Categories: Corporate and commercial, Mergers & Acquisitions, Civil Law Notaries, Restructuring & Insolvency, Tax
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.
One of the most significant innovations in the context of the "Major Company Law Revision" is the possibility for Swiss limited companies / corporations ("Ltd.", Aktiengesellschaft) (but not limited liability companies, GmbHs) to introduce a so-called capital band (art. 653s-653v CO) in their articles of association. In this article of our blog series on the new company law, we highlight the prerequisites as well as the possibilities that the new capital band can offer in practice.
Overview
The capital band authorises the Board of Directors ("BoD"), for a maximum period of five years, within a bandwidth of up to 50% determined in advance by the annual or an extraordinary general meeting of shareholders ("GM"), to increase the ordinary share capital registered in the commercial register (to a maximum of 150%) and/or reduce it (to a minimum of 50% of the share capital existing at the time of the introduction of the capital band) (art. 653s CO).
Within the scope of its authorisation, the BoD may flexibly increase and decrease the share capital as desired. In doing so, it may, for important reasons, limit or cancel the subscription rights of existing shareholders and otherwise allocate any unexercised or withdrawn subscription rights. After each increase or reduction, the BoD makes the necessary determinations and amends the articles of association accordingly, which must be notarized (art. 653u CO) and filed for entry in the commercial register (art. 647 para. 1 CO).
Prerequisites and limits of the capital band
The GM resolution on the subsequent introduction of the capital band requires a qualified majority (art 704 para. 1 no. 5 CO), as was previously the case for the authorised capital increase. The necessary content of the articles of association is derived from art. 653t para. 1 no. 1-10 CO.
The GM may limit the powers of the BoD in the articles of association (by means of restrictions, requirements and conditions, art. 653t para. 1 no. 3 CO). In particular, the articles of association may provide that the BoD may either only increase or only decrease the share capital (art. 653s para. 3 CO). In the first case, the capital band largely corresponds to the current authorised capital increase (art. 651, 651a CO) – although this is limited to two years –, which will thus cease to exist as a separate instrument in the future. In the second case, the capital band corresponds to an "authorised capital reduction", which the current law does not recognise.
In any case the capital reduction(s) cannot reduce the capital below the legal minimum capital of the Ltd., i.e. CHF 100,000.
The maximum period of five years begins with the GM resolution on the introduction of the capital band.
No opting-out in the case of a capital band with capital reduction
Companies whose articles of association provide for a capital band with the possibility to reduce capital must have their annual financial statements audited at least on a limited basis. The waiver of the limited audit (art. 727a para. 2 CO, "opting out") is then no longer possible for reasons of creditor protection (art. 653s para. 4 CO). On the other hand, a company with a capital band that only authorises the board of directors to increase the share capital can still waive the limited audit.
Combination of the capital band with existing capitals and effects of capital measures
Existing authorised share capital under the current law remains valid until its expiry, but cannot coexist with the capital band. If a capital band is to be introduced, existing authorised share capital must therefore be revoked.
Conditional share capital, on the other hand, can either continue to exist alongside the capital band or be integrated into it. If the GM decides to introduce conditional share capital after adoption of the capital band, the upper and lower limits of the capital band increase in accordance with the amount of the share capital increase. However, the GM may instead subsequently authorise the BoD to increase the share capital with conditional capital within the framework of the existing capital band (art. 653v para. 2 CO).
If the GM resolves an ordinary increase or reduction of the share capital or a change in the currency of the share capital during the term of the capital band, the resolution on the capital band lapses for reasons of legal certainty and the articles of association must be amended accordingly (art. 653v para. 1 CO). However, the GM is free to provide for a capital band again immediately after the resolution on the capital increase, reduction or currency change.
No effects on mergers and demergers
The provision on the maximum extent (+/-50%) of the capital band (art. 653s para. 2 CO) does not apply in the case of absorption mergers and demergers (art. 9 para. 2, 33 para. 2 Merger Act). The same already applies to art. 651 para. 2 CO, according to which the scope of an authorised capital increase is limited to half of the previous share capital.
Tax treatment of the capital band
The tax assessment of the capital band (in particular with regard to stamp duty and repayment of reserves from capital contributions) is only carried out at the end of the term of the capital band on the basis of a net consideration of any increases and reductions.
In future, the notes to the annual financial statements must also contain all capital increases and decreases that the board of directors has made within the capital band, unless this information is already apparent from the balance sheet or the income statement (art. 959c para. 2 no. 14 CO).
Outlook
The capital band provisions can offer companies interested in it (e.g., start-ups, SMEs) considerable new structuring possibilities and, in particular, provide the BoD with significantly more flexibility when it comes to capital measures.
The annual or an extraordinary general meeting of shareholders can already decide on the introduction of a capital band in the current year 2022 – by means of an amendment to the articles of association conditional upon the entry into force of the new company law. However, according to practice note 1/22 of the Swiss Federal Commercial Registry Office (FCRO) (in German), the registration with the competent cantonal commercial register authority can only take place from 1 January 2023. It is important to note that if after such a conditional introduction of the capital band, the articles of association are (unconditionally) amended again before 1 January 2023, the conditional amendment of the articles of association on the capital band would have to be resolved again.
Careful and forward-looking planning is once again necessary, especially before this GM season. Your VISCHER team will be happy to assist you.
Other articles in the series:
- New Corporate Law: New Swiss company law to come into force on 1 January 2023 (no. 1)
- New Corporate Law: General meeting under the new company law – what is changing? (no. 2)
- New Corporate Law: Loss of capital, over-indebtedness and (in)ability to pay (no. 4)
- New Corporate Law: Important resolutions (no. 5)
- New Corporate Law: Capital increase and capital reduction (no. 6)
- New Corporate Law: The (intended) acquisition of assets (no. 7)
- New Corporate Law: The offsetting contribution (no. 8)
- New Corporate Law: The Interim Dividend (no. 9)
- New Corporate Law: The Return of Benefits (no. 10)
- New Corporate Law: Share capital in foreign currency (no. 11)
- New Corporate Law: Simplified rules on reserves (no. 12)
- New Corporate Law: Representation of the shareholders in the new company law (no. 13)
- New Corporate Law: Relevant changes from a tax perspective (no. 14)
- New Corporate Law: Right to Information & Inspection and Special Investigation (no. 15)
- New Corporate Law: Arbitration Clause in the Articles of Association (no. 16)
- New Corporate Law: Simplification in Signing of Commercial Register Applications (no. 17)
- New Corporate Law: The Board of Directors (no. 18)
- New Company Law: Circular Resolutions of the Board of Directors (no. 19)
- New Corporate Law: Commercial Register Application by an Authorized Third Party (no. 20)
Authors: Peter Kühn, Thomas Steiner-Krizaj, Lukas Züst
