Classes of Different Shares in Switzerland (AG/SA): Complete Guide to Share Capital, Voting Rights & Governance
Under Swiss law, the public limited company (Société Anonyme – SA/AG) enjoys significant flexibility in structuring its share capital. The Swiss Code of Obligations (CO) allows the creation of different classes of shares in Switzerland, each with distinct rights. This strategic tool enables founders, investors, and other stakeholders to strike the perfect balance between control, return, and risk. Beyond ordinary shares, preferred shares, shares with preferential voting rights, and participation certificates are sophisticated mechanisms. Understanding these different classes of shares in Switzerland is essential for anyone seeking to optimise their company’s governance and financing.
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Legal Basis and General Principles of Different Share Classes in Switzerland
The legal basis for the different classes of shares in Switzerland is mainly found in Articles 652b, 654, 693, and 704 CO. These provisions set out the rules for issuing and managing various categories of shares, provided that the company’s articles of association expressly provide for and detail these distinctions.
Main types:
- Ordinary shares: Standard form, granting rights proportional to the share capital.
- Preferred shares: Offer specific financial advantages, without voting rights.
- Shares with preferential voting rights: Allow separation of control from capital, granting increased decision-making power.
- Participation certificates: Financial instruments granting profit participation without voting rights.
The articles of association must specify the different classes of shares in Switzerland, detail the rights and obligations of each category, and outline any restrictions (transfer, privileges, etc.). Mastering these classes of shares in Switzerland is the first step towards successful structuring.
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Ordinary Shares: The Foundation of Share Capital
Ordinary shares are the default class of shares. They represent the basic participation in the share capital of an SA and are the starting point for any business project. They are often used for simple and transparent structures where each shareholder’s rights are proportional to their investment.
Features:
- Right to dividends: Proportional to the nominal value of the share. Each shareholder receives a share of distributable profits according to their stake.
- Voting rights: The principle is “one share, one vote” (Art. 692 CO), unless otherwise stipulated in the articles of association and permitted by law. This is the foundation of shareholder democracy in an SA.
- Residual rights upon liquidation: Ordinary shareholders are paid last. They recover their capital only after creditors and holders of higher-ranking shares.
Example: A Geneva-based services company issues 1,000 ordinary shares with a nominal value of CHF 100 each. Every shareholder has voting rights proportional to their holdings and receives Swiss dividends according to their share in the capital. The structure is simple and transparent.
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Preferred Shares: A Financial Attraction Tool
Preferred shares are designed to attract investors by offering them financial benefits in exchange for limited or no voting rights. They are widely used to raise funds without excessively diluting founders’ decision-making power. They are among the most relevant classes of shares in Switzerland for growth financing.
Possible privileges (Art. 654 CO):
- Preferential dividend: Preferred shares receive a dividend (often at a fixed rate) before ordinary shares.
- Priority upon liquidation: Holders of preferred shares are reimbursed before ordinary shareholders.
- Cumulative dividend: If the preferred dividend is not paid in a given year, it is carried forward and owed in subsequent years, ensuring future remuneration.
Example: A biotech scale-up in Vaud issues 3,000 preferred shares to a group of business angels. These shares carry a 6% preferential dividend and repayment priority in the event of a sale or liquidation. In exchange, investors have no voting rights at the general meeting. The founders thus retain full decision-making power while securing growth capital.
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Shares with Preferential Voting Rights: A Control Mechanism
These shares allow certain shareholders to exert decisive influence with a minority stake in the capital. They are one of the most effective classes of shares in Switzerland for preserving family or founder control. This mechanism separates decision-making power from financial investment.
Conditions (Art. 693 CO):
- Registered shares only: They cannot be bearer shares.
- Fully paid-up: Their nominal value must be entirely paid.
- Nominal value ratio: The ratio may not exceed 10:1 (e.g., if an ordinary share has a nominal value of CHF 100, a preferential voting share may not have a nominal value lower than CHF 10).
Example: A Zurich founder sets up a Swiss company SA with 1,000 ordinary shares of CHF 100 and 500 preferential voting shares of CHF 10. Both classes grant one vote each. Thus, the founder holds 33% of the capital but 66% of the voting rights, enabling them to bring in investors without losing control.
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Participation Certificates: An Alternative without Voting Rights
Participation certificates are securities allowing profit distribution without conferring political power. They are used to reward employees or finance projects without affecting governance.
Features:
- Profit participation: They grant the same financial rights as shares.
- No voting rights: Holders cannot participate in the general meeting.
- Convertible option: The articles of association may provide for conversion into shares under certain conditions.
