Participation certificates - how they are created and what rights they confer

Participation certificates can represent a lucrative alternative to regular share capital for corporations. The participation capital established by the participation certificates is also attributed to equity, but the participants have no voting rights. With few but important exceptions, participation certificates are equivalent to shares. Therefore, they are sometimes also called non-voting shares.

The Creation

‍Whether and how many participation certificates are issued is up to each company. Collectively, the participation certificates form the participation capital, which can be provided for by the statutes, according to Art. 656a para. 1 OR. These participation certificates are issued against a contribution, have a nominal value but no voting rights. Participation certificates must be explicitly designated as such. As the holder of these certificates, one is entitled to profits or, in the event of liquidation, to the residual value of the company. Participation capital can be created in the processes of approved or conditional capital increase (Art. 656b para. 5 OR). In such an increase, no more than half of the existing capital may be issued (Art. 656b para. 4 OR). Overall, the participation capital may not exceed twice the share capital.

‍Legal Position

‍Holders of participation certificates not only have no voting rights but also no associated rights unless the statutes provide otherwise (Art. 656c para. 1 OR). These rights include the right to convene the General Assembly, the right to participate, the right to information, the right to inspection, and the right to submit proposals (Art. 656c para. 2 OR). If the statutes do not grant the participants the right to information and inspection or the right to request the initiation of a special audit, they can submit a written request to the General Assembly. Otherwise, the shareholders and participants are very similarly positioned. This is manifested in that shareholders can worsen the position of the participants, but only if the position of the shareholders is also worsened in the same manner (Art. 656f para. 3 OR). It is also important to know that the participation capital is counted towards the share capital in the provisions regarding the restriction of the acquisition of own shares, the general reserve, the initiation of a special audit against the will of the General Assembly, and about the reporting obligation in case of capital loss (Art. 656b para. 3 OR).

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