Why your startup should be an AG instead of a GmbH if you plan on raising venture capital
In Switzerland, founding an AG is costly – not least because AGs have a high minimum capital requirement of CHF 100k (50k need to be paid in at founding). It’s easier to come up with the CHF 20k required to start a GmbH.
But if you plan on raising venture capital, an AG is the better choice than a GmbH. Here’s why:
- Stock split:
The minimum par value (Nennwert) of a share is CHF 100 for GmbHs and CHF 0.01 (soon even lower) for AGs. The lower this minimum, the more shares you can split your startup’s share capital into.
Being able to split the cake into more pieces makes raising capital and implementing employee participation plans easier. With many cake pieces, you’re more flexible in representing the ownership structure you negotiate with your investors or envisage for your employee participation plan. For example, if you have a GmbH and you want to allocate shares with a par value of CHF 50, you can’t (since the minimum is CHF 100). With the AG on the other hand, you can allocate 5k shares for a total par value of CHF 50.
Then there’s the psychological aspect: If your share capital is split into lots of shares, the price of each share is lower and, for this reason, easier to communicate. It also feels a lot better to get 10k shares instead of just 1, even if they represent the same par value and ownership stake.
- Fiduciary duties:
GmbH shareholders have a legal duty to keep from doing anything detrimental to the interests of the company. AG shareholders, on the other hand, commit only their money. The law does not impose any fiduciary duties on them.
Investors usually have no interest to become subject to any fiduciary duties towards the startups they invest in. For some investors, especially those with big portfolios, it might simply be impossible, because the different fiduciary duties towards their portfolio companies would contradict each other.
- Corporate governance:
In a GmbH, compared to an AG, more decisions have to be passed by the shareholders’ meeting and cannot be delegated to a board of directors or the management. The law’s list of non-transferable powers held by the shareholders’ meeting is 18 points long for the GmbH and 6 points long for the AG.
Needing the shareholders’ meeting to take so many decisions makes the company slower and less responsive the more shareholders it has.
- Authorized and conditional capital:
GmbHs cannot have authorized or conditional share capital like AGs. For startups, these are the most frequently used instruments for equity participation plans and for rapidly raising capital. Not having the opportunity to do an authorized or conditional capital increase makes implementing these plans slower and more complex for GmbHs.
In the future, AG law will become even more flexible in this point. With the “Aktienrechtsrevision” the parliament just passed, companies can authorize the board of directors to increase or decrease the share capital within a so-called “capital bracket” (Kapitalband) ranging between plus 50% and minus 50% of the registered share capital.
- IPO:
The shares of a GmbH cannot be listed on the stock exchange. So if you want to go public, you need an AG.
- Shareholder anonymity:
GmbH shareholders are listed in the commercial register. Anybody can go online and see their stakes, names and domiciles.
AG shareholders, on the other hand, are anonymous to the public (except for the founders). They are not visible in the commercial register.
In many cases, investors will be reluctant to make their investments public. They might not want the whole world to be able to track their investment activities and will therefore prefer to invest in AGs where they stay anonymous.
- Shareholders’ inspection and information rights:
By law, each individual GmbH shareholder has the right to request information about the company affairs at any time and (with some restrictions) see the company’s books. The more shareholders a company has, the more cumbersome and challenging this can become.
AG law is more flexible. The statutory information rights of the shareholders are more limited, but if needed, the shareholders’ agreement can still grant investors individual inspection and information rights.
- Share transfers:
Because GmbH shareholders are registered by name in the commercial register, the register entry needs to be changed with each share transfer. This makes GmbH share transfers expensive and unwieldy.
AG shares can be transferred much more easily – usually (if they aren’t physically issued) by a simple written assignment.
This blog post is for discussion and general information purposes only and should not be considered as legal advice.
Also, we’re talking about Switzerland here. In other countries, the situation can and will be completely different.