The Problem

In Europe – in particular in the EMU-Member States – the trend towards no par value shares seems inexorable. Under Swiss law, issuing no par value shares is so far not possible. The par value serves to define the scope of shareholders' rights and is a relevant definition for tax purpose.

Business reasons to introduce Swiss no par value shares

The par value of a share is not an appropriate calculation basis for a return on equity ratio. Decision-sensitive for the investors principally are: earning capacity, the corporate strategy, the net asset value and the dividend policy - all these elements are not reflected in the par value.

A particular advantage of the no par value shares is the easier possibility to split the shares. Most of the shares listed on the Swiss Exchange (SWX) have reached a "weight" that makes them unattractive for certain investor categories. A reduction of the trading price of a share can be achieved by reducing the par value. According to the Swiss corporation law the share-splitting is limited to a par value of CHF 10. As relevant (in particular listed) companies already took advantage of this method the legally possible splitting potential has been consumed or would not be sufficient to achieve an adequate law share price for specific markets.

American Depository Receipts (ADR) – a possible way out

To improve attractiveness on the American stock market, Swiss Blue Chips make use of ADRs. This solution has the disadvantage that the purchaser of such "receipts" disposes only of a pecuniary position but not of personal rights of a shareholder. The introduction of no par value shares would enable additional sharesplitting possibilities. As a result, Swiss shares could be adapted to the specific requirements of new investor categories. As most of the companies listed on the SWX consolidated their structure of shares recently to only one category of shares, the introduction of the no par value share would be the last step to a flexible and Euro-adapted capital structure for Swiss companies.

The political challenge towards Swiss no par value shares

There are three possibilities to introduce no par value shares under Swiss law:

  • Adaptation of the par value provisions in the Swiss Code of Obligations on the occasion of the next partial revision of the corporation law. An adaptation in this connection would not be complicated from a legal point of view. Only the articles concerning the par value would have to be adjusted to the no par value shares. The system of the joint-stock company as capital company could be retained. But on the political end it will take probably a long time until a revision of the corporation law will be carried out. The partial revision of the federal law on stock-exchanges, however, can be expected sooner in Switzerland. The drafting of provisions concerning no par value shares in this connection would perhaps be more successful.
  • Another possibility would be an enactment of provisions to introduce the no par value shares connected with the capital market regulations for large companies. Even if in Switzerland the unity of company law is still upheld, it has already been broken through in important areas.
  • The third possibility would be the introduction in a separate act (e.g. the German legislator's approach). Up to now the opposition against a new special act seems to be considerable. However, already today the traditional corporation law is over-lapped by many other regulations on the capital market.

The content of this article is intended to provide general information on the subject matter and is not a legal advice. An individual matter requires legal advice according to the specific circumstances.

For further information please contact Dr. Gaudenz G. Zindel or Dr. Peter Burkhalter.