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My possible future employer offered to pay me in shares of the startup I would join.

He dropped sentences like "brutto equals netto" and "We can pay you more in shares than in cash". Obviously there are some hooks.

For one, the startup doesn't exist yet, so until March I will get nothing on hand, though I have enough reserves to bridge that time.

For a second, who pays the tax? This is my first non-university job so I don't exactly know, but usually the employer has to/does pay my taxes and some other stuff from my brutto-income (that's what I understood). If brutto=netto, where is the tax?

For third, shares are a risk. If I or any other in the startup screw really, my pay might be a lot less than expected. Of course, if it works out I'm rich(er).

Did I miss anything important?

Bonus: I'm living and working in Germany, any special cases to look at?

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  • Feel free to add or edit/delete missing/misplaced tags.
    – JFBM
    Dec 21 '15 at 8:51
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    Also beware of a ripoff. Assuming the start-up is a limited company your potential partner may transfer all profit-generating assets to another co. and bankrupt the entity you have shares in once your job is done. It is industry-specific though and it's hard to judge not knowing all details of the type of work you are about to do. Being a minority s/h in a start-up (a company that doesn't have established reputation and long-term customer relations) is quite risky.
    – Andy
    Dec 21 '15 at 10:29
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    Ask your self this, if they paid me cash, would I then turn some of that in immediately to buy shares? If not, you need to think hard about why not. Maybe you feel it is too risky, maybe you don't have enough trust in leadership, etc.
    – mikeazo
    Dec 21 '15 at 13:16
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    The difference between “brutto” and “netto” isn't just taxes. Some of it covers old age pension, health insurance, etc. If you are not part of the system you have to plan for that yourself, an “employer” offering that isn't looking after your interests, they are just trying to make a lower salary look better. But then again, what you would have is probably not an employment contract at all, another thing to take into account (see also faz.net/aktuell/finanzen/meine-finanzen/steuern-sparen/…).
    – Relaxed
    Dec 21 '15 at 15:33
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    Does your landlord, grocery store, electric company, ISP, etc... accept stock as payment? Think they might have a good reason why they insist on cash? This is a bad idea. And what are you going to do in a few months when you've spent your reserves and have, at best, some utterly illiquid stock to show for it? Dec 21 '15 at 20:36
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For one, the startup doesn't exist yet, so until March I will get nothing on hand, though I have enough reserves to bridge that time.

I would not take this deal unless the start-up exists in some form. If it's just not yet profitable, then there's a risk/reward to consider. If it doesn't exist at all, then it cannot make a legal obligation to you and it's not worth taking the deal yet. If everything else is an acceptable risk to you, then you should be asking the other party to create the company and formalize the agreement with you.

As regards reserves, if you're really getting paid in shares instead of cash, then you may need them later. Shares in a start-up likely are not easy to sell (if you're allowed to sell them at all), so it may be a while before a paycheck given what you've described.

For a second, who pays the tax? This is my first non-university job so I don't exactly know, but usually the employer has to/does pay my taxes and some other stuff from my brutto-income (that's what I understood). If brutto=netto, where is the tax?

This I cannot answer for Germany. In the U.S. it would depend in part on how the company is organized. It's likely that some or all of the tax will be deferred until you monetize your shares, but you should get some professional advice on that before you move forward. As an example, it's likely that you'd get taxed (in part or in whole) on what we'd call capital gains (maybe Abgeltungsteuer in German?) that would only be assessed when you sell the shares.

For third, shares are a risk. If I or any other in the startup screw really, my pay might be a lot less than expected. Of course, if it works out I'm rich(er).

This is the inherent risk of a start-up, so there's no getting around the fact that there's a chance that the business may fail and your shares become worthless. Up to you if you think the risk is acceptable. Where you can mitigate risk is in ensuring that there's a well-written and enforceable set of documents that define what rights go with the shares, who controls the company, how profits will be distributed, etc. Don't do this by spoken agreement only. Get it all written down, and then get it checked by a lawyer representing your interests.

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  • Capital gains tax is Kapitalgewinnsteuer in German. But I'm not sure about the relevance. The moment you get shares attributed to you, you are making a (taxable) income. To define this income, i.e. the value of the shares, will be more difficult though.
    – vic
    Dec 21 '15 at 17:16
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    If you get shares like this, you may have income when they are issued at some "face value" and then also a capital gain when you eventually sell them. If the face value is negligible b/c it's a nascent start-up, then, as in my answer, most of the tax would become capital gains at sale. @vic Details matter a lot though - so situation-specific, professional advice is in order.
    – user32479
    Dec 21 '15 at 17:19
  • The key term in German is geldwerter Vorteil, and yes, these are taxed. The valuation of shares in a start-up might be tricky, as you write. Jan 12 '16 at 12:08
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I like the answer given by mikeazo. If paid in cash would you immediately buy the stock of the company?

We all want to be the next Steve Jobs (or Woz), but the truth is that a Jobs comes along only once in a lifetime and chances are that you are not him.

We have seen this kind of question here before. Search the site for the answers given previously.

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