Revised Swiss Company Law
Introduction
On 21 December 2007, the Federal Council approved the draft revision of the Swiss Code of Obligations, which also includes amendments to company law. On 28 November 2014, the Federal Council referred the draft revision for consultation. Following extensive discussions and a long enactment process, the amendments to the Swiss Code of Obligations will enter into force on 1 January 2023.
As stated in the preamble of the draft bill the revised Swiss company law aims to “modernize company law in order to adapt it to the needs of the economy in the years to come … to improve corporate governance, to allow companies to structure their capital more freely, to set up a new accounting law and to modernize the functioning of the general assembly.”
This newsletter article will address the amendments related to general assembly meetings, capital structure and minority shareholders rights.
Amendments Introduced Regarding the Convening of the General Assembly
The revised law takes a more modern approach with respect to the convening of the general assembly. In line with this modern approach, amendments were made regarding the conduct of general assembly.
General assembly meetings may be held simultaneously in different locations, provided that it does not make it difficult for shareholders to exercise their rights and that the votes of all participants are transmitted to all meeting locations by video and audio.
The general assembly may convene abroad, provided that (i) it is explicitly stipulated in the articles of association and (ii) an independent representative is designated for the general assembly meeting. For amendments to the articles of association regarding the possibility of convening the general assembly abroad, the majority of the shares must attend the meeting and the affirmative vote of two-thirds of the shares attending the meeting is required.
Pursuant to Article 701c, shareholders may participate in the physical general assembly meetings remotely and exercise their voting rights electronically. Furthermore, pursuant to Article 701d, general assembly meetings can be held in electronic form and without a physical meeting place if (i) it is explicitly stipulated in the articles of association and (ii) an independent representative is designated.
Article 701/3 introduces the possibility that the general assembly may take circular resolutions using either paper documents or in electronic form (e-mail etc.).
Shareholders may exercise their shareholder rights, in particular their voting rights, through a representative of their choice. The revised law provides for different types of representatives: independent representatives, depositary representatives, members of the corporate body, other shareholders or third parties. Among these types, the independent representative is noteworthy, because of the regulations to which it is subject. The independent representative may be a natural or legal person or even a partnership. Pursuant to Article 689b, the independent representative is obliged to exercise the voting rights in accordance with the shareholder’s instructions. If they have not received instructions, they must abstain. If the articles of association provide that a shareholder may only be represented at the general assembly meeting by another shareholder, the board of directors is obliged to appoint an independent representative or representation by a member of a corporate body.
Capital and Reserve Related Amendments
The revised law focuses on the flexibility of the capital structure and puts an end to some of the controversies in practice regarding the capital structure.
Intended acquisition of assets
Under current Swiss law, the intended acquisition constitutes a qualifying act, resulting in the obligation to include the acquisition of assets in the articles of association and in the commercial register. Under the revised law, the provisions on the acquisition of assets, which repeatedly led to uncertainty, are abolished.
Offsetting contribution
Pursuant to Article 634a, a shareholder may fulfill their obligation to pay contribution by offsetting it against a claim. Before the amendment, it was disputable whether a set-off contribution was possible when the claims were not fully covered by the company’s assets. With introduction of the amendment, it has been clarified that offsetting contributions are possible, even if the claims of creditors are no longer fully covered by the assets of the company. The articles of association must specify the amount of the claim to be offset, the name of the shareholder, and the shares to which he is entitled. The General Meeting may repeal the provisions of the articles of association after ten years.
Capital in foreign currency
The rule that the share capital of joint stock companies shall be at least 100,000 Swiss Francs remains the same. However, the revised law has added the possibility that the share capital may also be fixed in the most important foreign currency with regard to the company's activities. If the share capital is fixed in a foreign currency, the same currency must be used for business accounting and reporting. Pursuant to the Annex 3 of the Commercial Register Ordinance, British Pounds, Euros, US Dollars and Japanese Yen are defined as the authorized foreign currencies for the capital of a joint stock company.
Capital increase
Amendments were also made with regard to the conditional capital increase. Previously, it was regulated that the general assembly may resolve to make a contingent capital increase by stipulating in the articles of association that creditors of new bonds and similar debt instruments issued by the company or its group companies and employees will be granted rights to subscribe to new shares (option rights). The scope of addresses of option rights has been extended to third parties including shareholders and board members of the company or another group company.
Capital band
Article 651, entitled “Authorized capital increases,” is abrogated. Under Article 651, it was stated that the general assembly may authorize the board of directors to increase the share capital up to half of the existing share capital for a period of no more than two years. Instead, it is stipulated under Article 653s that the articles of association may authorize the board of directors to change the share capital within limits determined in the articles of association (capital band) for a period not exceeding five years. The upper limit shall not exceed one and a half times the share capital registered with the commercial registry whereas the lower limit shall not be less than half the share capital.
Reserves
The revised law makes a distinction between statutory legal reserves, which is regulated under Article 671, and statutory profit reserves, which is regulated under Article 672. Pursuant to Article 671, the statutory legal reserves consist of (i) the proceeds from the issuance of shares above their nominal value, (ii) the payment for the new shares issued in the event that shares of a shareholder who does not fulfill the capital commitment are canceled.
Interim dividends
Under current Swiss law, there is no provision on interim dividends, which leads to a controversy between companies and audit firms. With the introduction of Article 657a, it is clarified that the general assembly may decide, on the basis of interim financial statements, to pay an interim dividend.
Shareholder Rights Related Amendments
Right to receive information and inspection
The revised law mainly aims to strengthen minority shareholder rights. Prior to the amendment, each shareholder had a right to receive information in general assembly meetings. In addition to this right, under the Article 697 of the revised law, shareholders holding at least ten percent of the share capital or votes will be able to exercise their right to request information from the board of directors outside the general assembly meeting. Accordingly, the board of directors shall provide the information within four months. With regard to the right to inspect company books and records, the books and records may be inspected by shareholders representing together at least 5% of the share capital or votes, without the need for authorization of the general meeting or a resolution of the board of directors.
Inclusion of items on the general assembly agenda
In listed companies, shareholders holding five percent of the votes or of the share capital may request a general assembly meeting. This rate is ten percent in companies whose shares are not listed on the stock exchange. If this request is not fulfilled by the board of directors within 60 days, the minority shareholders may apply to the court for the general assembly to be convened.
In listed companies, shareholders holding five per thousand of the votes or of the share capital may request that an item be added to the agenda of the general assembly meeting. This rate is five percent in companies whose shares are not listed on the stock exchange. If the request of the minority to add an item to the agenda is rejected by the board of directors, the minority may apply to the court.
Conclusion
Following the entry into force of the amended provisions of the Swiss Code of Obligations on corporate law on 1 January 2023, there will be a two-year transition period for companies to amend their articles of association accordingly. At the end of this transition period, there is a risk that provisions of the articles of association that do not comply with the amendments will be deemed invalid. It is important for companies incorporated in Switzerland to carefully review and comply with the amendments, some highlights of which are analyzed above.
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