Future Financing Act: Federal Cabinet approves package of measures to strengthen startups and growth companies

The Federal Cabinet has passed the Future Financing Act to strengthen Germany as a financial center and offer startups and growth companies better conditions. The measures are aimed at easier capital market access, improved employee capital participation and modernized financial market law.

Berlin - The German Cabinet today took a significant step towards promoting innovation and economic growth by approving the draft Future Financing Act. This bill is intended to help strengthen Germany as a financial center and improve the framework conditions for startups, growth companies and small and medium-sized enterprises (SMEs).

Easier access to the capital market for startups and growth companies

A key aspect of the Future Financing Act is to facilitate market-based financing on the German capital market. This not only strengthens Germany's competitiveness as a financial center, but also provides an economic stimulus. In particular, it will be easier for startups and growth companies to raise new capital for investment. This will help promote innovative developments and technological progress in the country.

We are giving future industries an additional boost. After all, it will be easier in the future for startups and growth companies in particular to mobilize private capital for investment and drive innovative developments.

Christian Lindner, Federal Minister of Finance

Concrete measures to facilitate capital market access include:

• Allowing stock exchanges to admit parts of the regulated market without co-applicants in IPOs, which can reduce the cost of IPOs.
• The reduction of the minimum market capitalization for IPOs from €1.25 million to €1 million to make it easier for smaller companies to access the capital market.
• The introduction of multi-voting shares with voting rights of up to 10:1, allowing founders to retain influence over the company while raising capital.
• The creation of a Stock Market Mantle Company (BMAG), which offers startups and high-growth companies an alternative route to the capital market without having to go through the complex IPO process.

Promoting employee share ownership

The Future Financing Act also includes regulations to strengthen employee equity participation, which are of great importance to startups, growth companies and SMEs. These regulations are designed to help companies attract and retain qualified employees. Some of the changes include:

• An increase in the tax allowance for employee share ownership from the previous 1,440 euros per year to 5,000 euros to allow employees to participate more in the company's success.
• The possibility of also using the allowance by converting pay of up to 2,000 euros per year.
• An extension of the provision on deferred taxation in order to alleviate the so-called dry income problem.

Employee share ownership has been a long time coming. It's great that we now have a first draft and can discuss it in parliament.

The tense economic situation is causing problems for many founders and startups. With employee share ownership, we are creating an instrument to obtain capital and know-how from skilled workers for our startups.

Melis Sekmen, Member of the Bundestag, Rapporteur for Foundations and Startups

The "lump-sum taxation" for employee shareholdings, which was also included in the draft bill, did not find a majority within the German government. This was criticized above all by the Startup Association.

This would have been a powerful instrument, especially in view of the international competition for talent. It is therefore all the more important that it be made clear in the further legislative process that the restricted shares commonly used in startup constellations are covered by the new regulations. Otherwise, there is a risk that the law will come to nothing.

Christian Miele, Chairman of the Board of the Startup Association

Modernization of financial market law

The Future Financing Act also contains various measures to modernize financial market law, which are intended to improve the framework conditions for financial services and investments. These include:

• Facilitation of capital increases for stock corporations and the introduction of a higher quota for simplified subscription rights.
• Creation of an area exemption from judicial review of general terms and conditions for contracts between financial service providers.
• Introduction of electronic shares in electronic securities registers or crypto securities registers.
• Legally secure regulations for the segregation of crypto securities from customers in the insolvency of the crypto custodian.
• Improved regulations on liability in crowdfunding and relief for investment funds in the renewable energy sector.

By facilitating capital increases of public limited companies and introducing stock exchange listed companies, we open up new opportunities for companies to generate capital.

Dr. Marco Buschmann, Federal Minister of Justice

Tax adjustments for fair competitive conditions

To ensure a level playing field in Europe, the VAT exemption for the management of venture capital funds will be extended. In addition, administrative services provided by syndicate leaders for open syndicated loans will be exempt from VAT.

The Future Financing Act marks a significant step towards making Germany a stronger financial location and improving support for startups, growth companies and SMEs. The envisaged measures are aimed at facilitating access to the capital market, making employee equity participation more attractive and modernizing financial market law in line with the times.