Have you considered creating participation capital?

The share capital of a corporation consists of the equity capital and, if applicable, the participation capital. In practice, participation capital plays a marginal role. However, behind participation capital lies a valuable instrument for corporate financing.

Why participation certificates are attractive

1. Raising capital without diluting voting rights

Participation certificates, often known as "non-voting shares", grant the holder the same financial rights as a shareholder but do not provide any voting rights in the company. This allows companies to raise equity without diluting the voting rights of existing shareholders. Start-ups, particularly in their growth phase, are often interested in attracting new investors without losing control of the company. On the other hand, institutional investors and private investors can benefit from the economic success of a company through participation certificates without having to actively intervene in corporate policy.

2. Community of interest

The rights of the participants can only be worsened through amendments to the articles of association if the rights of the equally positioned shareholders are affected to the same extent. This protects participants from unilateral decisions by voting shareholders

3. Employee participation programs

Participation certificates are also excellent for employee participation programs. They provide a way to involve employees in the success of the company without granting them voting rights. This can increase employee motivation and retention, which in turn positively impacts corporate performance. For instance, a company might issue participation certificates to employees who have been with the company for at least one year and have achieved specific performance targets.

4. Restructuring

Lastly, participation capital can be used in restructuring phases to create financial stability without redistributing voting rights.

Legal Framework

Participation capital can be created through any of the three types of capital increases (ordinary, conditional, capital band) and is subject to certain legal restrictions. Participation capital may not exceed twice the amount of the equity capital. In publicly traded companies, participation capital may even be up to ten times the equity capital. Since new capital is being created, participation capital must be recorded in the articles of association. The following steps, similar to an ordinary capital increase of the equity capital, must be followed:

1. Financing: Find future participants (investors, family members, employees, etc.).
2. General meeting resolution: At a general meeting, the shareholders must approve the creation of the new participation capital, setting the total amount, par value, and division. This resolution is notarized. ‍
3. Board resolution: The board holds a meeting to ensurethat the legal requirements for increasing capital via participation capitalare met. The board then decides to amend the articles of association to includea new article on participation capital. This resolution is also notarized.‍
4. Amending the articles of association: The articles of association areamended to include the participation capital and are notarized.‍
5. Subscription: Participants subscribe to theparticipation certificates and make their contributions.‍
6. Capital increase report: The board submits a capitalincrease report to account for the proper execution of the capital increaseresolution by the general meeting.‍
7. Lex-Friedrich declaration: The board confirms by signing theLex-Friedrich declaration (also known as Lex-Koller declaration) that thecompany does not violate the Federal Act on the Acquisition of Real Estate byPersons Abroad (Bewilligungsgesetz, BewG) and/or does not require approvalunder the BewG.‍
8. Registration in the commercial register: To validate the creation ofparticipation capital, the steps explained in points 1 to 7 must be registeredwith the commercial register office at the company's headquarters. The boardsigns the commercial register application and submits the required documents.

Conclusion

It isdefinitely worth considering the creation of participation capital for yourcompany. Proper design and strategic use of this form of capital can be crucialfor the long-term success of a company. In the practice of Swiss corporations,participation certificates remain an indispensable tool for corporatefinancing.