A Participation certificate (PC) is a special form of participation in Swiss stock corporations (
Partizipationsschein). Although this security secures property rights in the issuing company, the participation certificate does not confer any membership or voting rights. The issue of this special financing tool is intended to provide the company with equity capital. By not having voting rights, the company also protects itself against unintended influences from unwanted shareholders. After all, these shareholders have no voting rights and thus only limited or no influence at all on the company's policy.
The participation certificate cannot be compared with the "Certificate of Participation" in Anglo-Saxon parlance as this Certificate of Participation) is a
financial instrument
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form ...
, a form of
financing
Funding is the act of providing resources to finance a need, program, or project. While this is usually in the form of money, it can also take the form of effort or time from an organization or company. Generally, this word is used when a firm uses ...
, used by
municipal
A municipality is usually a single administrative division having corporate status and powers of self-government or jurisdiction as granted by national and regional laws to which it is subordinate.
The term ''municipality'' may also mean the go ...
or government entities which allows an individual to buy a share of the
lease
A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...
revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
of an agreement made by these entities. It is different from a
bond
Bond or bonds may refer to:
Common meanings
* Bond (finance), a type of debt security
* Bail bond, a commercial third-party guarantor of surety bonds in the United States
* Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
issued by these agencies since participation certificates are secured by lease revenues. Municipal and government entities use this instrument to circumvent restrictions that might exist on the amount of
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
in other forms they able to take on.
Certificates of Participation are also a new form of credit instrument whereby
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s can raise funds from other banks and other central bank approved financial institutions to ease
liquidity
Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include:
* Market liquidity, the ease with which an asset can be sold
* Accounting liquidity, the ability to meet cash obligations when due
* Liqui ...
. In this case banks have the option to share their
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
asset
In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
(s) with other banks by issuing participation certificates. With this participation approach, banks and financial institutions come together either on risk sharing or non-risk sharing basis. While providing short term funds, participation certificates can also be used to reduce risk. The rate at which these certificates can be issued will be negotiable depending on the
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
scenario.
Edwin O. Fischer: ''Finanzwirtschaft für Anfänger.'' 4., überarbeitete Auflage, Oldenbourg, München/ Wien 2005, , S. 194.
Art
657 OR
Government finances
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