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Corporate restructuring without fixed interest payments and dilution of voting rights

Introduction

Participation capital with preferential rights balances the interests of existing shareholders and new investors. The company strengthens its equity position while retaining control, and investors receive fair and flexible compensation based on the company’s financial situation.

Key facts

  • Short-term liquidity measures are not a sustainable answer to corporate financing needs.
  • Debt financing requires fixed interest/repayment schedules regardless of liquidity and increases over-indebtedness risk.
  • Increasing share capital strengthens equity but dilutes existing shareholders’ voting rights.
  • Participation capital with preferential rights combines the benefits: no voting dilution and flexible investor remuneration (preferred/cumulative dividends).
  • Statutory and contractual safeguards (information rights, non-voting attendance, covenants) protect investors’ preferential rights.
  • Konsento enables legally compliant, fully online capital increases with shares and participation capital (board/notary/commercial register workflow, online notarization, digital filing).

Disadvantages of Debt Financing

Debt financing burdens companies with interest and repayment obligations at fixed times, regardless of liquidity. It also increases the risk of over-indebtedness. Hybrid forms such as mezzanine capital offer limited flexibility – they combine fixed and performance-based interest but remain liabilities to be repaid.

Disadvantages of Increasing Share Capital

Raising share capital strengthens a company’s balance sheet but dilutes the voting power of existing shareholders, introducing external influence. While it removes repayment pressure, it can compromise independence and long-term decision-making autonomy.

Participation Capital: Balancing Independence and Financing

Swiss corporate law allows companies to issue participation capital – equity without voting rights – by granting investors participation certificates with preferential rights. These may include preferred or cumulative dividends that can be deferred until sufficient profits are available. This structure provides companies with flexibility while fairly compensating investors for their risk exposure.

Additional statutory and contractual clauses can enhance investor protection, including information rights, non-voting participation in general meetings, and covenants securing preferential rights.

Digital Capital Increases with Shares and Participation Capital

Konsento enables companies to plan and execute capital increases involving shares and participation capital entirely online – efficiently, securely, and without administrative complexity.

The platform guides users through every step:

  • Alignment between share and participation capital,
  • Preparation of all resolutions and legal documents for the board, notary, and commercial register,
  • Online notarization,
  • Digital submission to the commercial register.

Whether to strengthen equity or involve new investors, Konsento makes capital increases with participation capital fast, compliant, and effortless.

Are you planning to complement your share capital with participation capital or to carry out a capital increase in this form? Contact us – we’ll support you in the digital and legally compliant implementation of your capital structure.

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Rechtliches

What is participation capital?

Participation capital is a special form of equity that Swiss joint-stock companies may create under Art. 656a et seq. CO. It is formed through the issuance of participation certificates and qualifies as equity even though it carries no voting rights. Participation capital allows a company to strengthen its equity base or attract new investors without diluting existing shareholders’ voting power. Distributions on participation capital are made only if the general meeting decides to pay dividends, preserving the company’s financial flexibility.

Rechtliches

What are participation certificates?

Participation certificates, as defined in Art. 656a para. 2 CO, are securities that represent a share in a company’s equity without voting rights. Holders of participation certificates (participants) enjoy essentially the same economic rights as shareholders, including the right to dividends (Art. 660 CO), subscription rights (Art. 652b CO), and liquidation proceeds (Art. 745 para. 1 CO). The company’s articles may, under Art. 656b CO, grant preferential rights such as preferred or cumulative dividends to compensate investors for the absence of voting rights.

Produkt

Can I also manage participation certificates in Konsento?

Yes. Konsento’s digital register management fully supports participation capital and participation certificates. As with shares, you can record assignment declarations and link them to the corresponding transactions. The system automatically generates a transaction register and a participant register, calculating each investor’s exact share of equity and voting rights, taking into account the entire share and participation capital. The general meeting module also automatically complies with the legal information duties under Art. 656c and 656d CO: participants are informed in due time about the convening of the general meeting and its agenda – digitally and without manual effort.

Rechtliches

What are the differences between shares and participation certificates under Swiss law?

Shares grant shareholders membership and participation rights (in particular voting rights in the general meeting, information and application rights, etc.), while participation certificates do not grant voting rights in accordance with Art. 656a (1) OR. With regard to property rights, however, participation certificates are equivalent to shares: The participant is entitled to a dividend, share of the liquidation proceeds and, where applicable, subscription rights just like a shareholder, in compliance with statutory and legal barriers (Art. 656f OR, Art. 656g OR).

Rechtliches

What is the difference in dilution between a capital increase through shares and through participation capital?

A capital increase through share capital (Art. 650 et seq. CO) issues new voting shares, which dilutes the voting power of existing shareholders. A capital increase through participation capital (Art. 656a et seq. CO), by contrast, creates no voting rights, meaning existing shareholders’ control remains unchanged. Only their economic share in profits or equity may shift. This form of financing is therefore well suited for companies wishing to raise funds without transferring decision-making power.

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