Share Buybacks in Swiss Corporate Law: Motives, Methods and Legal Framework

Various Swiss listed companies are also making use of this instrument in the current year: In early July 2025, UBS Group AG announced a new buyback program of up to USD 2 billion, under which up to 10% of the share capital is to be repurchased in the medium term and subsequently cancelled by way of capital reduction. In February 2025, ABB Ltd launched a new buyback program of up to USD 1.5 billion and repurchased a total of 675,778 shares between 19 and 25 June 2025. Nestlé S.A. successfully completed its multi-year CHF 20 billion buyback program by the end of 2024. In 2025, the company plans to cancel approximately 43 million repurchased shares.

These developments underscore the practical significance of share buybacks not only in international but also in Swiss corporate and capital market law. Beyond listed companies, share buybacks are also widely used in other contexts – such as in succession planning, capital optimization, or targeted changes to the shareholder base. This contribution outlines the key motives behind share buybacks, examines the legal framework under Swiss law, and discusses the most common methods applied in practice.

Definition and Delimitation

A share buyback refers to the repurchase of a company’s own shares by the issuing entity. Unlike dividends or repayments made in the context of a formal capital reduction, a buyback is inherently voluntary: shareholders themselves decide whether and to what extent they wish to tender their shares. This optional structure gives buyback programs particular flexibility – both with respect to timing and with regard to scope and pricing.

From a legal perspective, a share buyback does not constitute a classic form of profit distribution but rather an asset transaction, which must comply with the corporate law requirements on capital maintenance and creditor protection (in particular, article 659 et seq. CO). Depending on the chosen structure – whether through a public tender offer or via open-market repurchases – additional capital market, tax, or regulatory requirements may apply. Furthermore, share buybacks differ significantly in their accounting treatment and in their impact on ownership structures and capital ratios compared to other forms of transferring value from the company to shareholders. This makes a careful legal assessment and distinction necessary in each specific case.

Motives for Share Buybacks

Companies pursue share buybacks for a variety of strategic, financial, and operational reasons. In practice, the following motives are most frequently observed:

• Signaling Effect: Buyback programs – similar to dividend increases – can be interpreted as a sign of confidence in the company’s business performance. They are often used when management believes the shares are undervalued. Such measures may trigger a positive revaluation of the company, a correlation that has been empirically confirmed in numerous studies.
• Liquidity Management: If a company holds liquidity reserves that are not required for operations, a buyback program can serve as an appropriate means to return excess funds to shareholders. This is particularly relevant in the context of strategic realignments or divestments from unprofitable business areas. From an agency theory perspective, buybacks also serve an important governance function: by distributing non-investable funds to shareholders, managerial discretion over free cash is reduced, mitigating the risk of inefficient capital allocation (e.g., investments driven by financial slack rather than value creation). Shareholders, in turn, gain the ability to reallocate their capital according to their individual preferences.
• Capital Structure Management: The acquisition of own shares can be used strategically to optimise the ratio of equity to debt in line with a company’s target capital structure. Under certain conditions, such adjustments can lead to a sustainable increase in enterprise value.
• Shareholder Structure and Control: Buybacks are frequently employed to strategically reshape the shareholder base – for example, by eliminating free float, preparing for a shareholder transition, or strengthening the influence of specific shareholder groups. They may also be used as a defensive measure against hostile takeovers.
• Distribution Policy: Compared with traditional dividends, share buybacks provide a more flexible and often more tax-efficient means of returning value to shareholders. Since participation in a buyback program is voluntary, it allows better accommodation of shareholders’ individual preferences. Moreover, unlike recurring dividends, buybacks are less binding on the company, thereby preserving financial flexibility for future distributions.
• Specific Purposes: Own shares may also be repurchased for allocation under employee participation plans or as transaction currency in the context of acquisitions. In such cases, buybacks are not necessarily intended to reduce capital but rather to build reserves for future use.

Corporate Law Framework for the Acquisition of Own Shares

Permissible Acquisition

The acquisition of a company’s own shares is governed by article 659 CO. Under this provision, a company may acquire up to 10% of its registered share capital (article 659 para. 2 CO), provided it has freely distributable equity at least equal to the acquisition value of the shares. The voting rights and the associated rights of the shares held by the company are suspended (article 659a para. 1 CO).

