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With profit participation rights, investors benefit from the profit (annual surplus) of a company with a share calculated from the amount invested. This type of investment is similar to an entrepreneurial participation.
The profit participation right grants the investor a claim to participate in the profit (annual net profit) of the company with a percentage that is calculated based on the amount that was invested. The subscribed profit participation capital also participates in any loss (net loss for the year) up to the full amount with the calculated percentage.
In accordance with regulatory regulations, all profit participation rights brokered via Invesdor receive a so-called qualified subordination. This means that investors have no claim to payment of remuneration (share in the company's annual net profit) or repayment of the invested sum insofar and as long as the company has negative equity or this would cause the company to become insolvent.
If insolvency proceedings are opened against the assets of the company during the term of the loan, you will receive your outstanding remuneration payment and the invested sum only after all other creditors whose claims are not correspondingly subordinated have been served, but before the claims of the shareholders.
The profit participation right therefore has the character of an entrepreneurial investment, whereby profit participation rights only grant profit rights and no corporate rights, such as participation, co-determination and voting rights in the company's shareholders' meetings.
Investors must be aware that, in the worst case, this can result in the total loss of the investment. Before making any investment, investors should carefully consider how likely they think the risk of insolvency is for the company.
The company's shareholders would like to raise profit participation capital to promote future growth. In return, they are willing to cede a certain percentage of the annual net profit, depending on its amount in previous years and the target figures, to the future investors.
Example: For €1,000,000 in profit participation capital, the investors receive 5 % of the company's annual net profit each year.
After reviewing the documentation, you decide to invest and benefit from the future growth of the company. To do this, you select the amount as perusual and you see what percentage of the annual net profit you are entitled to as a result of the investment.
Example: For an investment of €5,000, you will receive 0.025 % of the company's annual net profit every year in the future.
After the company has prepared its annual financial statements and the annual net profit has been determined, you will receive your share directly from the company into your account.
Example: In the past business year, the company achieved an annual net profit of €2,500,000. As a result of your investment, you are entitled to €625, which will be transferred to your account on the payout date. This leads to a return of 12.5 %.
The so-called profit participation capital offered on Invesdor is real equity for companies, which is also shown as such in their balance sheet. Companies use this type of financing as an innovative part of their financing structure. This long-term, unsecured financing strengthens their balance sheet structure and thus forms the basis for further growth.
Unlike a subordinated loan with a fixed term, as a holder of profit participation rights you do not receive fixed interest during the term of your profit participation right. Investors who provide companies with profit participation capital receive a share in the company's profits and usually expect an average annual return of around 10% or more. Since the return depends on the succes of the company, this will fluctuate during the term of the profit participation, depending on the level of annual profit, and can thus be lower or higher than the expected average return for the respective financial year of the company. In years in which the company does not generate profits, the profit participation right also participates in the annual loss of the company, up to a maximum of the amount of the profit participation right capital granted. However, there is no obligation on the part of the profit participation right holder to make additional contributions. In future profit years, a possible loss incurred earlier will be compensated by profit shares before the distribution of a remuneration.
You can find more questions and answers about profit participation rights in our support centre.
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Marko Müller
Senior Customer Success Manager
DE | EN
Sebastian Kutschker
Customer Support
DE | EN