Capital increase of a stock corporation: Process, Forms & Requirements

What is a capital increase?

A capital increase refers to the raising of the share capital of a stock corporation through the issuance of new shares or by increasing the nominal value of existing shares.

The decision for a capital increase can have various economic motives. Many companies aim for expansion and require additional capital to penetrate new markets or to expand their production capacities. Investments in new technologies also often require substantial financial resources, which can be raised through a capital increase. Another important motivation can be the strengthening of the equity base, which improves the financial stability of the company.

The decision between equity and debt capital depends on the corporate strategy, the market conditions, and the financial situation of the stock corporation.

Types of capital increases in a stock corporation

Swiss corporate law recognizes three different types of capital increases, which differ in their procedures and areas of application.

Ordinary capital increase

The ordinary capital increase is the traditional and most frequently used form of capital increase under Swiss corporate law. It can take place either by increasing the nominal value of existing shares or by issuing new shares. This form is characterized by a structured process involving various legal and formal requirements. The following requirements apply to the resolution of the general meeting:

• In principle, the absolute majority of the represented nominal share values

• Exception: A two-thirds majority of the represented votes is required in the case of a capital increase by contribution in kind or set-off against a claim

The board of directors must register the capital increase with the commercial register for entry within six months of the general meeting's resolution. New shares can only be issued after registration in the commercial register.

Conditional capital increase

The conditional capital increase allows for a flexible adjustment of the share capital based on specific conditions. The conditional capital increase is decided at the general meeting, and the share capital then increases automatically as soon as certain conditions are met - without a new resolution of the general meeting.

Typical use cases:

• Convertible bonds: Creditors can convert their claims into shares

• Employee participation programs: Issuance of stock options to employees

The conditional capital increase must be anchored in the articles of association and may amount to a maximum of 50% of the existing share capital. In this form, shareholders waive their subscription rights in favor of the defined beneficiaries.

Practical example

The Tech Innovations stock corporation plans a conditional capital increase to motivate its employees by letting them participate in the company. . At the general meeting, it is decided that the share capital can be increased by a maximum of 20% if employees exercise their options.

As soon as employees decide to convert their options into shares, the capital increase occurs automatically without any further resolution of the general meeting. The articles of association of Tech Innovations stock corporation include this regulation and ensure that shareholders waive their subscription rights to allow employees access to the new shares.

Through this measure, Tech Innovations stock corporation not only strengthens the motivation of its employees but also enables a flexible adaptation of the capital according to the corporate goals.

Capital band

The capital band is a flexible instrument that allows companies to increase or decrease their equity base within a specified range.

The capital band authorizes the board of directors to adjust the share capital registered in the commercial register for a period of up to five years within a bandwidth previously determined by the general meeting. Within this authorization, the board of directors has the opportunity to adjust the share capital flexibly and as needed.

Key features:

• Flexibility in adjusting the capital

• Increase or decrease of the share capital within specified limits

• Statutory anchoring required

• Maximum increase respectively: 50% of the currently registered share capital

Here, it should be noted that the implementation of the capital band in the form of a capital reduction is only possible provided that the stock corporation is audited.

Practical benefits:

• Responsiveness to market changes

• Opportunity for rapid capital raising without a general meeting resolution

The capital band offers companies an attractive way to dynamically design their financing strategy and quickly adapt to changing market conditions.

Practical example

The Tech & Consult Zürich stock corporation decides to introduce a capital band with a lower limit of CHF 500'000 and an upper limit of CHF 1'500'000 - thus the maximum up and down - on top of the existing capital of CHF 1'000'000. When a promising takeover opportunity of a competitor arises, the board of directors can increase the share capital to CHF 1'300'000 within a few days to finance the acquisition.

A few months later, after the successful integration of the acquired company and increased liquidity, the board of directors decides on a capital reduction to CHF 800'000 to return excess capital to the shareholders. This flexibility allows Tech & Consult Zürich stock corporation to optimally adapt its capital structure to the respective business situation without having to convene time-consuming general meetings.

Legal framework in the revised corporate law since 2023

Minimum contribution per share

Corporate law was comprehensively revised in 2023 and brings significant changes for capital increases. It is now permitted to issue shares with a nominal value of less than CHF 0.01 – provided that the nominal value is greater than zero. Nominal values of CHF 0.01 (1 cent) or CHF 1 are frequently used.

Share capital in foreign currencies

Since the 2023 corporate law revision, stock corporations are allowed to maintain their share capital in a functional foreign currency, provided that this is essential for business operations. Currently permitted are Euros, US Dollars, British Pounds, and Japanese Yen, in accordance with Annex 3 of the revised Commercial Register Ordinance. A change of capital currency can be decided by the general meeting at the beginning of a financial year. This simplifies the capital structure especially for companies that already keep their accounting in a foreign currency.

Types of contributions - how can capital be brought in?

In a capital increase, the new share capital must be paid up. In Switzerland, three main types are common for this purpose:

1. Cash contribution

The most common form: New shares are subscribed by paying money into a blocked bank account. It is particularly suitable for financing growth.

2. Contribution in kind

Here, assets such as real estate, vehicles, or patents are contributed instead of money. This method requires an assessment by an auditor and disclosure in the commercial register.

3. Set-off against claims

Existing claims against the stock corporation can be converted into shares. This method is often used to convert liabilities into equity capital and improve the equity structure.

Each method is subject to clear legal requirements (especially Art. 652 et seq. CO) and must be carefully planned and documented.

Conclusion

A capital increase of a stock corporation is an important tool for strategic corporate financing. The different types - ordinary, conditional, and authorized capital increase - offer companies flexible opportunities to raise capital:

• Growth financing: Targeted investments in new markets and business fields

• Securing liquidity: Strengthening the financial basis for operational business activities

• Strategic partnerships: Integration of new shareholders for corporate development

The legally compliant execution of a capital increase requires sound expertise in Swiss corporate law. Benefit from our experience for an efficient and legally secure capital increase. Jurata is at your side as a competent partner.