Various changes to the Swiss Code of Obligations entered into force on 1 July 2015. They affect a substantial number of companies in Switzerland, particularly small and medium size enterprises (SMEs) organised as share corporations (AG) or limited liability companies (GmbH). What do these new laws provide?
New transparency requirements. What do they involve?
On 12 December 2014 the Swiss Parliament adopted a Federal Act implementing the 2012 revised recommendations of the international body GAFI (Groupe d’action financière). An important part of the new provisions is the introduction of new transparency requirements for legal entities and the individuals who are the economic beneficiaries behind such entities.
Who is affected?
The new transparency laws in the Swiss Code of Obligations primarily affect non-listed share corporations, limited liability companies and cooperatives in Switzerland.
New duties for shareholders and quota holders?
Holders of non-listed bearer shares, whether they are resident in Switzerland or abroad and regardless of the size of their holding, must notify the company of their name and address. The shareholder must prove that they are in possession of the bearer shares and identify themselves to the company. All acquirers of non-listed bearer shares must fulfil this duty within one month of acquiring the shares.
The new provisions also include a duty to provide details to the company of the economic beneficiary. Anyone who alone or in concert with others acquires or increases a holding of bearer or registered shares in a share corporation or quotas in a limited liability company and thus reaches the threshold of 25% of the capital of the company must provide the company with details of the economic beneficiaries within one month of the acquisition. This duty of notification applies to existing bearer share holdings that already meet the threshold. The new duty of notification is likely to apply regularly for SMEs, where participations are often confined to a small group of shareholders.
What are the consequences of not observing these notification duties?
Shareholders and quota holders who do not meet their duty to notify on time cannot exercise their rights of membership until they have fulfilled the duty. This means for example that they have no right to vote and that their financial rights (in particular the right to dividend payments) are lost if the notification is not provided on time! If the shareholder or quota holder provides notification at a later point in time, financial rights can only be claimed from the time of notification onwards.
New duties for board members and managers of a company?
Under the new rules, the board of directors of a share corporation and the managers of a limited liability company must ensure that no shareholders or quota holders exercise shareholder or quota holder rights while in breach of the notification duties.
Under the previous law, share corporations with registered shares were required to keep a share register and limited liability companies had to keep a register of quota holdings. What is new is that companies that receive information from bearer shareholders must record this in a listing. Additionally, share corporations and limited liability companies must keep a record of the economic beneficiaries notified to them.
The new records must be accessible from within Switzerland at all times. As is the case for company books, records must be kept for 10 years after dissolution and deletion of the company. The documents that lie behind an entry must be kept for 10 years after removal of the relevant entry from the record.
Are there exceptions to these new provisions?
Yes there are, but not many and they are more likely to apply to larger companies.
The provisions described here do not apply for listed company shares. Listed companies are already subject to the provisions of the stock exchange law and anti-money laundering legislation.
There is a further exception for shares that are structured as book-entry securities. Book-entry securities are dematerialised securities that are managed by a depository. Like a stock exchange, such depositories are subject to their own specific regulations.
Finally, a share corporation with bearer shares can decide to transfer the administration of the new records to a financial intermediary regulated by the anti-money laundering legislation, in order to preserve the anonymity of the bearer shareholders and the economic beneficiaries of the bearer shares, at least towards the company. The decision to do this must be taken by the shareholders meeting.
Need for action?
- Affected companies should prepare, manage and keep the new records as soon as possible (if not already done). This requires the necessary organisational steps to be taken.
- For the board of directors of a share corporation or the management of a limited liability company, it is recommended to send an information notice to the shareholders or quota holders regarding the new duty of notification. The members of the highest management organs have an interest that the shareholders and quota holders fulfil their duties, in order to ensure smooth and valid decision-taking at the shareholders general meeting or the meeting of quota holders.
- Further, it would be wise to review the articles of association and possibly also the organisational regulations of the company to establish whether amendments are required.
- Finally, it is to be assumed that many share corporations with non-listed bearer shares will want to review the need to continue with bearer shares and the possibilities for transforming bearer shares into registered shares.