Multiple Voting Rights: Preserving Control Despite Dilution

1. The Typical Founder Challenge

Startup founders regularly build their companies with substantial personal commitment, significant time investment and, not infrequently, their own financial resources. With each financing round, however, they give up shares—often to a considerable extent, and in later rounds sometimes approaching the threshold of a majority of both capital and voting rights.

This is unavoidable: for most startups, the desired growth can only be achieved with the support of venture capital; only a few are able to reach the scaling phase through self-financing alone.

That said, a founder who still holds 80% after a Series A may fall below the three-quarter majority after a Series B or C and eventually approach a simple majority. The result: founders risk losing control over their own company—and with it, the ability to pursue their original vision independently.

2. One Solution: Multiple Voting Rights

The legal form of a German stock corporation (AG) offers an effective response to this dilemma: the introduction of multiple voting rights. These allow the number of voting rights to be decoupled from the number of shares held.

Specifically, a single share may carry more than one vote. Holders of such shares therefore exert greater influence on shareholder resolutions than their economic stake would otherwise suggest.

Example: Shortly before an exit, a founder holds only 20% of the shares. However, these shares carry ten votes each. As a result, the founder controls 71.4% of the voting rights and remains capable of making decisions.

3. Legal Framework

Multiple voting rights are expressly permitted under German law—however, exclusively in stock corporations (AG) and European stock corporations (SE). The statutory basis is found in section 12 sentence 2 of the German Stock Corporation Act (Aktiengesetz, AktG), which allows for the issuance of shares with multiple voting power. This requires a corresponding provision in the articles of association, as follows from section 135a (1) sentence 1 AktG as well as section 23 (3) no. 4 AktG.

Multiple voting rights are not permitted in a German limited liability company (GmbH), where the principle of one vote per share continues to apply mandatorily. Anyone wishing to use multiple voting rights must therefore choose the AG or SE legal form from the outset or later carry out a conversion pursuant to the German Transformation Act (Umwandlungsgesetz).

4. Structuring Considerations for Founders

The introduction of multiple voting rights should be considered early and prepared carefully from a legal perspective. Ideally, they are implemented at the time the AG is established, as a shareholders’ resolution to create or issue shares with multiple voting rights requires the consent of all affected shareholders (section 135a (1) sentence 3 AktG). This refers to all shareholders with voting rights; in particular, the consent of holders of preference shares is not required. The resolution must be unanimous.

When structuring multiple voting rights, founders should consider the following points in particular:

Determine the voting ratio: How many votes should each multiple-voting share carry? The maximum permitted is ten votes per share (section 135a (1) sentence 2 AktG).
Ensure transparency for investors: Clear communication and explanation of the governance structure are essential.
Link with other rights: Multiple voting rights may be combined with transfer restrictions (vinkulierung), pooling arrangements, etc.
Strategically plan the choice of legal form: Anyone already planning a conversion into an AG in order to become capital-market-ready should factor in multiple voting rights at an early stage.

For listed companies and shares admitted to trading on the open market, the special rules of section 135a (2) AktG apply. For example, multiple voting rights lapse upon transfer of the share and, in any event, no later than ten years after the company’s stock exchange listing.

5. Opportunities and Limitations

As multiple voting rights constitute a separate class of shares, certain measures—particularly capital measures pursuant to sections 182 (2) and 222 (2) AktG—require a separate resolution of this class. In practice, holders of multiple voting rights thus have a veto right over certain measures.

Multiple voting rights are particularly effective in resolutions that do not require a capital majority, such as profit allocation resolutions or the appointment of supervisory board members (and thus indirectly of management board members).

However, it must also be borne in mind that key structural measures require (also) a capital majority. Moreover, when appointing a special auditor or statutory auditor, multiple-voting shares carry only one vote (section 135a (4) in conjunction with section 119 (1) no. 5 and section 142 (1) AktG).

Multiple voting rights can therefore help protect against unwanted changes to the company, but they do not create governance power against the will of the capital majority.

6. Conclusion: Strategically Safeguarding Control

Multiple voting rights are not a cure-all—but they are a powerful tool. They allow founders to retain entrepreneurial control even where the cap table might suggest otherwise at first glance.

Those who choose the right legal form early on and structure the articles of association carefully can strategically prepare for later growth phases through multiple voting rights. For founders who wish to stay true to their vision and lead the company in the long term, this is well worth considering.

Recommendation: In the context of the next financing round or a planned conversion, founders should assess whether—and in what form—multiple voting rights may constitute an appropriate governance instrument for their company.