The end of the transition period for companies limited by shares – is your company compliant?
On 1 January 2023 the reform of Switzerland’s legislation on companies limited by shares came into force, responding to the current economic environment and needs. Companies incorporated after this date have been required to comply with the new provisions from the outset. Those already in existence on the date were granted a two-year transition period to adapt their articles of association. With that transition period set to expire on 31 December 2024, the aim of this blog post is to provide an overview of the most relevant changes.
For the avoidance of doubt, the present overview limits itself to non-listed companies, and does not aim to be exhaustive. It seeks rather to look at the most relevant changes within different areas, i.e., those relating to general shareholder meetings (Section 1), the rights and obligations of shareholders (Section 2), the share capital (Section 3), the management of the company (Section 4), and the possibility to resolve disputes through arbitration (Section 5).
1. Changes pertaining to general shareholder meetings
Providing more flexibility than the old system, the new law expressly authorises general meetings to be held abroad or in multiple locations simultaneously (with live transmission of both sound and video to all venues, allowing for remote participation). Meetings may therefore take place in person, virtually (i.e., with no physical location)1, or in a hybrid format. Shareholders may also take decisions in writing or electronically, in accordance with Art. 701(3) of the Swiss Code of Obligations (“SCO”), unless a shareholder or a representative requests an oral discussion.2
While the board of directors will in principle be able to convene general meetings in a hybrid format or in multiple locations without the need to amend the articles of association, it will need to be expressly empowered to make use of the possibility to hold general meetings abroad or in a virtual format. As such, where the articles of association do not mention this possibility expressly, the board will not be able to make such a decision.
With respect to the conduct of the general meetings, the new law brings about an important innovation dealing with deadlocks in decision-making. In the event of a tie in votes, the chairman can have a casting vote (Art. 703(2) SCO). This possibility must again be provided for expressly in the articles of association and these therefore need to be amended if you want to benefit from this new possibility.
2. Changes pertaining to the rights and obligations of the shareholders
Aside from adapting or repealing provisions which had proven impractical under the old system, one of the main changes brought about by the new law has been the strengthening of the rights of minority shareholders.
In this context, the right to request a meeting has been enhanced so that now one can be requested by one or more shareholders representing at least 10% of the share capital or of the votes (Art. 699(3) SCO). The same figures, i.e., at least 10% of the share capital or of the votes, now apply for shareholders seeking to exercise the right to propose agenda items and submit questions prior to the general meeting (Art. 699b(1) SCO).
Some new rights have also been granted, including in particular a right to information for one or more shareholders representing at least 10% of the share capital or of the votes (Art. 697(2) SCO), a right to inspect for one or more shareholders representing at least 5% of the share capital or of the votes (Art. 697a SCO), and a right to initiate a special investigation (Art. 697c-697d SCO). If the latter already existed under the old system, this right may now be exercised if a violation is likely to harm the company or the shareholder.
In light of the above, we believe it sensible to adapt the articles of association to mirror the current legal provisions. Failure to do so will result in discrepancies, which may cause confusion; the new law will, however, override any contrary provisions in the articles of association, as these cannot limit or impair the shareholders’ rights.
3. Changes pertaining to the share capital
At the outset, it is worth highlighting that until 31 December 2022, the minimum par-value was 1 cent. As from 1 January 2023, shares must simply have a nominal value that is greater than zero. Two other important changes in relation to share capital, both necessitating an adaptation to the articles of association, warrant a mention:
Firstly, the possibility for companies to have their share capital in an accepted foreign currency (i.e., EUR, GBP, USD, or JPY), provided that it is equivalent to at least CHF 100,000 and is required for business operations (Art. 621(2) SCO). The relevant amendment to the articles of association requires a qualified majority of votes
(Art. 704(1)(9) SCO) and the resolutions of the general meeting and the board must be done as a public deed (Art. 621(3) SCO).
Secondly, the board may be empowered to vary the share capital within a bandwidth specified in the articles of association for a period not exceeding five years
(Art. 653s SCO). The decision to introduce a capital band must be determined at the annual or extraordinary general meeting and requires a qualified majority of votes
(Art. 704(1)(5) SCO).
The capital band mechanism replaces that of the authorised share capital. Any existing provisions to this effect in the articles of association will remain valid until expiry but cannot coexist with the introduction of a capital band, and will therefore need to be revoked.3 By contrast, the capital band may coexist with conditional share capital.
4. Changes pertaining to the management of the company
Delegation of business management by the board was formerly possible only where allowed for in the articles of association. The new law reverses the mechanism; the board may delegate the management of all or part of the company’s business in accordance with organisational regulations to individual members or third parties (the so-called executive board), unless the articles of association provide otherwise (Art. 716b(1) SCO).
Moreover, the new law has introduced a change in the board’s ability to take decisions by circular resolution (i.e., in writing or electronically). Indeed, the new provision allows for greater flexibility in that written form stricto sensu (i.e., containing a wet-ink or qualified electronic signature) is no longer required (Art. 713(2) SCO), unless stated otherwise (e.g., in organisational rules of the board). In the absence of a contrary provision of this kind, the board is free to take decisions via email exchanges or using applications such as WhatsApp, Telegram, or Messenger. Questions of proof and clarity of the board members’ consent remain reserved in practice.
Using the electronic form is, however, inconvenient for decisions that need to be filed with commercial registers, as these generally require supporting documents to be signed. Any circular resolutions will therefore need to include the signatures of all members of the board.
5. Changes pertaining to the resolution of disputes
As a final point, the amended statute provides for the possibility to resolve disputes through arbitration instead of using State courts (Art. 697n SCO).
If implemented, an arbitral tribunal seated in Switzerland will adjudicate disputes under company law based on an arbitration clause included in the articles of association (Art. 697n SCO). The procedure will be governed by the Civil Procedure Code, to the exclusion of the Private International Law Act (Art. 697n SCO). Further procedural aspects may be regulated in the articles of association, including by reference to existing arbitration rules. By way of example, the Swiss Arbitration Centre has published its Supplemental Swiss Rules for Corporate Law Disputes,4 alongside a model arbitration clause.5 This may be an interesting option for companies wishing to ensure that sensitive information pertaining to their business is kept confidential.
How can Deloitte Legal assist you?
Deloitte Legal provides a full range of corporate and good governance advice. With respect to the end of the transition period, we can assist with reviewing your existing articles of association and assessing notably their compatibility and compliance with the new law, with a particular focus on avoiding any unwanted effects as a result of conflicting provisions. In this context, we can formulate suggestions regarding the necessary or suggested changes based on your specific situation and preferences, or prepare new articles of association as needed. Our assistance can also include the preparation of the relevant supporting legal documentation (i.e., minutes, application to the commercial register, powers-of-attorney, etc.), the representation of the shareholder at the extraordinary general meeting before the notary public and coordination with the commercial register.
Our team would be delighted to help you adapt your articles of association to best suit your situation and goals while remaining compliant with the applicable legal framework.
If you would like to discuss this topic in more detail, please reach out to our key contacts below.
1 For clarifications regarding the virtual general meetings, see Communication OFRC 1/24 dated 20 June 2024, section 2.2.
2 For further details, including requirements relating to the minutes, see Communication OFRC 1/24 dated 20 June 2024, section 2.1.
3 See Praxismitteilung EHRA 1/23 dated 21 March 2023, section 2.3.
4 Available at https://www.swissarbitration.org/wp-content/uploads/2022/11/Supplemental-Swiss_Rules_for_Corporate_Law_Disputes_EN.pdf (last accessed on 19 September 2024).
5 Ibid., p. 5.
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