The Capital Structure of Stock Corporations in Light of the Revised Swiss Code of Obligations

The following article will provide a brief overview of the most relevant revisions of the CO regarding the share capital. Having provided an overview, we will comment on the implications that these provisions will have on companies from a practical standpoint. 

By Peter Forstmoser / Reto Seiler (Reference: CapLaw-2020-56)

1) Overview of the Revision regarding the Share Capital 

The revision of the stock corporation law does not change the basic principle that the fixed capital of a company can only be changed by way of a formal procedure. However, it will provide companies with more flexible opportunities to alter their share capital as well as some specific clarifications regarding the capital structure. 

What could have become the introduction of no-par-value shares as a next logical step since the last revision of the stock corporation law has now (almost) been achieved by simply requiring a minimum nominal value of greater than zero. As a pragmatic solution, this achieves the flexibility of no-par-value shares without requiring an overhaul of all the references to the nominal value of shares by the current system of a fixed share capital divided into fixed partial sums. In practice, companies will be able to conduct additional share splits at their discretion, in case the price of their shares on the stock market is too high and they already carry a nominal value of CHF 0.01 (presently the minimal nominal value). 

On an administrative level, it is notable that according to the revised art. 650 para. 3 CO the board of directors will have a six months period compared to the current three months to carry out an ordinary capital increase and enter the increase in the commercial register. Furthermore, following the principle in art. 70 para. 2 of the Federal Merger Act, the contribution in kind in the form of multiple properties being situated in different cantons will require only one public deed (art. 634 para. 3 CO). Also, the requirement to call on creditors three times in the Swiss Official Gazette of Commerce in case of a capital reduction or dissolution will no longer be required, as a single call will be sufficient in the future. 

The new stock corporation law permits a share capital in a foreign currency provided that the latter one is essential for its business activities. It also clarifies the permissibility of interim dividends. Both amendments are discussed elsewhere in this issue of CapLaw. Regarding the capital structure the new concept of the capital band and the reorganization of the capital decrease under art. 653j seqq. CO are the most prominent changes.

2) Capital Band

A true innovation can be seen in the introduction of the so-called capital band. The newly introduced concept in art. 653s seqq. CO replaces the current authorized share capital, which has been widely used since its introduction in 1991. The capital band further eases the strict rules that have been the result of the concept of a fixed share capital. In its fundamental understanding, the traditional concept allows a change in the capital structure only by a resolution of the shareholders as the owners of the company. The authorized share capital eased this rigid concept as it allows for an authorization of the board of directors to increase the share capital. This flexibility will be expanded with the introduction of the capital band by also providing the opportunity to authorize the board of directors to reduce the share capital.

Over a period of up to five years, the shareholders’ meeting can authorize the board of directors to not only increase the share capital by a margin of up to 50% of the existing share capital, as it has been possible with the authorized capital, but to also decrease the share capital of the company in the same amount.

According to art. 653s of the revised CO the shareholders’ meeting can implement the authorization of the board of directors to the articles of association according to their specific requirements. It is possible to limit the authorization of the board of directors in the capital band to the opportunity to only decrease or to increase the capital as well as allowing both. And of course the period of authorization and/or the margin can be limited at will.

a) An (un)necessary Flexibility?

In essence, the capital band therefore supplements the possibility to authorize the board of directors to increase the share capital with the authorization to decrease the share capital. Furthermore, the future law prolongs the maximum authorization period from two to five years.

In general, the introduction of the capital band represents a welcome adaption of the current legal regulation to the economic reality as it provides the shareholder’s meeting with the opportunity to grant the board of directors the required flexibility regarding changes of the capital structure. This leaves the board of directors with more opportunities to react to business developments without a prior amendment of the articles of association by a decision in a shareholders’ meeting. 

Nevertheless, it could be argued that the period of up to five years is not long enough to make the capital band available for additional applications, e.g. in connection with the issuance of convertible bonds, which often carry longer maturity dates. On the other hand, one could ask whether there is a practical need for a period of five years since there is annually a shareholders’ meeting where a capital band can be prolonged. But the shareholders have the possibility to provide a shorter period or to terminate the authorization any time. It remains to be seen, whether the capital band will find additional use cases compared to the existing authorized share capital.

b) Who will benefit from the Capital Band?

The flexibility of the capital band might be used in the full range by smaller companies. In particular, young companies could profit from the opportunity of authorizing the board of directors to change the share capital in a flexible manner. 

Larger companies on the other hand might be less likely to benefit from this new flexibility in its full amount as this would shift the control over the share capital to the board of directors in an unwanted extent. They might, however, provide for a tailor made authorization.

3) Contingent Capital – a Need for Clarification

The contingent capital remains largely unchanged by the revision of the stock corporation law. Only selected details are amended in order to adjust the legal regulation of this instrument to the long-established practice. 

The future law will explicitly confirm that conversion and option rights may not only be issued to creditors of bonds or similar debt instruments and employees, but also to members of the board of directors and to third parties. Additionally, it is clarified that the discharge of the contribution obligation by set-off does not have to be made through a banking institution – as this has not been practiced anyway. However, the future law has failed to specify the options to discharge the contribution obligation regarding the contingent capital in order to provide legal certainty in some instances like the discharge by the company itself or a related company. 

Furthermore, the introduction of the capital band also raises the question of the interaction with a contingent capital. Art. 653v para. 2 of the revised CO states that in case the shareholders’ meeting introduces a contingent capital while a capital band exists, the range of the capital band will in general be adjusted according to the contingent capital increase. However, the shareholders’ meeting can also decide on an authorization of the board of directors to resolve a capital increase based on contingent capital within the range of the existing capital band. Companies are well advised to clearly formulate this authorization in their articles of association in order to avoid any uncertainties.

4) Capital Reduction

In the revision of the stock corporation law the provisions dealing with a capital reduction are transferred from art. 732 seqq. to art. 653j seqq. of the revised CO. Furthermore, the procedure is amended in favor of the corporations: They have to call on creditors by publication once only instead of three times and the creditors have to register their claims to be satisfied or secured within 30 days of the publication, instead of the current two months. Capital reductions can thus be done in a more efficient manner. This is also supported by the provision that companies may omit the securing of creditor claims if they can show that the reduction of the share capital will not endanger the claims. This is assumed if a licensed audit expert issues a corresponding confirmation.

The future law also provides certainty regarding the fact that the rules on creditor protection do not apply if the share capital is reduced and immediately increased again to at least the same amount (so-called Harmonika).

5) Advice

In light of the revision of the stock corporation law, companies should review their capital structure and decide whether and to what degree they want to make use of the increased flexibility the new law offers. 

If a company intends to expand the authority of the board of directors, the authorization in accordance with art. 653t of the revised CO should be thought through to avoid any potential conflict arising from unclear provisions in the articles of association. This is especially important if a contingent capital co-exists with the capital band. 

According to art. 3 of the transitional provisions the current statutory provisions will apply to authorized and contingent capital increases, which have been authorized before the new law enters into force but cannot be prolonged after that date. Therefore, companies with authorized and contingent capital should think about amendments before the new law enters into force which will be presumably in 2022.

6) Final Remark

While the new law will not bring radical changes in general and in particular with regard to the capital structure it modernizes the regulations and contains appreciated amendments and an increased flexibility. It remains to be seen to what degree and in what form practice will make use of these new possibilities and one can certainly expect surprises. To cope with new and unexpected developments will be a challenge for both practice and theory.

Peter Forstmoser (
Reto Seiler (