The establishment of an investor-friendly company limited by shares

If it is already foreseeable at the time of incorporation that your project will require external financing, it is worth creating the conditions to increase the capital in an uncomplicated way.

New option under revised law

Under the revised Swiss Code of Obligations, which has been in force since January 1, 2023, a capital band can be inserted into the articles of association. The capital band replaces the authorized capital under the previous law and authorizes the board of directors to increase the existing share capital by a maximum of 50% within the next (maximum) five years.

Implementation of a capital band

The general meeting (of shareholders) determines the limits within which the board of directors is authorized to increase the capital. With a minimum capital of CHF 100,000, the board of directors can - if fully utilized - be authorized to increase the share capital by CHF 50,000 within the next five years. However, the maximum of five years is not absolute: If the general meeting adopts a resolution for a change in the capital (ordinary capital increase or capital reduction) or a change in the currency while the capital band is in place, the capital band lapses and must be newly implemented if desired.

The general meeting has considerable freedom in the scope of authorization to the board of directors. Some requirements must always be specified in the articles of association such as:

• the lower and upper limits of the capital band;
• the date on which the board of directors’ authority to alter the share capital ends;
• the number, nominal value and type of shares;
• and the preferential rights of individual classes of shares or participation certificates.

In addition, further specifications may be made, such as that the capital increase may only be used in the context of a financing round with strategically valuable investors.

In the case of smaller companies, where the shareholders are often represented on the board of directors at the same time, the scope of authorization to the board of directors is usually very generous, since the general meeting does not have to act as a controlling body if the same people are also represented on the board of directors.

Benefits of a capital band

Especially for startups that are planning several financing rounds, the capital band simplifies matters, since a new resolution does not have to be passed by the general meeting each time and, with the maximum duration of five years, the increases can be carried out during a significantly longer period of time than previously with the authorized capital increase.

In addition, it is possible to create participation capital within the scope of the capital band, provided this has been specified accordingly in the articles of association. It should be noted that the maximum increase limit of 50% may not be exceeded in total.

For example, if a total of CHF 50,000 can be increased and participation capital of CHF 20,000 is to be created, only CHF 30,000 remains for a capital increase of the share capital.

Summary

Through its implementation in the articles of association, the share capital can be increased in an uncomplicated manner at any given time either by payment in cash, by offsetting a claim (convertible loans) or by conversion of freely disposable equity capital. The significantly longer authorization period of the members of the board is an advantage over the previous law. In addition, if loans from smaller investors have been collected in the initial phase, it is possible to convert such loans into equity capital by means of a capital increase in the capital band in a relatively uncomplicated way.

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