One question many start-ups are concerned with: How can I attract, motivate, and retain employees for my company? Start-ups often don’t have the same financial resources as large companies to convince professionals. Here’s where employee participation comes into play. But what are employee participations? What possibilities are there for a start-up? And what tax pitfalls should be considered? A guide from Kendris provides the most important answers.
What are employee participations?
Employers give their employees a stake in the company by issuing participation rights. Companies have various options for this. For example, employee shares can be issued or sold or the employee can be promised a participation in the success or the increase in value of the company.
From a tax perspective, a distinction is made between genuine and non-genuine employee participations. Genuine employee participations give employees a direct or future stake in the company’s equity. For non-genuine employee participations, employees receive fictitious or virtual participation rights.
The various forms of employee participation are explained in more detail in the section «The different employee participation options» and their tax consequences.
What are the benefits of employee participation?
Employees have a stake in the success and increase in value of the company through participations. This results in advantages for both employees and employers:
- Increased motivation and long-term commitment: Particularly in times of lack of skilled personnel, it is difficult to find motivated employees or to bind them to their own start-up or company in the long term. The employee participation gives employees an incentive to support the company’s success in the long term.
- Liquidity-saving wages: Start-ups and young companies cannot always pay market-rate wages. Employee participation offers companies a liquidity-saving option for wage payments and an attractive, long-term wage model including profit sharing for employees.
- Promoting entrepreneurial thinking: By participating in entrepreneurial development, employees get the opportunity to take the entrepreneurial perspective and to help shape entrepreneurial development.
- Succession planning: Many SMEs and family businesses also use employee participation as part of succession planning. This means that employees can be successively involved in the company – up to one company succession.
The employee participation also has certain pitfalls – especially from a tax perspective. In order to better understand the disadvantages of employee participation, a closer look is necessary.
At Kendris, we have prepared a compact guide that addresses the most important points concisely. It covers the forms of employee participation, the tax aspects and the company valuation.
You can find the guide on the Kendris website.
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The new Swiss Venture Capital Report was published on 26 January. It analyses 304 financing rounds closed in 2020 and includes further article such as an interview with Michael Hengartner, President of the ETH Board, and a list of Swiss "soonicorns". 
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