New Swiss Corporation Law

| Paul Thalmann, Yves Ducrey

Spotlight on the new provisions in operation – Work in progress

Conditional Share Capital vs. Capital Band: Picture Puzzle Under Company Law

The law describes the relationship between capital band and conditional capital in a manner that is difficult to understand.

Let’s be clear about one thing: the two capital vehicles work either independently of each other or as “communicating tubes”. Independence exists if the number of shares issued from the conditional capital does not reduce the potential of the capital band (even in terms of quantity). On the other hand, the conditional capital “communicates” if the issue of shares, from the conditional capital, “consumes” the capital band in the respective amount.

“Independence” is considered the statutory norm unless the articles of association stipulate otherwise. Company law governs the timely possible events (without an obvious reason) in various provisions: art. 653g para. 2 first sentence CO deals with the creation of conditional capital before the introduction of the capital band or together with its introduction, whereas art. 653v para. 2 sentence 1 CO deals with the creation of conditional capital after the introduction of the capital band (cf. also Peter Böckli, Schweizer Aktienrecht, 5th ed., 2022, no 274 and 276 of § 2).

The above-mentioned “communicating tubes” are, however, just as equally legally acceptable, even if they are more challenging for the board of directors to implement. This is nothing more than a restriction of discretion by the general meeting. There are no objections to this.

Superficial reading might lead to the conclusion that this is the content of art. 653g para. 2 second sentence CO. However, the law remains silent about this matter.

On closer examination, art. 653g para. 2 second part of sentence CO and art. 653v para. 2 sentence 2 CO unexpectedly govern something quite different, although again only at first glance: a new system for the creation of conditional capital is introduced. So far, the general meeting has been able to authorise the board of directors to issue shares at its own (restricted) discretion within the framework of the conditional capital created by the shareholders. Now, the shareholders may also authorise the board of directors to create this basis for conditional capital itself. This legislative move cannot be so unexpected after all: if the board of directors have the power to directly create new capital via the capital band, the board of directors must also have the power, a majore minus, to link such capital to certain conditions, e.g. defined in employee share option plans or convertible bonds.

Art. 653t para. 1 no. 9 CO provides the casting-out-nines: therein it is required that the provision of the articles of association, regarding the capital band, contains the possible authorisation of the board of directors to increase the capital with conditional capital. This can only mean the authorisation of the board of directors to use the capital band to conditionally create capital, i.e. to create conditional capital.

The legislator knew how to prevent the perpetual motion machine that was theoretically possible in the interaction of these systems: the articles of association must already provide all the prescribed information on conditional capital in accordance with art. 653b CO. This includes, in particular, the maximum nominal amount up to which the board of directors shall be authorised to resolve on conditional capital.

Paul Thalmann
Attorney at law, Notary Public
[email protected]
Yves Ducrey
MLaw, Attorney at Law
[email protected]

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