Example: A Zug-based fintech wants to motivate key employees. It issues 500 participation certificates with a profit bonus clause for three years. Employees do not take part in decisions but share in the company’s success.
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A Tailored Strategy
Structuring share capital through the creation of different share classes in Switzerland is a powerful strategic tool for organising governance, attracting investors, and protecting stakeholders’ interests. From ordinary shares to preferential voting shares and preferred shares, Swiss law offers a sophisticated range of options for structuring share classes.
However, implementing these mechanisms requires specialised legal expertise to draft precise articles of association and robust shareholders’ agreements. Poor drafting can lead to costly disputes and jeopardise the company’s stability.
This is where My Swiss Company SA, a Swiss Corporate Services Provider with over 15 years’ experience, stands out as the go-to expert. With their expertise in company creation and structuring, they master all different classes of shares in Switzerland and help adapt these instruments to your company’s specific situation. Their expertise guarantees legal security for all shareholders and long-term stability.
Expert Notes to Consider:
Protection of Minority Shareholders: The Double Majority under Article 704 CO
Swiss law has established strong safeguards to prevent majority shareholders from abusing their power. Article 704 CO is central to this mechanism. It stipulates that certain particularly important decisions cannot be taken by a simple majority. They require a “double majority”:
- Two-thirds of the votes represented at the general meeting, and
- The absolute majority of the nominal values represented at the meeting.
This rule applies to fundamental decisions such as changing the company’s corporate purpose, altering its duration, or introducing new classes of shares with different rights. It effectively protects holders of preferential voting shares and minority shareholders from dilution or detrimental decisions.
Registered Shares vs. Bearer Shares
The distinction between these two types of shares has become even more important following the 2019 reform. The aim was to strengthen the fight against money laundering and terrorist financing by increasing transparency over shareholder identity.
- Registered shares are recorded in the company’s share register in the shareholder’s name. Ownership transfer is formalised by endorsement and updating the register. This is the standard in Switzerland.
- Bearer shares do not name the shareholder and are transferred by hand-to-hand delivery, making them less transparent.
Since 2019, bearer shares have been prohibited except for listed companies or those with special authorisation from the Commercial Register. Many companies have been forced to convert bearer shares into registered shares.
Capital Contribution and Minimum Capital
The recent revision of company law updated the rules for capital formation and increases. It introduced stricter rules for contributions in kind. To pay up part of the capital with non-cash contributions (e.g., a patent or a machine), a detailed report must be provided to ensure the asset’s value matches the nominal value of the shares issued.
Although the minimum share capital remains CHF 100,000, the rules for capital increases and reductions have been relaxed. The introduction of a “capital band” now allows greater flexibility in managing equity, while maintaining a strict legal framework to protect creditors and shareholders.
FAQ: Share Classes under Swiss Law
Q1: What is a share class in Switzerland?
A share class in Switzerland is a category of shares with specific rights and obligations differing from other shares in the same company. The Swiss Code of Obligations allows this flexibility so companies can tailor their capital and governance structures.
Q2: What are the main types of different share classes in Switzerland?
- Ordinary shares: Voting and dividend rights proportional to nominal value.
- Preferred shares: Generally without voting rights but with financial advantages such as preferential dividends or priority repayment upon liquidation.
- Shares with preferential voting rights: Allow holders to have greater voting power than their capital stake.
- Participation certificates: Financial instruments granting profit and liquidation proceeds but without voting rights.
Q3: How can a company issue different share classes?
The company must explicitly provide for them in its articles of association. A notary drafts these articles and files them with the Commercial Register for them to be valid.
Q4: How do preferential voting shares help retain control of a company?
Swiss law (Art. 693 CO) allows them to have a lower nominal value than ordinary shares while granting the same voting rights. For example, with a 10:1 ratio, a shareholder can own 10% of the capital but 50% of the votes, ensuring control even when opening capital to investors.
Q5: Do preferred shares have voting rights?
No. Preferred shares are designed to attract investors seeking stable returns rather than decision-making power. They are often used in fundraising.
Q6: What is Article 704 CO and what is its role?
It protects minority shareholders from majority abuse by requiring a double majority for fundamental decisions (two-thirds of votes and an absolute majority of nominal values represented).
Q7: Are bearer shares still legal in Switzerland?
No. Since the 2019 reform, bearer shares are generally prohibited to increase transparency and fight money laundering. They must be converted to registered shares unless issued by a listed company or with special authorisation.
Q8: What is the role of My Swiss Company SA in this process?
As a fiduciary with over 15 years’ experience, My Swiss Company SA assists companies in selecting the optimal share classes for their project, drafting articles of association and shareholders’ agreements, and ensuring full legal security for long-term stability.
