VSOPs (Virtual Stock Options)(VSOPs)

Also called: Virtual Shares, Phantom Stock, Virtual Stock Option Plan

TL;DR

Cash-settled phantom-share grants used by German GmbHs to give employees economic equity exposure without notarisation costs of issuing real shares.

Because every German GmbH share transfer must be notarised, adding €1 to 5k of friction per cap-table event, German startups overwhelmingly use Virtual Stock Options (VSOPs) instead of real share grants for employee equity. A VSOP is a contractual cash payment, owed by the company on a liquidity event, sized as if the employee had owned X virtual shares with strike price Y.

VSOPs are simpler to administer (no notary, no Handelsregister update) but tax-disadvantaged versus US ISOs or UK EMIs: the proceeds are taxed as ordinary income (up to 47.5% including church tax and solidarity surcharge) rather than as capital gains. The 2021 Fondsstandortgesetz reforms partly bridged the gap by deferring taxation until the actual cash payout, but VSOPs remain materially worse than EMIs/ISOs and are a recurring talent-attraction pain point for German startups.

Worked example

A Berlin SaaS GmbH grants a senior engineer 1,000 VSOPs at a €5 strike. On a €30M exit at €50/share, the gross VSOP payout is €45,000 (1,000 × €45), paid by the company as ordinary salary, leaving the employee ~€23,600 net of income tax + solidarity surcharge.

Common pitfalls

•Comparing VSOP economics to US ISO economics without modelling the 47.5% tax wedge.
•Neglecting to specify good-leaver/bad-leaver clauses precisely, German labour law fills the gap if you don't.
•Failing to cap the company's eventual VSOP cash outflow on exit, surprising acquirers in the buy-side model.

When this shows up in a pitch deck

Cap-table slide on a German Series A flags 'VSOP pool: 10% of fully diluted equivalent shares, 4-year vest with 1-year cliff'.

Related terms

GmbH

Standard German limited-liability company: ≥€25k share capital (half paid in at incorporation), notarised formation. Default for German VC startups.

EMI Options

UK tax-advantaged share-option scheme letting qualifying companies grant employees up to £250k of options each, taxed at 10% CGT not income.

ISO

A US tax-advantaged stock option for W-2 employees, eligible for long-term capital-gains treatment if holding-period requirements are met.

Option Pool

Equity reserved for future employee, advisor, and contractor grants, usually sized as 10 to 20% of fully diluted shares.

Strike Price

The fixed price at which an option holder can purchase a share, set at fair market value on the grant date and locked in for the option's life.

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