Posts by "digilegal.blog"

Contracts

Liability for Termination of Contract Negotiations

January 30, 2023 0 Comment digilegal.blog read

Swiss law provides a great deal of importance on the freedom of contract principle. Negotiations may become liable if one party terminates them in good faith before they are completed. Damage claims must be enforced in a complicated manner due to the high requirements for liability. An obligation to act in another’s interest limits the freedom of contract. There are certain reciprocal obligations involved in that pre-contractual relationship.

During negotiations, parties should not boost the expectation of the other party that a contract will be negotiated contrary to their actual intentions. When expressing willingness to conclude a contract, a party should not be overly enthusiastic. According to the doctrine of culpa in contrahendo, a party that terminates contract negotiations in violation of these principles may be liable for damages.

A preexisting contractual relationship between the negotiating parties cannot be construed as a basis for liability. Taking a long time to negotiate a contract does not imply liability. Despite knowing that the other party has already invested (substantially) in the prospective agreement, a party who terminates the contract negotiations will not be deemed in bad faith.

When negotiations are broken off, who is liable?

Negative interest may be claimed by the other party if the violating party fails to fulfill its precontractual obligations. In addition to expenses incurred during contract negotiations (travel costs, legal fees, etc.), damages may also include loss of income arising from the inability to do business with third parties. Swiss law requires fairly high substantiation requirements for damages, so enforcing liability for breaking off negotiations will often be a difficult process.

How to negotiate effectively – practical tips

Keep your commitment to signing a contract in check. Honesty is the best policy. Let the other side know from the beginning what clauses you are most concerned about.

If you still have doubts about signing the contract, or if you are unwilling to do so, do not tell the other party. Make sure you only sign if you are convinced.

Negotiations should not be undertaken on your behalf by another person (e.g., your representative, employee, branch office, etc.). You should monitor the negotiations and intervene when needed.

Be careful not to make costly investments before concluding a legally binding contract. The conclusion of an interim contract should be considered if, for time or other reasons, such investments must be made before an agreement is concluded. The agreement may not be completed in the event of failure.

Corporation

Capital Losses, Overindebtedness, and Insolvency under the New Swiss Corporate Law

January 30, 2023 0 Comment digilegal.blog read

On January 1, 2023, a revised company law was put into effect, incorporating several adjustments and innovations regarding capital loss, overindebtedness, and insolvency. This article outlines what should be considered.

Keeping track of liquidity

Boards of directors are required to monitor the level of solvency, or liquidity, of companies in danger of insolvency. Alternatively, they can propose such measures to the general meeting of shareholders if further measures are needed. There must be due haste in taking all steps to prevent insolvency. Liquidity must be monitored continuously. This requirement is not included in the law, however, contrary to the draft.

A limited audit is conducted if capital was lost and auditors were not available

Interim financial statements must be prepared both at ongoing concern values and at liquidation values by the board of directors. Over-indebted companies are those whose liabilities exceed their assets. An auditor must conduct a limited audit of the last annual financial statements in the event of a capital deficit under the proposed law.

The time limit for notifying the bankruptcy court of the subordination of claims

As a result of the newly enacted German law, the board of directors is not required to notify the court if creditors are subordinated and deferring their claims (including interest claims) to the extent of the company’s overindebtedness (Art. 725b para. 4 item 1 CO).

According to Art. 757 para. 4 CO, claims of creditors who have subordinated themselves behind all other creditors cannot be considered in calculating the company’s loss in bankruptcy cases. The purpose of this revised provision is to correct the Federal Supreme Court’s case law regarding subordinated claims. This is because it obligates the board of directors in a bankruptcy situation to pay them.

Having a clear understanding of the importance of notifying the court is welcome since this question often arises in practice.

Company directors are liable for company actions; shareholders may vote on legal actions

In the event of impending insolvency or loss of capital, the board of directors may be held liable (Art. 754) for failing to act. Apart from bankruptcy, individual shareholders also have the right to sue the company (e.g. through a resolution of the board of directors) for any loss that the company experiences and the shareholder’s claim for performance is against the company. It is unlikely, however, that the board of directors as a whole will bring a lawsuit against itself or its members on behalf of the company. Except in cases where the allegations are restricted to individual board members. The board of directors or a representative can file a lawsuit based on the decisions made at the general meeting (Art. 756 para. 1 and 2 CO).

