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Capital reduction audit

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There are various reasons why the bodies of a corporation (e.g. a joint stock company) could opt for a capital reduction: This could be due to excessively high (dormant) capital, the desire to remove treasury shares, the tax-free distribution of a dividend or a balance sheet restructuring measure.

The Swiss Code of Obligations (CO) distinguishes between two forms of capital reduction: the ordinary capital reduction and the capital reduction within the capital band. In the case of a capital reduction within the capital band, the provisions on the securing of claims and the audit confirmation in the case of the ordinary capital reduction are applicable mutatis mutandis (Art. 653u para. 3 CO in conjunction with Art. 653m para. 1/2 CO). The capital reduction can be carried out in two different ways: by constitutive or by declarative reduction.

In the case of a constitutive reduction, funds are released for the company. In contrast, no funds are released by a declaratory reduction. This type of capital reduction takes in the context of (balance sheet) restructuring, as part of which a portion of the capital is offset against the cumulative losses – up to a maximum of the minimum required capital depending on the type of company. If the capital is subsequently increased back to the original level by new funds, this is known as a “harmonica”. In this case, the situation of the creditors is improved, which is not possible in the case of simple offsetting against cumulative losses or even a constitutive capital reduction.

Good to know

Both in the case of a constitutive as well as a declaratory capital reduction, an audit report by a licensed audit expert is necessary – such as the senior auditors at PRÜFAG. If the capital is reduced as part of a restructuring measure and at the same time increased back to the original amount, no audit report is required.

It is important to emphasize that the articles of association can only authorize the board of directors to reduce capital if the company is subject to at least a limited statutory examination (Art. 653s para. 4 CO). According to doctrine, the minimum capital of CHF 100,000 is the absolute lower limit for the capital band (EXPERT FOCUS, June 2021 edition).

Project Lead
Project Lead
  • Daniel Carotta

    Daniel Carotta

    +41 44 533 76 00


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