Reduction of the Share Capital in a Public Limited Company
The reduction of the share capital reduces the equity of a public limited company. There are many reasons why a company may reduce its share capital, such as to reduce excess liquidity or to compensate for a loss on the balance sheet.

Nowadays, start-ups and young companies are constantly looking for new investors and trying to increase their capital. Yet, in established companies, capital is often reduced because of excess cash, to compensate for a loss on the balance sheet or to distribute capital to shareholders.
As the name suggests, a reduction in share capital is the exceptional reduction or return of the share capital of a public limited company, or in other words, it is a “definancing”. There are two types of capital reduction:
- The ordinary capital reduction (Art. 732 ff. OR)
- Reduction of capital in the case of negative net worth (Art. 735 OR).
Ordinary Reduction of the Share Capital
In the ordinary reduction of the share capital, assets are effectively returned to the shareholders. There are several reasons for a company to reduce its capital, including:
- Eliminating overcapitalisation
- Cancelling treasury shares
- Removing shareholders
As an ordinary capital reduction leads to a decrease in the company’s assets and strongly affects the interests of creditors, Swiss law sets out detailed requirements for its implementation. The main steps of an ordinary reduction are as follows:
- Coverage of debts: A certified auditor must confirm to the general meeting that the claims will still be fully covered after the capital reduction.
- Call on creditors and guarantee: A call to creditors is published three times in the Swiss Official Gazette of Commerce, giving creditors the opportunity to denounce or guarantee their claims within two months.
- Implementation of the capital reduction: After the period granted to the creditors expired and the securing of the claims, the actual reduction of capital is carried out by the notary.
Capital reduction in the case of negative net worth
The reduction of the share capital in the case of negative net worth is a reorganisation measure to compensate for a balance sheet loss. A loss on the balance sheet is defined as a situation in which the assets no longer cover the debts and equity. A capital reduction therefore reduces losses, as the “definancing” allows them to be offset on the balance sheet.
Capital fluctuation band of the revision of the law on limited companies
In order to facilitate capital increases and reductions and to make share capital amounts more flexible, a “capital fluctuation band” is to be introduced as part of the forthcoming revision of the law on limited companies. In future, the board of directors may be authorised by the articles of association to increase or reduce the share capital within a defined range for a maximum period of five years (Art. 653 ff. nCO). The revised provisions are expected to come into force in 2023.
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