Only valid reasons can now be used to dismiss auditors

Under the revised company law, auditors may now only be dismissed for valid cause to strengthen their position (Art. 730a para. 4 CO). Remarks to the annual financial statements should include the reasons for dismissal (Art. 959c para. 2 item 14 CO).

Corporation

Incorporating Capital Bands into the New Swiss Corporate Law

January 30, 2023 0 Comment digilegal.blog read

Starting with January 1, 2023, a revised Swiss company law came into effect. The ability of limited companies to introduce capital bands is one of the most significant innovations. The article outlines the prerequisites and the practical possibilities of capital band reform.

Shareholders approve the capital band in advance, and it authorizes the Board of Directors (BoD) to increase or decrease the capital for a maximum period of five years. Consequently, the Board can limit or cancel existing shareholders’ subscription rights and otherwise allocate any unexercised or withdrawn subscription rights for various reasons.

What are the requirements and limits of the capital band?

A qualified majority is required for the resolution of the General Meeting (GM) to introduce the capital band (art 704 paragraph 1), as it was previously for the authorization of capital increases. Under the articles of association, the BoD may only increase or decrease share capital (article 653s, paragraph 3 CO). As a result, this is equivalent to an “authorized capital increase”, which will no longer exist separately.

If a capital band includes a capital reduction, there is no opt-out opportunity.

A company’s annual financial statements must be audited at least periodically if its articles of association require a capital band with the possibility of reducing capital. As a result of creditor protection (art. 653s para. 4 CO), a waiver of limited audit (art. 727a para. 2 CO) is no longer possible. A company with a capital band that only authorizes the board of directors to increase equity can still waive the limited audit.

Impact of capital measures and capital band combination

Under current law, existing share capital is valid until its expiration, but it cannot be used alongside the capital band. Existing authorized share capital must be revoked to introduce a capital band.
Conversely, conditional share capital may either remain separate or be incorporated into the capital band. Capital band upper and lower limits increase as the amount of share price increases. This is because the GM decided to introduce conditional share capital following the adoption of the capital band. Within the existing capital band (art. 653v para. 2 CO), the GM may nevertheless subsequently authorize the BoD to increase the share capital with additional capital.
As described in paragraph 653v. 1 CO, a General Meeting (GM) must amend the articles of association if the share capital is increased or decreased or if the currency changes during the period of the capital band. After a resolution regarding a capital increase or currency change, the GM can, however, provide for a capital increase.

The capital band’s tax treatment

If the board of directors has increased or decreased capital within the capital band, all of this information must be included in the notes to the annual financial statements unless the information is already visible on the income or balance sheet (art. 959c para. 2 no. 14 CO).

Final words

There are considerable opportunities for structuring capital band provisions for companies. The cantonal commercial register authority will only accept registrations starting 1 January 2023, as per practice note 1/22.

Corporation

What Is the Impact of the Newly Enacted Company Law on General Meetings?

January 30, 2023 0 Comment digilegal.blog read

After smaller revisions, the so-called major revision of the company law has come into force on the 1st of January, 2023. The purpose of the major revision of company law is to modernize and adapt it to the new economic requirements. Below we’ll provide you with an overview of some of the most significant changes when it comes to general meetings.

The new company law introduces new forms of general meetings.

Online meetings

Unlike physical meetings, virtual general meetings are conducted solely via electronic means. A board of directors must designate an independent representative for the general meeting due to the removal of the principle of physical immediacy. Companies that are not publicly traded may, however, waive the requirement for an independent proxy in their articles of association.

Hybrid general meeting

The hybrid general meeting allows shareholders to exercise their rights without attending the physical meeting. In the articles of association, there is no provision for this. The use of electronic voting devices at a general physical meeting (televoting) must be distinguished from hybrid general meetings.

Several locations are available for general meetings

The board of directors determines the venue of the general meeting (unless otherwise specified in the articles of association). There may be multiple locations where the general meeting is held simultaneously. To ensure shareholders’ rights are exercised without unreasonable difficulty, the place of the meeting should not be determined in a manner that makes exercising those rights unreasonably difficult.

