why does this glossary not lead with 409A valuations or EMI options?
Because those are US and UK constructs. A German GmbH values shares under German methods, not the 409A regime, and uses VSOPs, genuine-share ESOPs, and §19a EIPs rather than EMI or RSUs. Defining the right vocabulary is the point of a German-framed glossary.
Which term here is most specific to Germany?
The Gesellschafterliste, the notarized shareholder list filed at the commercial register. Because it authoritatively records legal ownership, the real German cap table gap is the fully-diluted picture (the register plus outstanding incentive grants), not 'who owns what.'
Do the tax terms here give exact rates?
No, deliberately. Tax treatment depends on the instrument and on personal circumstances, and the rates are refreshed periodically, so the entries stay qualitative and link to how employee equity is taxed in Germany and §19a eligibility, which carry the precise figures.
