Steward-Ownership for Start-ups

While some DAX corporations are still busy, trying to find a clear purpose (Handelsblatt dated 18 April 2019 – “The question of why: what gives our work meaning” (“Die Frage nach dem Warum: Was unserer Arbeit Bedeutung verleiht”)), and the management orientation towards common good known under the term “purpose” is back in fashion (FAZ dated 11 February 2019 – Timo Mexnhardt, “Purpose – more than a manager style?” (“Purpose – mehr als eine Managermode?”)), many start-ups are establishing and legally securing their so-called steward-ownership when founding their company or during the early stages.


What does steward-ownership mean?

In short, companies will own themselves or have steward-ownership structures if they have ensured, in a legally binding way, that (1) independent steward-owners carry full responsibility for the company, and (2) only those persons, who identify with the purposes of the company and are not merely motivated by monetary incentives, may be owners.

Two principles underpin steward-ownership:

The self-determination principle

Decisions are taken and implemented within the company by people who are active in the company, rather than by distant investors or shareholders. The majority of the voting rights – thus control of the fulfilment of the company’s purpose – are in the hands of management; the company is therefore self-determining. The steward-owners have taken over the responsibility for the actions, values and legacy of the company. The ownership of the voting rights cannot be inherited or sold freely, but can only be transferred to persons who are directly associated with the purpose of the company. Companies therefore cannot be traded as an object of speculation and sold to the highest bidder. Importantly, voting rights and rights to profits are, in principle, separated, in order to ensure that economic interests do not dominate the decision making process.

The purpose principle

In addition, steward-ownership makes it possible for everyone within the company to view profits as a means to an ends, and not as an end in itself. Profits are primarily reinvested, used to repay investors or to pay salaries, or they are donated.


What motivates founders to decide in favour of steward-ownership?

Numerous motivating factors have emerged:

  • Allegiance to a purpose and values;
  • Long-term orientation;
  • Productivity, motivation and retention for talented staff;
  • Retention of customers;
  • Independence and sustainability.

The aim of establishing a steward-ownership structure is to anchor the purpose and values in the structure of the company. Purpose ownership facilitates generations of ownership in trust, making it possible to realise a business idea while remaining loyal to and continuing to develop the values of the company. The real hope is that a company in steward-ownership will be economically more successful in the long run.

Legal implementation – Veto-Shares Model

There are various models, but three are more prevalent in in the German-speaking countries: (i) the veto share model, (ii) the single foundation model, and (iii) the double foundation model.

For start-ups, establishing a foundation is normally out of the question, so that the veto-share model is preferred:

A feature of the veto-share model is a relatively lean corporate structure. Steward-ownership is secured by a “golden share”.

Companies applying the veto-share model will have three classes of Shares:

A shares ("trustee shares")

These shares are held by those who work for the company and are endowed with voting rights.

The shares cannot be sold, nor can they be inherited. The articles of incorporation of the company will specify how these shares can be passed to another party. For example, a successor of a trustee, who leaves the company, may make a proposal for the shares to be passed to a successor body, or the decision could be left to the employees.

B shares

These shares may be held by investors, non-profit organisations, employees or founders and have profit sharing rights, but no voting rights. The profit sharing rights are capped when the shares are held by persons who work for the company, in order to avoid conflicts of interest. In any case, it is advisable to subject these shares to a buy-back right that applies in the case that the liquidity situation of the company improves.

Veto shares ("golden shares")

Holders of these shares are entitled to veto any decision that goes against the steward-ownership principles, to which the company has already pledged itself. The drafts of the articles of incorporation and shareholders agreement must be carefully assessed, in order to ensure that the foreseen corset will not prove to be too cumbersome once it is imposed.

Shares are held by a “veto service” foundation. The foundation must fulfil certain requirements in order to be considered for this role.

Summary and outlook

It is becoming increasingly attractive to anchor the steward-ownership in the legal structure of a start-up, so much so that it is now in demand. Indeed, the veto-share model developed into a relatively easy structure to be implemented easily.

However, many European countries have already developed their own legal regimes, which fulfil the spirit and purpose of steward-ownership in a better way. "Purpose-Stiftung" has already made a specific proposal for Germany. A move by German legislators to focus on this issue in the near future would be great to avoid any competitive disadvantage.

Tassilo Klesen


Start-up Venture Capital

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Tassilo Klesen T   +49 30 26471-351 E