Shares in a German GmbH can only be transferred by notarial deed, which is impractical for hundreds of small investors. German platforms have therefore commonly used subordinated, profit-participating loans: investors lend money, rank behind other creditors, and share in profits or exit proceeds by contract. They behave economically like equity but carry no voting rights and higher risk.
- GmbH share transfers require a notary, so direct crowd shareholding is impractical.
- Subordinated loans rank behind other creditors in insolvency.
- "Profit-participating" means returns are tied to profits or exit value by contract.
- Investors get no shareholder rights or votes.
- Which regulation applies depends on structure; ECSPR now governs licensed crowdfunding platforms in the EU.
How does the instrument work?
- Loan: the investor lends a fixed amount for a term.
- Subordination: in insolvency, the investor is repaid only after other creditors, often only from surplus.
- Profit participation: interest may be fixed, variable or tied to profits, plus a participation in the company's value at an exit.
- No shares: no voting rights and no entry in the commercial register.
How does it compare with equity?
| Subordinated profit-participating loan | GmbH shares | |
|---|---|---|
| Notary | No | Yes |
| Voting rights | No | Yes |
| Cap table | Not on it | On it, in the register |
| Exit upside | By contract | By ownership |
| Investor risk | High: subordinated, often unsecured | High |
What should founders think about?
- Later investors will review the loan terms, especially exit participation and any repayment obligations.
- Balance sheet: it is debt, so subordination wording matters for insolvency tests.
- Communication: investors must understand they are lenders with high risk, not shareholders.
For the platform rules see raising under ECSPR as a founder and our ECSPR guide. For the German convertible loan used with angels, see can a GmbH use a SAFE?.
What does a typical term sheet contain?
| Term | Typical content |
|---|---|
| Term | Several years, often with early termination at an exit |
| Basic interest | Fixed annual interest, sometimes paid only at the end |
| Profit participation | Share of annual profits, if any |
| Exit bonus | Participation in company value at a sale, calculated by formula |
| Subordination | Qualified subordination behind all other creditors |
| Information rights | Annual reports or updates |
How do later investors view these loans?
They read the exit bonus formula closely, because it is paid out of the same proceeds as shareholders. A generous formula reduces what founders and later investors receive. They also check whether any repayment falls due before an exit, which could strain cash. Keep the terms simple and model them like you would model a liquidation preference.
What should founders tell crowd investors?
- That they are lenders, not shareholders, and have no vote.
- That the loan is subordinated and can be lost entirely.
- How and when any return is calculated.
- How they will receive updates.
Clear communication protects you legally and keeps a supportive community. Many crowd investors become customers and advocates if they feel informed.
Frequently asked questions
Why do German crowdfunding campaigns use loans instead of shares?
Because GmbH shares can only be transferred by notarial deed, which is impractical for many small investors.
What is a subordinated loan?
A loan that ranks behind other creditors in insolvency, so it is repaid only after they are.
Do crowd lenders get voting rights?
No. They are lenders under a contract, not shareholders.
Is a subordinated crowdfunding loan safe?
No. It carries high risk; investors can lose their whole investment, and repayment depends on the company's success.
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Join the waitlist →Sources and further reading. §15 GmbHG; §39 InsO (subordinated claims); Regulation (EU) 2020/1503.
Educational material, not legal, tax or investment advice. Rules and figures change; confirm with qualified counsel or a tax adviser in your jurisdiction before acting. Last updated October 6, 2026.