Authorised and conditional capital in the AG
Not all capital increases are created equal. Sometimes you need a precise amount, right away. Other times you need the flexibility to increase the capital over the coming years without calling a general meeting every time, or to do so automatically when someone exercises an option. Swiss AG law, reorganised by the revision in force since 1 January 2023, offers different tools for these scenarios. Let’s look at conditional capital and the capital band, often mentioned alongside the old concept of “authorised capital”.
Why flexibility matters
A growing company raises capital in stages: a round today, employee stock options tomorrow, a convertible loan that will turn into shares later on. Calling an extraordinary general meeting and going to the notary for every move is slow and costly. Flexible capital tools exist precisely to prepare the legal framework in advance, so that the operation can be executed when needed.
Conditional capital
Conditional capital is capital that increases automatically when conversion or option rights previously granted are exercised. The articles of association set in advance the maximum amount up to which the capital can grow; the actual increase takes place gradually as the holders exercise their rights.
It is the natural tool for:
- stock option plans for employees and collaborators;
- convertible bonds or loans subscribed by investors;
- financial instruments that give the right to subscribe for shares in the future.
The advantage is that, when the beneficiary exercises the option, the capital adjusts without a new general-meeting resolution for each exercise. The trade-off is that the subscription rights of existing shareholders are governed specifically in the articles of association from the outset.
The capital band
The capital band is the most significant innovation of the reform and replaces, while broadening, the old authorised increase. The articles of association authorise the board of directors, for a maximum period provided by law, to increase or reduce the share capital within a predefined range: a lower limit and an upper limit relative to the registered capital.
Within this band the board can act by its own resolution, without calling a general meeting for each operation. It is the ideal tool to:
- manage investment rounds close together;
- react quickly to financing opportunities;
- carry out repeated reductions and increases with agility.
The difference from conditional capital is clear-cut: the capital band gives discretionary power to the board within a range; conditional capital is triggered automatically only when someone exercises a right already granted.
How to choose between them
| Objective | Suitable tool |
|---|---|
| Precise, one-off amount | Ordinary increase |
| Stock options and convertibles | Conditional capital |
| Multi-year flexibility for the board | Capital band |
In practice the three tools coexist: a scale-up may have an ordinary increase to close the round in progress, conditional capital for the incentive plan and a capital band for future rounds.
Steps not to overlook
- Statutory basis: both conditional capital and the capital band must be provided for in the articles of association, with amounts, time limits and rules on subscription rights.
- Shareholders’ subscription rights: they must be managed and, if limited or withdrawn, justified in accordance with the law to avoid challenges and unwanted dilution.
- Notarial deed and register: amendments to the articles and the execution of increases go through the notary and entry in the commercial register.
- Certifications: contributions in kind or set-off of claims require a report and review by a licensed auditor.
- Tax aspects: increases may generate issue stamp duty above the statutory exemption thresholds.
In summary
Conditional capital and the capital band are the tools with which a Swiss AG prepares today the flexibility of tomorrow: the first to trigger the increase when an option is exercised, the second to give the board room for manoeuvre over several years. Choosing them well right from incorporation or from the articles saves general meetings and notarial deeds during the years of growth.
Are you structuring the cap table to welcome investors and incentive plans? SIH ONE’s corporate division designs articles of association and capital instruments tailored to your growth path.