Capital modification transactions — increases or reductions — are major corporate acts requiring strict legal formalities and the involvement of a notary and the commercial register. Whether the aim is to welcome a new investor, finance an acquisition, restructure the balance sheet or return funds to shareholders, PBM Avocats assists corporations (AG) and limited liability companies (GmbH) in Geneva and Lausanne in structuring and executing these transactions in compliance with the Code of Obligations and the 2023 corporation law revision.
Forms of Capital Increase in an AG
Swiss law provides for three forms of capital increase for the AG:
| Form | Mechanism | Conditions / Limits | Legal Basis |
|---|---|---|---|
| Ordinary increase | GM decision, issuance of new shares, immediate payment | Qualified majority (art. 704 CO) | Art. 650 CO |
| Authorised capital | Delegation to board to increase capital without new GM decision | Max. 50% of capital; max. duration 2 years | Art. 651 CO |
| Conditional capital | Issuance of shares upon exercise of conversion or option rights | Max. 50% of existing capital | Art. 653 CO |
Ordinary Capital Increase: Detailed Procedure
An ordinary increase of the share capital follows a procedure with several formal steps:
- Notice of GM: with explicit mention of the capital increase on the agenda
- GM decision: qualified majority (two thirds of votes represented and absolute majority of the nominal value of shares, art. 704 para. 1 CO)
- Exercise of preferential subscription right: existing shareholders have a minimum period of 10 days (art. 652b para. 3 CO)
- Subscription and payment: new shares must be subscribed and paid up (at least 20% and minimum CHF 50,000) before registration
- Preparation of interim balance sheet: if the increase is more than 6 months after the last annual accounts
- Authenticated deed of confirmation: by the notary (art. 652g CO)
- Registration with the commercial register
Authorised and Conditional Capital: Flexibility and Speed
Authorised capital (art. 651 CO) is particularly useful for companies planning successive fundraising rounds or opportunistic acquisitions. By delegating to the board of directors the power to increase the capital without a new GM decision, it allows quickly seizing market opportunities. The board may exercise this power at any time within the limits set by the GM and over a maximum renewable period of 2 years.
Conditional capital (art. 653 CO) is the preferred instrument for employee stock option plans (ESOP) and convertible bonds. Shares are issued automatically upon exercise of rights, without a formal GM decision at that time. These mechanisms are part of mergers and acquisitions transactions.
Share Capital Reduction
A capital reduction may pursue several objectives:
- Offsetting losses and balance sheet restructuring
- Return of capital to shareholders (when capital is surplus)
- Cancellation of treasury shares repurchased by the company
- Simultaneous reduction and increase (accordion transaction) to restructure and recapitalise
The ordinary reduction procedure is rigorous (art. 653l et seq. CO) to protect creditors:
- GM decision by qualified majority
- Report by the auditing body attesting that creditors' claims are fully covered after the reduction
- Publication of a call to creditors in the SOGC (Swiss Official Gazette of Commerce)
- Waiting period of 2 months after publication before registration with the commercial register
- Settlement or provision of security for creditors who come forward
- Authenticated deed of confirmation by the notary
- Registration of the amendment with the commercial register
The Accordion Transaction: Simultaneous Restructuring and Recapitalisation
The accordion transaction is a restructuring technique that involves reducing the capital (to clear losses) and then immediately increasing it through the contribution of new funds. This transaction is subject to a simplified procedure when the reduction is fully offset by the simultaneous increase: the call to creditors is not required if the reduction does not exceed the amount of the concurrent increase (art. 653m CO). The accordion transaction is often decided at a single extraordinary GM convened urgently during a financial crisis, in coordination with a restructuring procedure.
Tax Implications of Capital Modifications
Capital modification transactions have significant tax consequences that must be anticipated. The issuance of new shares above their nominal value (issue premium or agio) generates reserves from capital contributions which, under certain conditions, may be returned to shareholders free of withholding tax and income tax. The reduction of capital by repayment to shareholders is subject to the 35% withholding tax if it draws on profits or reserves (except for the repayment of actual capital contributions). Consultation with our tax law team is essential before any transaction.
Frequently Asked Questions About Capital Increases and Reductions
What is the difference between authorised capital and conditional capital?
Authorised capital (art. 651 CO) is a delegation granted by the GM to the board of directors to increase the share capital up to a specified amount (max. 50% of existing capital) for a maximum period of 2 years. Conditional capital (art. 653 CO) allows the issuance of new shares for the exercise of conversion or option rights granted to creditors or employees, without a prior GM decision at the time of issuance. Conditional capital may represent at most half of the existing share capital.
Do existing shareholders have a preferential subscription right upon a capital increase?
Yes. Art. 652b CO grants each shareholder a preferential subscription right upon an ordinary capital increase, proportional to their existing participation. This right may be withdrawn or restricted by the GM by qualified majority (two thirds of votes represented and absolute majority of shares, art. 704 CO) if there is a justified reason (for example, for an increase in favour of a strategic investor). The withdrawal of the subscription right must be expressly mentioned in the notice of the GM.
How does a share capital reduction work?
A share capital reduction may be ordinary or simplified. The ordinary reduction (art. 653l et seq. CO) requires a GM decision by qualified majority, the preparation of an interim balance sheet by a licensed auditor attesting that creditors will be satisfied, publication of the call to creditors in the SOGC (2-month deadline), and registration of the reduction with the commercial register. The simplified reduction is possible when it is carried out simultaneously with a capital increase of at least an equivalent amount.
What formalities apply to a capital increase in a GmbH/Sàrl?
A capital increase in a GmbH (art. 781 CO) requires a decision of the shareholders' meeting by the qualified majority of three quarters of votes. The decision must be recorded in authenticated form (notarial deed). The increased capital must be fully paid up before registration with the commercial register. The statutory amendment resulting from the increase must be registered with the commercial register. There is no authorised or conditional capital in GmbHs.
Can a capital increase be made through a contribution in kind?
Yes. Art. 634a CO allows a capital increase through a contribution in kind (machinery, patents, claims, shares in other companies, etc.). The procedure is more complex: a contribution report prepared by a licensed auditor is required, attesting that the value of the contributions in kind corresponds at least to the amount of the increase. The authenticated deed of the GM must mention the nature and valuation of the contribution. Overvaluation of a contribution in kind is a criminal offence.