Founding a start-up means investing not just money, but above all time, passion and a vision. It is all the more painful when, after several rounds of financing, the founders find themselves reduced to minority shareholders in their own company. Shares with privileged voting rights can help – provided one knows how to use them. This article explains what shares with privileged voting rights are, when their use makes sense, and what advantages and disadvantages they entail for founders and investors alike.
What Are Shares with Privileged Voting Rights?
Swiss company law is governed by the general principle that a shareholder's voting power is proportionate to their capital contribution: the more capital, the more influence. The “one share, one vote” principle applies.
Pursuant to Art. 693 CO, the articles of association may provide that each share carries one vote regardless of its par value. In practice, this works as follows: the company issues two categories of shares – shares with privileged voting rights at a lower par value (e.g. CHF 0.10) and ordinary shares at a higher par value (e.g. CHF 1.00). Since each share carries one vote, holders of the privileged voting shares enjoy ten times the voting weight for the same capital contribution.
The law caps this so-called voting leverage at a maximum of 10:1: the par value of ordinary shares may not exceed ten times the par value of shares with privileged voting rights. Furthermore, shares with privileged voting rights may only be issued as registered shares and must be fully paid up.
If shares with privileged voting rights are combined with participation certificates (see the blog post of 20 March 2026), voting control over a company can theoretically be secured with a very small capital stake.
When Does It Make Sense to Introduce Shares with Privileged Voting Rights?
- Upon the entry of investors: The classic start-up scenario: founders A, B and C have developed an innovative idea and now wish to raise capital for expansion. Equity from third parties inevitably dilutes both the voting rights and the economic upside potential of the founders. Shares with privileged voting rights allow founders to raise capital without losing operational control. This is particularly valuable in technology-driven companies, where the founders' expertise and vision constitute the true capital of the business.
- In family-owned companies: Shares with privileged voting rights make it possible to secure control for the heir who actively manages the business – without requiring them to hold a larger capital stake than their entitlement.
Advantages for Founders
- Retention of entrepreneurial control: The strongest argument. Whoever retains a voting majority can push through strategic decisions even against the wishes of financial investors.
- Greater flexibility in raising capital: Without shares with privileged voting rights, founders wishing to raise capital while retaining control would practically be limited to issuing participation certificates or taking on debt. The latter increases insolvency risk and is often simply unavailable for high-risk growth financings.
- Long-term perspective: Founders with secured control can take decisions with a long time horizon, without being exposed to the short-term return demands of financial investors.
Disadvantages and Risks for Founders
- Valuation discount: When founders reserve higher voting shares over investors by means of privileged voting rights, this often results in a lower valuation of newly issued ordinary shares. The cost of capital rises.
- More complex capital structure: Shares with privileged voting rights increase the complexity of the capital structure, which can complicate later restructurings.
Advantages for Investors
- Transparency: Knowing upfront that the founders retain control allows for a well-informed investment decision. There are no hidden shifts in power.
- Strong corporate governance: An engaged founder with secured control can often oversee management more effectively and create long-term value.
- Combinable with preferential financial rights: Investors can compensate for their weaker voting position through preferential economic rights – for example, through preferred shares with priority in dividends and liquidation proceeds.
Disadvantages for Investors
Limited minority protection: The central risk. Shares with privileged voting rights enable the controlling shareholder to divert resources to themselves without the minority being able to intervene. The law does provide certain exceptions – the voting privilege does not apply to the election of the auditors, the appointment of experts to examine the management, the resolution to order a special audit, or the resolution to bring an action for liability (Art. 693(3) CO) – but minority protection remains limited.
Practical Recommendations and Legal Safeguards
Shares with privileged voting rights alone are not a cure-all. For a balanced solution, they should always be combined with a well-drafted shareholders' agreement. A shareholders' agreement has purely contractual effect – it does not bind the company itself – but allows the rights of all parties to be secured at the contractual level. Typical areas of regulation include:
- Veto rights of investors for significant board decisions
- Reporting obligations and transparency
- Exit arrangements, in particular drag-along and tag-along rights
- Anti-dilution protection in further financing rounds
It should also be noted that the introduction of shares with privileged voting rights requires a qualified majority resolution: at least two-thirds of the votes represented and an absolute majority of the par value of shares represented.
Conclusion
Shares with privileged voting rights are a powerful but double-edged instrument. For start-up founders who wish to pursue their entrepreneurial vision over the long term while relying on external capital, they can make all the difference. The prerequisite, however, is that the interests of all parties are fairly balanced and the legal framework is carefully structured.