Foreign general meeting

The articles of association of a corporation now permit the general meeting of a company to be held abroad. This is if an independent representative is elected by the board of directors. Non-listed stock corporations may waive the designation of a representative on the condition that all shareholders consent. It is unclear whether a general meeting with several meeting locations in Switzerland and abroad qualifies as a foreign meeting location.

Meeting of all shareholders

Currently, company law permits universal shareholders’ meetings. A general meeting can be convened without complying with the rules applicable to the convening of general meetings, provided that all shareholders or their representatives attend. No objections were raised. There are three types of universal meetings: physical, hybrid, and virtual.

Meeting by circular resolution

The amended law allows resolutions to be passed in writing or electronically, provided no shareholders request oral discussion at the meeting. In addition, the articles of association do not have to include a provision relating to the convening of a general meeting. Resolutions must be passed by agreement of all shareholders.

How should electronic means be used?

Unless the articles of association contain specific provisions to the contrary, the board of directors regulates electronic means of communication. Shareholders should be able to actively participate in the discussion and submit motions, as well as receive the results of the votes immediately after the general meeting. Video/image participation is no longer required. The ability to conduct a general meeting over the phone depends on whether it is feasible to identify participants.

LLC

How to Form a Swiss LLC: The Complete Checklist

January 30, 2023 0 Comment digilegal.blog read

Forming a Swiss LLC, also known as a limited liability company, can be a complex process. However, by following a checklist of steps, you can ensure that all the necessary steps are completed and that your LLC is formed correctly. Here is a complete checklist for forming a Swiss LLC:

Choose a name for your LLC: Before you can form your LLC, you must choose a unique name that meets the requirements of Swiss law. Your LLC’s name must be distinguishable from the names of other companies and must not contain any restricted words.
Obtain a Business Identification Number (UID): Before you can register your LLC, you must obtain a Business Identification Number (UID) from the Swiss Federal Tax Administration (FTA). This number is required for all business entities in Switzerland and must be included in all official documents.
Create an LLC agreement: An LLC agreement is a legal document that outlines the rights and responsibilities of the members of the LLC. It should include details such as the percentage of ownership, the management structure, and the distribution of profits.
Register the LLC: To register your LLC, you must submit a registration form, the LLC agreement, and other required documents to the Commercial Register of the canton where your LLC will be located. You will also need to pay a registration fee.
Obtain a VAT number: If your LLC is engaged in taxable activities, you will need to obtain a Value Added Tax (VAT) number from the Swiss Federal Tax Administration (FTA).
Open a bank account: To conduct business and manage finances, your LLC will need a bank account. You will need to provide the bank with the necessary documents, such as the LLC agreement and the Business Identification Number (UID).
Obtain any necessary licenses and permits: Depending on the type of business your LLC will be engaged in, you may need to obtain licenses and permits from the cantonal or local authorities.
Comply with ongoing requirements: Once your LLC is formed, you will need to comply with ongoing requirements such as filing annual financial statements and tax returns, holding annual general meetings, and keeping accurate records of all transactions.

By following this checklist, you can ensure that all the necessary steps are completed and that your LLC is formed correctly. However, it is important to note that the specifics of the Swiss LLC formation process may vary depending on the canton where you will be forming the LLC, so it’s important to consult with a professional that is familiar with the Swiss corporate law in order to ensure compliance with all the local requirements.

Corporation

The Swiss Joint-Stock Company And Its Advantages

January 24, 2023 0 Comment digilegal.blog read

A Swiss joint stock company is a type of business entity that is popular among businesses looking to operate in Switzerland. The abbreviation is AG, short for Aktiengesellschaft, or SA, short for Societe Anonyme.

Setting up a Swiss AG can provide several benefits for businesses, including limited liability protection, flexibility in management and ownership, and a stable political and economic environment.

One of the main benefits of setting up a Swiss AG is the limited liability protection it provides for shareholders. This means that shareholders are only responsible for the company’s debts and obligations up to the amount of their capital contributions. This can provide peace of mind for investors and can make it easier to raise capital for the company.

