Validated by European regulators: Legal ownership of fractional shares

How Upvest is unlocking fractional investing across Europe

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Fractional investing, or the ability to buy as little as €1 of even the most expensive instruments, has become essential for lowering barriers to entry for retail investors. Yet, for many providers, the legal complexity of offering fractions across different jurisdictions remains a significant hurdle, in particular when it comes to insolvency remoteness and participation in corporate actions. 

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At Upvest, we’ve built a fractions engine that offers real legal ownership in fractionalised financial instruments. By offering fractions provided under German law with Upvest, our clients can avoid the regulatory pitfalls associated with classifying fractional shares as “debt instruments” often encountered in other member states.

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Why this matters

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For fintechs and financial institutions looking to scale across Europe, the Upvest model offers a path of least resistance. By leveraging our German licence and the legal Bruchteilseigentum framework, you can:

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1. Reduce regulatory overhead: Avoid the complexities and responsibilities of PRIIPs regulation as well as derivative-specific reporting when offering fractions.
2. Offer a superior product: Provide retail investors with real legal ownership and bankruptcy-remote asset segregation.
3. Scale across markets: Use a single, robust legal structure to launch your offering across Europe and the UK.

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The challenge: when a share becomes a derivative

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In many European countries (e.g. France), the legal framework does not natively support the fractionalisation of individual securities. Consequently, many providers in these markets are forced to change the legal qualification of the instrument. To offer a "fraction", they might either consider wrapping it as a derivative, a financial contract (contrat financier), or a debt instrument (titre de créance).

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While this "wrapper" approach seems to be at least accepted by local regulators, it triggers complex regulatory requirements, such as the requirement to provide specific Key Information Documents (KIDs) under the PRIIPs regulation. 

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Because this “wrapper” is issued by the financial service provider rather than representing direct ownership in the underlying security, the end user is exposed to the issuer’s counterparty risk. This dependency can weaken investor protection and reduce the perceived security of the instrument compared to true share ownership.

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Such structural differences are now receiving increased regulatory scrutiny. In its 2025 communication to the European Commission, the European Securities and Markets Authority (ESMA) highlighted the risks created by inconsistent classification and issuer-based fractional models and called for greater clarity and alignment across EU markets.

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The Upvest solution: real fractional co-ownership

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Upvest takes a different approach that already aligns with ESMA’s expectations. Operating under German law, fractions provided by Upvest retain the same fundamental characteristics as the underlying security. Instead of a derivative, retail investors hold real fractional co-ownership (Bruchteilseigentum under the German Civil Code, BGB).

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Here is why this distinction creates a structural advantage for our clients:

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• Ideal shares: Each holder of a fractionalised security owns an "ideal share" (ideeller Anteil) of the security.
• In rem ownership: Holders are full legal owners with a right of separation from the estate in the event of insolvency, making the assets bankruptcy-remote.
• No requalification: Because they are considered real shares under German law, they are not classified as derivatives and do not fall under the PRIIPs regulation.
• Seamless custody: These fractions can be seamlessly integrated in custody systems and are held in ordinary custody accounts, whether located in Germany or other EU member states.

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For more information on Upvest’s fractions engine download our factsheet.

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Validated by European regulators

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This legal classification has been practically validated in the most stringent European markets. The French regulator, AMF (Autorité des Marchés Financiers), recently confirmed this setup for our client Shares by explicitly recognising that the fractional securities distributed by Upvest are equity securities.

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When Upvest’s B2B clients in other EU member states transmit these German fractionalised securities to their end users, they act as brokers, providing the instrument exactly as it is received from Upvest, without modification. 

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This means that the instrument maintains its German legal status (real co-ownership) even when held by a retail investor in a different EU member state, regardless of whether the custody account is located in or outside Germany.

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At Upvest, we are committed to providing the infrastructure that makes pan-European investing simple, secure, and truly fractional. Legal certainty is a crucial part of this effort.

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Ready to launch real fractional investing across Europe? 

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Offer real fractional ownership, reduce regulatory friction, and expand across markets on a single investment infrastructure.

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Disclaimer: The content provided in this article is intended for educational and informational purposes only and should not be construed as financial or investment advice. Always conduct thorough research and seek professional guidance before making any investment decisions. The past performance of any investment does not guarantee future results.