Profit Participating Loans

The profit participating loan is a special form of a loan. The lender receives a participation in the profits or turnover of the company in return for the provision of capital. This participation can be confined to the purpose for which the loan was provided or pertain to the whole business of the company. Additionally, fixed interest payments can be included in the contract.

The profit participating loan differs from a silent participation particularly by the fact that the lender does not hold a stake or share in the company. He cannot influence the company’s business and does not participate in the company’s losses.

Since the implementation of the “Kleinanlegerschutzgesetz” participating loans and subordinated loans can only be sold publicly with a formal sales prospectus. Under certain conditions there are special exceptions for an offer of such loans on a crowdfunding Internet platform without a prospetus. For the sale and distribution of the loan a permission pursuant to § 34f Gewerbeordnung (German law regarding the regulation of trade, commerce and industry) is required.

The profit participating loan is a flexible instrument of corporate financing without abandon the control.