Starting with January 1, 2023, a revised Swiss company law came into effect. The ability of limited companies to introduce capital bands is one of the most significant innovations. The article outlines the prerequisites and the practical possibilities of capital band reform.

Shareholders approve the capital band in advance, and it authorizes the Board of Directors (BoD) to increase or decrease the capital for a maximum period of five years. Consequently, the Board can limit or cancel existing shareholders’ subscription rights and otherwise allocate any unexercised or withdrawn subscription rights for various reasons.

What are the requirements and limits of the capital band?

A qualified majority is required for the resolution of the General Meeting (GM) to introduce the capital band (art 704 paragraph 1), as it was previously for the authorization of capital increases. Under the articles of association, the BoD may only increase or decrease share capital (article 653s, paragraph 3 CO). As a result, this is equivalent to an “authorized capital increase”, which will no longer exist separately.

If a capital band includes a capital reduction, there is no opt-out opportunity.

A company’s annual financial statements must be audited at least periodically if its articles of association require a capital band with the possibility of reducing capital. As a result of creditor protection (art. 653s para. 4 CO), a waiver of limited audit (art. 727a para. 2 CO) is no longer possible. A company with a capital band that only authorizes the board of directors to increase equity can still waive the limited audit.

Impact of capital measures and capital band combination

• Under current law, existing share capital is valid until its expiration, but it cannot be used alongside the capital band. Existing authorized share capital must be revoked to introduce a capital band.
• Conversely, conditional share capital may either remain separate or be incorporated into the capital band. Capital band upper and lower limits increase as the amount of share price increases. This is because the GM decided to introduce conditional share capital following the adoption of the capital band. Within the existing capital band (art. 653v para. 2 CO), the GM may nevertheless subsequently authorize the BoD to increase the share capital with additional capital.
• As described in paragraph 653v. 1 CO, a General Meeting (GM) must amend the articles of association if the share capital is increased or decreased or if the currency changes during the period of the capital band. After a resolution regarding a capital increase or currency change, the GM can, however, provide for a capital increase.

The capital band’s tax treatment

If the board of directors has increased or decreased capital within the capital band, all of this information must be included in the notes to the annual financial statements unless the information is already visible on the income or balance sheet (art. 959c para. 2 no. 14 CO).

Final words

There are considerable opportunities for structuring capital band provisions for companies. The cantonal commercial register authority will only accept registrations starting 1 January 2023, as per practice note 1/22.