Since the entry into force of the Swiss corporate law reform, participation capital is no longer included in calculating the buyback limit (article 656b para. 5 CO). This rule prevents a company from repurchasing all voting shares except one, thereby enabling de facto control by a shareholder with only minimal financial involvement.

Within the 10%-limit, the buyback is permissible regardless of its purpose and without any time limitation. The repurchased shares do not have to be cancelled or re-sold. article 659 CO also applies to share acquisitions in the context of mergers, demergers, or asset transfers. Although such cases are not classical purchase transactions, article 659 para. 3 CO analogously requires any shareholding exceeding the 10%-limit to be resold or cancelled by means of a capital reduction within two years.

The assessment of whether sufficient freely distributable equity is available must be based on the latest audited annual or interim financial statements that have been approved by the shareholders’ meeting. The relevant point in time is when the obligation to acquire is entered into. The Board of Directors may not rely on unaudited or unapproved financial statements. Ongoing losses that have reduced free reserves since the balance sheet date must also be taken into account. Furthermore, the Board of Directors must ensure that the company has sufficient non-operational liquidity available for the buyback.

Exceptions to the Limit

The 10%-limit does not apply to:

• buybacks in view of a capital reduction already resolved by the shareholders’ meeting;
• buybacks carried out in anticipation of a legally and factually secured resale. The prerequisite is a valid purchase agreement with a clearly solvent and willing buyer, where no performance issues are reasonably foreseeable.

In addition, article 659 CO permits the repurchase of up to 20% of the registered share capital in specific cases, such as where registered shares with transfer restrictions (vinkulierte Aktien) are involved or in the context of dissolution proceedings.

If the company has conditional share capital, the buyback limit increases only once the corresponding capital increase has been entered into the commercial register and the Articles of Association have been amended accordingly by the Board of Directors.

Consequences of Exceeding the Limit

Exceeding the statutory buyback limit does not render the acquisition transaction void – unlike a violation of the requirement for freely distributable equity, which may result in nullity. However, it may give rise to liability of the members of the Board of Directors. To mitigate the risk of liability claims, it is advisable to obtain prior approval of the buyback by the shareholders’ meeting. Such a resolution has the effect of a pre-emptive discharge resolution. Its effect, however, is limited to shareholders who approved the resolution or acquired their shares with knowledge thereof – and does not extend to other shareholders or to creditors.

Competence and Equal Treatment Principle

The decision to launch a share buyback program lies within the exclusive competence of the Board of Directors. Unlike EU law, Swiss law does not require a prior authorisation resolution by the shareholders’ meeting.

In practice, particular attention must be paid to the principle of equal treatment, which also governs share buyback programs. Purchase offers may only be directed to specific shareholders if there are objective and legitimate reasons for doing so, and provided that no unjustified disadvantage arises for other shareholders. Such justification may, for instance, exist where a listed company offers to purchase shares from a large shareholder who cannot dispose of their block on the open market without triggering price distortions, whereas smaller shareholders have that option. As a general rule, however, all shareholders willing to sell must be offered equivalent conditions in comparable circumstances. The buyback price should reflect the intrinsic value of the shares; any deviation must be objectively and transparently justified. The payment of a block premium is generally considered inappropriate, since the company has no interest in acquiring share blocks it cannot re-sell as such. A premium may only be justified if the exclusion of a potentially harmful shareholder is clearly in the company’s overriding interest and the shareholder would otherwise be unwilling to sell – particularly if a third party would accept to grant such a premium.

Individually negotiated buybacks require careful documentation of the decision-making process and a transparent assessment of the market conformity of the terms. In certain cases, it may be advisable to inform the other shareholders in advance or to disclose the contractual terms in order to minimise reputational and liability risks.

A particularly sensitive situation arises in the context of so-called greenmailing, where the buyback is offered exclusively to an unwelcome shareholder – typically involving a block premium above market value. Such buybacks must be examined in detail and substantiated in strict compliance with the principles outlined above.

Special Considerations for Listed Companies

Buybacks by listed companies are subject – not only to corporate law requirements – but also to specific financial market regulations.

