Employee participation in Switzerland: advantages of phantom shares and participation certificates
Introduction
Employee share ownership is an effective way of attracting skilled workers, retaining them in the long term and incentivizing them by giving them a stake in the company's success. In Switzerland, start-ups and established companies have various options for allowing their employees to participate financially.
In practice, share plans and share option plans (so-called ESOPs) are the most common instruments. This article discusses two less frequently used instruments and their distinguishing features: Phantom shares and participation certificates. According to the authors, ambitious entrepreneurs will increasingly prefer these two alternative types of employee participation in 2025, as they allow a clear separation of corporate control and financial participation.
Table of contents
- Main difference to share and share option plans
- Phantom shares: virtual participation without membership rights
- Participation certificates: equity participation without voting rights
- Rights and obligations: A crucial difference
- Introduction of participation capital: legal requirements
- How Konsento supports you
- Conclusion and next step
Main difference to share and share option plans
Employee participation in the form of phantom shares and participation certificates differs from share and share option plans primarily in that owners of such shares have a purely financial claim to the company. In other words: Neither phantom shares nor participation certificates confer voting rights on their holder (cf. Art. 656c para. 1 CO: 'The participant has no voting rights [...]'). These alternative participation structures are therefore particularly suitable for entrepreneurs or founding teams who wish to retain (sole) control over the company. The participation of employees with phantom shares or participation certificates can therefore be particularly recommendable if the company follows a clear, long-term vision of the founding team.
Phantom shares: virtual participation without membership rights
Phantom shares are a purely economic participation in the company with a contractual basis. They reflect the value of real shares, but do not grant employees any shareholder rights. Instead, they receive contractually guaranteed payments that depend on the company valuation or distributions (in particular dividends). For tax purposes, phantom shares are only treated as income when they are paid out, potentially resulting in advantages for companies and employees.
Participation certificates: equity participation without voting rights
Participation certificates are genuine equity securities with a basis in company law (Art. 656a ff. CO). They allow the holders to participate in the success of the company, but do not confer any voting rights. They therefore offer a combination of financial participation and genuine equity securities. Employees with participation certificates benefit from dividends and a possible increase in the value of the company shares.
Rights: A crucial difference
A key difference between phantom shares and participation certificates is the right to information. Employees with participation certificates have a legal right to information:
- Information on the convening of a General Meeting, its agenda items and motions as well as resolutions (Art. 656d CO)
- Written request to the General Meeting for information, inspection and initiation of a special investigation (Art. 656c para. 3 CO)
- No less favorable position compared to the shareholders in matters relating to the company's assets, such as the distribution of retained earnings and the liquidation result (Art. 656f CO)
- Filing an action for rescission, liability or dissolution
The Articles of Association may also provide for the following additional rights:
- The right to convene a general meeting, attend, obtain information, inspect and submit motions (Art. 656c para. 1 and para. 2 CO)
- Right to representation on the Board of Directors (Art. 656e OR)
By law, participation certificates never have voting rights at the General Meeting, even if the Articles of Association provide for the possibility of convening a General Meeting, submitting motions and participating in the General Meeting.
Phantom shareholders, on the other hand, have no legal membership rights. Their claims are limited to contractually agreed financial benefits.
Introduction of participation capital: legal requirements
The introduction of participation certificates requires a resolution by the General Meeting and a capital increase. This means
- Convening of the Annual General Meeting
- Vote on the capital increase
- Notarization of the resolution
- Amendment to the Articles of Association and entry in the commercial register
This formal process makes the introduction of participation certificates more complex than the implementation of a phantom share plan.
How Konsento supports you
The introduction of an employee participation program with participation certificates requires precise planning and correct implementation. Konsento offers you the following services:
- Simple preparation, implementation and notarization of general meeting resolutions thanks to agenda items, automatically generated minutes and seamless commercial register registration. An online notary can carry out the notarization directly at the general meeting.
- Legally compliant management of the register of participantsto ensure transparency and compliance.
- Correct consolidation of shareholdings across all financial instruments - whether shares, preference shares or participation certificates - within Konsento's electronic cap table.
Would you like to find out more about the introduction of employee participation certificates? Arrange a non-binding consultation with Konsento and get advice from our experts!
How Fehr Legal supports you
Fehr Legal specializes in providing legal advice to start-ups and SMEs on issues relating to ownership, control and corporate growth. A central area of the law firm is the support of entrepreneurs in the strategic planning of growth scenarios as well as the legal design and implementation of employee participation programs. Fehr Legal offers you the following services:
- Joint development of the long-term growth strategy - Analysis of corporate goals and discussion of the long-term growth strategy in the context of employee participation.
- Identifying the right employee participation program - Selection of the appropriate form of participation (share participation, share options, phantom shares or participation capital) based on the specific needs of the company.
- Legally compliant development and implementation of the participation program - Preparation of legal documents and support for the company in practical implementation.
Would you like to find out more about the introduction of employee participation plans and the possibilities of phantom shares or employee participation certificates? Arrange a non-binding consultation with Fehr Legal and get advice from our experts!
Conclusion and next step
The choice of the right employee participation program depends on your company's objectives. The authors recommend considering phantom shares and participation capital. While phantom shares are a flexible, easy-to-implement solution for economic participation, participation certificates offer real equity participation with certain asset and information rights.
Contact Fehr Legal for a non-binding consultationto find out whether phantom shares or employee participation certificates are better suited to your company.
Contact Konsento for a non-binding consultationto manage your employee shareholdings in the form of shares or participation certificates in a legally compliant manner.
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