What happens if you don’t exercise your Subscription Right?
If you choose not to exercise your subscription right during a new issuance of shares,your percentage of voting rights and capital in the company will be diluted. In other words, you’ll lose part of your ownership stake in the company.
Howdoes the Subscription Right protect you?
Article 652b of the Swiss Code of Obligations grants you a statutory subscriptionright, safeguarding your proportional stake in the company.
You are entitled to purchase newly issued shares in proportion to your existingownership – calculated based on the nominal value of the shares, not the total number of shares you hold.
However, be cautious! The general assembly can limit this right for important reasons,provided (i) there is a legitimate business interest, and (ii) the principle of equal treatment of shareholders is respected.
Possible Reasons to limit Subscription Rights:
- Mergers or acquisitions
- Corporate restructurings such as mergers or conversions
- Financing of large projects
- Conversion of debt into equity during financial restructuring
Such adecision requires a qualified two-thirds majority of the shareholders' votes.
How is your Subscription Right calculated?
Let’s say you own 10% of a company, and the company issues 100’000 new shares as part of a capital increase. You would have the right to purchase 10’000 of the newshares (or 10% of the issuance) to maintain your ownership percentage. If you choose to exercise this right, you must also pay the subscription price for the newly issued shares.
How is the Subscription Right applied in Practice?
Inpractice, existing shareholders often forgo their subscription rights to make room for new investors. This commonly happens during growth phases when the company needs fresh capital and new investors are willing to inject substantial funds.While this leads to a reduction in the shareholder’s percentage of ownership,it can result in an increase in the overall value of the remaining shares as the company grows.
In such cases, the guiding principle often becomes:
"𝙄𝙩'𝙨 𝙗𝙚𝙩𝙩𝙚𝙧 𝙩𝙤 𝙝𝙖𝙫𝙚 𝙖 𝙨𝙢𝙖𝙡𝙡 𝙥𝙞𝙚𝙘𝙚 𝙤𝙛 𝙖 𝙗𝙞𝙜 𝙥𝙞𝙚 𝙩𝙝𝙖𝙣 𝙖 𝙗𝙞𝙜 𝙥𝙞𝙚𝙘𝙚 𝙤𝙛 𝙖 𝙨𝙢𝙖𝙡𝙡 𝙥𝙞𝙚."
Conclusion:The Subscription Right – Your valuable Tool in Capital Matters
The subscription right is a crucial tool for shareholders to protect their stakeduring capital increases. It prevents unwanted dilution of voting power and ownership and ensures that each shareholder can maintain their proportional stake in the company.
That said,there are times when it makes sense to forgo your subscription right to bringin new investors and support the company’s growth. As a shareholder, it’s essential to keep an eye on the company’s development and carefully consider whether and when to exercise your subscription right.
