Introduction
Employee participation is an effective way of attracting professionals, retaining them in the long term and offering them incentives by sharing in the company's success. In Switzerland, start-ups and established companies have various options for making financial participation possible for their employees.
In practice, stock plans and stock option plans (so-called ESOPs) are the most common instruments. This article discusses two less commonly used instruments and their distinguishing features: phantom shares and participation certificates. According to the authors, ambitious entrepreneurs will increasingly prefer these two alternative types of employee participation in 2025, as they enable a clear separation of corporate management and financial participation.
Table of contents
- Main difference from stock and stock option plans
- Phantom Shares: virtual participation without membership rights
- Participation certificates: share participation without voting rights
- Rights and obligations: A decisive difference
- Introduction of participation capital: legal requirements
- How Konsento helps you
- Conclusion and next step
Main difference from stock and stock option plans
Employee participation in the form of phantom shares and participation certificates differs from share and stock option plans primarily in that holders of such shares have a purely financial claim to the company. In other words, neither phantom shares nor participation certificates grant voting rights to their holder (see Art. 656c para. 1 OR: “The party concerned has no voting rights [...]”). These alternative participation structures are therefore particularly suitable for entrepreneurs or founding teams who want to retain (sole) control of the company. The involvement of employees with phantom shares or participation certificates can therefore be particularly recommended if the company follows a clear, long-term vision of the founding team.
Phantom Shares: virtual participation without membership rights
Phantom shares are a purely economic participation in the company with a contractual basis. They reflect the value of real shares but do not grant employees shareholder rights. Instead, they receive contractually guaranteed payments that depend on the company's valuation or distributions (in particular dividends). For tax reasons, phantom shares are only treated as income when they are paid out, which can potentially result in benefits for companies and employees.
Participation certificates: share participation without voting rights
Participation certificates are genuine investment securities based on company law (Art. 656a et seq. OR). They enable owners to participate in the company's success, but do not grant them voting rights. They therefore offer a combination of financial participation and real stocks. Employees with profit participation certificates benefit from dividends and a potential increase in the value of company shares.
Rights: A decisive difference
A major difference between phantom shares and participation certificates is the right to information. Employees with profit participation certificates have a legal right to information:
- Information on the convening of a general meeting, its agenda items and motions as well as resolutions (Art. 656d OR)
- Written request to the General Assembly for information, inspection and initiation of a special investigation (Art. 656c para. 3 OR)
- No worse position vis-à-vis shareholders in property matters of the company, such as the distribution of balance sheet profit and liquidation income (Art. 656f OR)
- Filing an action for contestation, responsibility, or dissolution
The statutes may also provide for the following additional rights:
- The right to convene a general meeting, to attend, to provide information and to view and to file an application (Art. 656c para. 1 and para. 2 OR)
- Right of representation on the Board of Directors (Art. 656e OR)
Participation certificates never have voting rights at the General Assembly by law, even if the statutes provide for the possibility of convening a general meeting, applying for and participating in the general meeting.
Phantom shareholders, on the other hand, have no legal membership rights. Your claims are limited to contractually agreed financial benefits.
Introduction of participation capital: legal requirements
The introduction of participation certificates requires a resolution by the General Assembly and a capital increase. That means
- Convening of the ordinary general meeting
- Vote on the capital increase
- Notarization of the resolution
- Amendment to the articles of association and entry in the commercial register
This formal process makes the introduction of participation certificates more complex than the implementation of a phantom share plan.
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This is how Konsento helps you
The introduction of an employee participation program with participation certificates requires precise planning and correct implementation. Konsento offers you the following services:
- Easy preparation, implementation and notarization of general meeting resolutions thanks to agenda templates, automatically created protocols and smooth registration in the commercial register. An online notary can do the notarization directly at the general meeting.
- Legally compliant management of the register of participants to ensure transparency and regulatory compliance.
- Proper consolidation of investments for all financial instruments — whether shares, preferred shares or participation certificates — in Konsento's electronic cap table.
Would you like to learn more about the introduction of employee participation certificates? Arrange a non-binding consultation with consensus and get advice from our experts!
This is how Fehr Legal supports you
Fehr Legal specializes in providing legal advice to startups and SMEs on issues relating to ownership, control and business growth. A central area of the law firm is assisting entrepreneurs in the strategic planning of growth scenarios and the legal design and implementation of employee participation programs. Fehr Legal offers you the following services:
- Joint development of the long-term growth strategy - Analysis of corporate goals and discussion of the long-term growth strategy as part of employee participation.
- Identifying the right employee participation program - Selection of the appropriate form of participation (share participation, stock options, phantom shares or participation capital) based on the specific needs of the company.
- Legally compliant development and implementation of the participation program - Preparation of legal documents and assistance to the company in their practical implementation.
Would you like to learn more about the introduction of employee participation programs and the options for phantom shares or employee participation certificates? Arrange a non-binding consultation with Fehr Legal and get advice from our experts!
Conclusion and next step
Choosing the right employee participation program depends on your organization's goals. The authors recommend considering phantom shares and participation capital. While phantom shares are a flexible, easy-to-implement solution for economic participation, participation certificates offer real equity participation with certain property and information rights.
Contact Fehr Legal for a non-binding consultation to find out whether phantom shares or employee participation certificates are a better fit for your company.
Contact Konsento for a non-binding consultation to manage your employee participation in the form of shares or profit participation certificates in accordance with the law.
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