Participation certificates are an instrument of Swiss company law that allows companies to raise equity without diluting the voting rights of existing shareholders (Art. 656a ff. CO). This article places the instrument in historical context and explains its legal fundamentals. It focuses on three applications common in practice: employee participation, investor and growth financing, and the restructuring of over-indebted companies. The article also outlines the formal requirements and limits to consider when introducing participation capital.
Introduction
Many Swiss companies eventually face the same question: where can additional capital come from without changing the existing majority and control structure? Swiss corporate law offers a dedicated instrument that resolves precisely this conflict of objectives: the participation certificate (Partizipationsschein). It gives capital providers an economic stake in the company without granting them a voting right at the general meeting (Art. 656a para. 1 of the Swiss Code of Obligations, CO). This article explains what a participation certificate is under Swiss law, where the instrument originates, and the typical situations in which Swiss companies rely on it today.
Table of Contents
1. What a Participation Certificate Is Under Swiss Law
2. Historical Background and Underlying Rationale
3. Three Typical Applications in Practice
4. Who Participation Capital Suits – and Where the Limits Lie
5. Conclusion
6. Digital Management of Participation Certificates with Konsento
What a Participation Certificate Is Under Swiss Law
Participation capital is equity separate from a company's share capital, which the articles of association may provide for (Art. 656a para. 1 CO). Participation certificates issued against such capital are created in exchange for a contribution, carry a nominal value, and – unlike shares – confer no voting right. Under the general reference provision of Art. 656a para. 2 CO, the provisions of company law governing share capital, shares, and shareholders apply by analogy to participation capital, participation certificates, and their holders (“PC holders”), unless the law provides otherwise. For this reason, the participation certificate is often described in practice as a “non-voting share.” In terms of economic rights, PC holders are largely on an equal footing with shareholders, in particular regarding dividends, liquidation proceeds, and subscription rights. In terms of participation rights – that is, voting rights and related rights – they are not. The specific rights involved, and how the instrument can be structured in detail, are addressed in depth in a separate article on the form and rights of PC holders.
Historical Background and Underlying Rationale
The participation certificate is a product of practice. It emerged in the 1960s, when individual Swiss companies issued non-voting equity securities modelled on the profit-sharing certificate (Genussschein) to raise equity without diluting the voting power of existing shareholders. The instrument was only given a statutory basis with the 1992 revision of company law, in Art. 656a–656g CO – essentially codifying what had already become established practice. The 2020 revision of company law, in force since 1 January 2023, adjusted individual provisions but confirmed the underlying rationale: a clear separation between capital participation and control of the company.
Three Typical Applications in Practice
In advisory practice, companies turn to participation capital for quite different reasons. Three scenarios occur particularly frequently.
Employee Participation Without a Say in Decisions
Growing companies want to give employees a stake in the company’s success without diluting the decision-making power of founders or existing investors. The participation certificate offers an instrument that differs significantly from purely contractual solutions such as phantom shares: it is a genuine equity security with statutory economic and information rights, while still conferring no voting right. Employees therefore receive more substance than with a purely virtual participation, while founders retain control of the company. We examine the choice between participation certificates and phantom shares – including the tax differences – in more depth in a separate article.
Investor and Growth Financing Without Voting Dilution
When raising growth capital, the absence of a voting right is often in the interest of both sides: existing shareholders want to retain strategic control, while new investors are primarily interested in an appropriate financial stake. Because participation certificates can carry preferential rights – such as a preferred dividend – the absence of a voting right can be economically compensated. Our article on financing with participation capital and preferential rights shows how such preferential structures work in practice and what contractual safeguards are advisable.
Restructuring Over-Indebted Companies
In financially strained situations, participation capital offers a middle path between debt and equity: unlike debt financing, it does not commit the company to fixed, scheduled interest payments – distributions are subject to a resolution of the general meeting and can be deferred where liquidity is tight. At the same time, issuing participation certificates does not dilute the voting rights of existing owners. For over-indebted companies, participation capital can therefore be a restructuring instrument that balances the interests of the entrepreneurs and new capital providers.
Who Participation Capital Suits – and Where the Limits Lie
Participation capital is not a universal instrument. Introducing it requires a resolution of the general meeting, an amendment to the articles of association, and a public deed – a considerably more formal process than, for instance, setting up a phantom share plan. For unlisted companies, a further statutory ceiling applies: participation capital may not exceed twice the share capital (Art. 656b para. 1 CO). In practice, investors also expect economic compensation for the absence of a voting right – typically in the form of preferential rights under the articles of association or supplementary contractual arrangements. If this compensation is overlooked or set too low, the instrument is often difficult to place with investors.
Conclusion
The participation certificate addresses a recurring business problem: the need for additional capital combined with the wish not to share control of the company. Whether the instrument is suitable depends less on the question of “whether” than on the questions of “for what purpose” and “how”: employee participation, growth financing, and restructuring each place different demands on how the instrument is structured. Companies opting for participation capital should therefore consider the specific application from the outset – from the statutory basis and the rights of PC holders through to ongoing administration.
Digital Management of Participation Certificates with Konsento
Whatever your reason for choosing participation capital, its ongoing administration – from the register of PC holders to the information duties at the general meeting and the calculation of capital and participation ratios – requires a structured foundation. Konsento fully supports participation certificates as a dedicated financial instrument, with an automatically maintained register of PC holders and accurate treatment in the cap table and transaction register. This gives you a clear overview at every stage, from introduction to day-to-day administration.