Buybacks as Public Tender Offers

According to the practice of the Swiss Takeover Board (TOB), share buyback programs by listed companies generally qualify as public tender offers within the meaning of article 2 lit. i FinMIA and are therefore, in principle, subject to takeover law. The TOB has issued a Circular setting out uniform requirements and conditions applicable to all buyback programs. The objective is to ensure that such programs are not misused to influence the shareholder structure or to manipulate the market price of the company’s shares.

However, the TOB may exempt a buyback from the takeover rules if the principles of equal treatment, transparency, fairness, and good faith are respected and there is no indication of an attempt to circumvent statutory provisions. A general exemption applies to buyback programs that do not exceed 2% of the company’s capital or voting rights. Within the so-called exemption-by-notification procedure, the TOB has established a two-tier system:

• Standardised notification procedure: If all requirements set by the TOB are met, the company may apply for a simplified procedure. In such cases, the exemption is confirmed by the TOB without a formal order.
• Individual exemption by decision: If not all requirements for the notification procedure are satisfied, the company may still submit a request. The TOB will then decide by formal order whether an exemption is granted.

Price Limit for Buybacks via a Second Trading Line

Where buybacks are executed via a specially established second trading line, the prices offered by the company may not exceed the last price paid on the regular trading line by more than 2%.

Ad Hoc Publicity Requirement

Companies with listed shares are obliged to disclose any price-sensitive facts to the public. Depending on the scope and market environment, share buyback programs may qualify as such price-relevant facts. Accordingly, the company must assess whether the initiation or modification of a buyback program triggers an ad hoc disclosure obligation. This is particularly the case if the buyback could materially affect the company’s size, capital structure, or valuation.

Overview of Buyback Methods

Depending on the company’s objectives, market conditions, and shareholder structure, different methods are available for the repurchase of treasury shares. The choice of method has not only economic, but also regulatory and tax implications.

1. Buyback via the Stock Exchange

This is the most commonly used method in practice. The buyback can be conducted anonymously via the main trading line or – where tax considerations are relevant – via a specially designated second trading line. The latter ensures that the company appears as the sole purchaser and provides the necessary transparency in respect of withholding tax. This method offers a high degree of flexibility regarding timing, volume, and pricing, as the buyback can be spread over an extended period. It is particularly suitable for programs with open parameters or ongoing evaluation.

Public Tender Offer

In a public tender offer, the company invites all shareholders, during a specified offer period, to tender a certain number of shares at either a fixed price or within a defined price range. This method is typically used for larger volumes or targeted capital structure adjustments. Legally, such a transaction qualifies as a public offer within the meaning of financial market law and is therefore subject to the requirements of the FinMIO-FINMA and the reporting obligations to SIX Swiss Exchange.

3. Buyback via Put Options

Another method is the issuance of tradable put options, which are allotted to shareholders free of charge. These options grant shareholders the right to sell shares back to the company within a defined period and at a pre-determined price. Shareholders may exercise the options, sell them on the market, or let them lapse. This approach combines transparency with a high degree of shareholder autonomy and can be structured in a tax-efficient way, though it requires careful legal design.

4. Privately Negotiated Transactions with Individual Shareholders

In a bilaterally negotiated buyback, the company acquires larger share blocks from specific shareholders through individually tailored agreements. This method is often used for strategic repositioning, succession planning, or to avoid undesirable shareholdings or control situations (e.g., in the run-up to a hostile takeover). While it does not generally trigger a public disclosure obligation, for listed companies it may nonetheless entail reporting requirements and, from a corporate governance perspective, should be employed with caution.

Advantages and Disadvantages of Buyback Methods

Conclusion

Share buybacks are an established and versatile instrument of capital and balance sheet management – suitable for both listed and non-listed companies. They allow for the flexible return of surplus liquidity as well as strategic influence over the shareholder structure.

The corporate law framework – particularly the permissible acquisition limits under article 659 CO, the requirements on distributable reserves, and the equal treatment rule – must be observed with great care in practice. For listed companies, additional regulatory requirements under financial market law also apply.

Privately negotiated buybacks – especially with major shareholders – carry liability and reputational risks that must be mitigated through transparent documentation, objectively justified terms, and diligent execution.

For companies planning or implementing buyback programs, early legal guidance is advisable to ensure compliance with corporate and capital market rules while enabling efficient execution. Properly designed and implemented, share buybacks can serve as a powerful and sustainable tool for increasing corporate value and enhancing financial flexibility.