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5 July 2022

New Corporate Law: Capital increase and capital reduction (no. 6)

The new company law, which comes into force on 1 January 2023, brings many changes. In our current blog series, we present these in detail.

In addition to the possibility of introducing a so-called capital band in the articles of association of a company limited by shares – see our blog post "The capital band (no 3)" – a number of other practice-relevant share capital related provisions in the Swiss Code of Obligations will be amended in the course of the revisions of the Swiss Corporate Law from 2023, in particular concerning the conditional capital increase, the capital reduction and the so-called harmonica. These changes will be examined in more detail below.

Adjustments to the conditional share capital increase

Under current law, the shareholders' meeting ("GM") may resolve a conditional capital increase in the articles of association by granting conversion or option rights to subscribe to new shares to creditors of new bonds or similar debt instruments vis-à-vis the company or its group companies as well as to employees.

Now, shareholders, members of the board of directors ("BoD") and third parties will also be included as possible addressees of the conditional capital. This corresponds to the liberal practice already in force today, for example when shareholder options (warrants) are issued in the course of a capital increase or when members of the BoD receive share options as a compensation component, each of which is backed by conditional capital.

A prerequisite for the issuance of corresponding instruments is that the subscription or advance subscription rights of the (other) shareholders have been validly restricted or withdrawn, for which in principle an "important reason" is required. In the case of publicly traded companies, it will now be possible to restrict or withdraw the advance subscription right even without good cause if and because the shareholders have the opportunity to acquire the corresponding securities on the stock exchange at reasonable conditions, thereby safeguarding their interests.

The exercise of conversion or option rights backed by conditional capital (or the waiver thereof) has so far required to be in writing, which is sometimes not complied with in practice (e.g. if electronic signatures not recognised in Switzerland are used). In line with the times, the possibility has now been opened up that the articles of association can also provide for electronic means for the exercise of these rights (or the waiver thereof).

Adjustments to the ordinary share capital reduction

Analogous to the capital increase, in future it will also be possible to specify a maximum amount when the GM passes a resolution on the reduction of the share capital. This procedure is already considered permissible in practice in some cases under the current law, for example in share buyback programmes where the final extent to which shares will be bought back over a longer period of time and subsequently cancelled is still unclear at the outset.

It is only clarified linguistically and for reasons of coherence that the GM resolution must specify the manner of the capital reduction, i.e. through reduction of the nominal value and/or cancellation of shares.

The GM resolution on the capital reduction must now also contain information on the use of the reduction amount. Possible options are payment in cash, offsetting (e.g., against an outstanding payment obligation) or conversion into reserves or debt capital.

Also new is that not only the GM, but in future also the BoD must participate in the capital reduction. It prepares the reduction and carries it out by amending the articles of association in a public deed and adopting the resolution – analogous to the two-step procedure for the capital increase.

From a procedural point of view, the period within which the BoD must notify the commercial register of the capital reduction for registration is extended from three to six months, as is the case with the ordinary capital increase.

The debt call will also be simplified; instead of three publications in the Swiss Official Gazette of Commerce (SOGC) with a reaction period for creditors of two months, one publication will suffice in future, according to which creditors must report to the company their demand for security within 30 days.

Adjustments to the share capital reduction in the event of a genuine underbalance

If the share capital is reduced for the partial or complete elimination of an openly disclosed so-called genuine underbalance resulting from losses as long as this amount is not exceeded (so-called declaratory or nominal capital reduction), the current law already allows for certain simplifications in the capital reduction procedure. The regulation applicable as of 2023 specifies that the provisions on the ordinary capital reduction concerning the securing of claims, the interim financial statements, the audit confirmation and the determinations of the BoD do not apply. The content of the required audit report is now explicitly defined, on the basis of which the GM decides on the declaratory capital reduction by means of an amendment to the articles of association.

Facilitation of the "harmonica"

A significant change results from the possibility of the so-called capital cut (also called "harmonica"), which already exists under the current law. For restructuring purposes, the share capital can be reduced momentarily below the minimum capital of CHF 100,000 under corporate law (often even to zero), if it is immediately increased again by at least the same amount through fully paid-in fresh capital. This important restructuring instrument is now regulated in a separate provision, the content of which largely corresponds to the previous practice. However, there is a significant change with regard to the degree of payment: The new capital – unlike today – no longer has to be paid in full; it is sufficient if the amount of the contribution made is not reduced, i.e. the previous degree of liberation is not reduced.

This also justifies not applying the provisions on the ordinary capital reduction, which concern the securing of claims, the interim financial statements, the audit confirmation and the findings of the BoD; the provisions on the ordinary capital increase remain applicable. An amendment to the articles of association is also unnecessary, provided that the share capital, the contributions made thereon (degree of liberation) and the share denomination remain unchanged.

If, on the other hand, the share capital is increased to a lower amount than the previous amount – except for the elimination of a genuine underbalance (see above) – (which is also possible under current law), all provisions on ordinary capital reduction and capital increase are applicable.

The same simplified rules that apply to the reduction and simultaneous increase of the share capital now explicitly apply to the reverse, comparable constellation (increase and simultaneous reduction of the share capital to the original amount).


In addition to the newly introduced instrument of the capital band, the revision of Swiss corporate law brings further clarifications, some of which are merely linguistic, but some of which are truly substantive changes to corporate law capital provisions that address practical needs. In particular, the capital reduction in the case of a genuine underbalance and the "harmonica" for restructuring purposes are important (although not always sufficient) measures available to the BoD to eliminate a capital loss or overindebtedness. The simplification of the "harmonica" (merely maintaining the degree of liberation) is to be welcomed in principle, as it increases the BoD's room for manoeuvre in a situation that may be critical for the company.

If you have any questions, please do not hesitate to contact the VISCHER team.

Other articles in the series:

Authors: Lukas Züst, Thomas Steiner-Krizaj, Peter Kühn

Categories: Corporate and Commercial, Mergers & Acquisitions, Civil Law Notaries, Restructuring & Insolvency


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