Another advantage of a Swiss AG is its flexibility in terms of management and ownership. The management of a Swiss AG is carried out by a board of directors, which can be composed of both shareholders and non-shareholders. This allows for a more decentralized decision-making process and can make it easier to scale the business as it grows. Additionally, ownership of a Swiss AG can be divided among multiple shareholders, which can make it easier to bring in new investors.

Switzerland is known for its stable political and economic environment, which can provide a solid foundation for businesses to operate in. The country is also known for its favorable tax laws, which can make it an attractive destination for businesses looking to minimize their tax burden. Swiss AGs can benefit from the country’s favorable tax laws, including low corporate income tax rates, and a wide range of double tax treaties with other countries.

Additionally, Swiss AGs are relatively simple and quick to set up compared to other forms of companies. The process can be completed in as little as a few weeks, and compared to other forms of companies, Swiss AGs have less formal requirements, which can make it a more convenient option for businesses.

Swiss joint-stock companies require an initial investment of CHF 100,000 (87.000 Euros) in bearer shares or registered shares as an initial capital contribution. In addition, there must be at least one founder (regardless of nationality). One of the founders must, however, reside in Switzerland.

In conclusion

Setting up a Swiss AG can be a great option for businesses looking to operate in Switzerland. The limited liability protection, flexibility in management and ownership, stable political and economic environment, and favorable tax laws can make it an attractive destination for businesses. Although the process is relatively simple and quick, it is recommended that business owners consult with legal and financial experts before making a decision.

Contracts

Overview of the Goodwill Indemnity for Termination of a Distribution Agreement

January 24, 2023 0 Comment digilegal.blog read

The Swiss Code of Obligations does not specifically govern distribution agreements, which are innominate contracts. Following article 418u CO, commercial agents are entitled to a goodwill indemnity at the end of an agency relationship (sometimes referred to as “compensation for clientele”).

A goodwill indemnity is a payment made by the terminating party to the other party in order to compensate for the loss of customer relationships and business opportunities that result from the termination of the distribution agreement. This is particularly relevant in situations where the distribution agreement has been in place for a long period of time, and the parties have developed a significant customer base.

Under Swiss law, a goodwill indemnity can be agreed upon by the parties in the distribution agreement itself, or it can be determined by a court if the parties are unable to come to an agreement. In the latter case, the court will take into account various factors, such as the duration of the distribution agreement, the level of exclusivity granted to the distributor, and the extent to which the distributor has contributed to the development of the business.

It is important to note that the goodwill indemnity is intended to compensate the distributor for actual losses suffered as a result of the termination and not to provide a windfall for the distributor. Therefore, it is essential for the parties to carefully document the distributor’s contributions and the potential losses that may result from the termination of the agreement in order to ensure that the goodwill indemnity is fair and reasonable.

The distribution agreement is governed by article 418u CO by analogy

As a distribution agreement is analogous to a supply agreement, Article 418u CO requires a large degree of integration between the distributor and the supplier. Price and delivery terms may be unilaterally changed by the supplier. Contract products must be kept in minimum stock by the distributor. The distributor is required to report on his or her sales and competitors’ activities periodically by the distribution agreement. No goodwill indemnity will be needed if none or a few of these elements exist.

Goodwill indemnity eligibility requirements

Distributor expands customer base significantly.

Swiss law provides for goodwill indemnities for distributors who expand the customer base of a supplier “considerably” through their activities. From a legal standpoint, this is unclear. Before the agreement ends, the distributor’s turnover must be at least double that of the customer.

The customer base must continue to benefit the supplier

In agency relationships, access to the customer base is usually not an issue, as suppliers know who their customers are. To continue doing business with such customers after the termination of the distribution relationship, there must be some loyalty from the customers toward the supplier. As a measure of customer loyalty, turnover after the end of a distribution relationship may indicate the quality of the relationship.

The equity of the goodwill indemnity

An indemnity for goodwill cannot be unjust – the supplier should be compensated for the benefit it receives from its customers. Having already benefited economically from the acquired customers, the distributor is entitled to special compensation in exchange for complying with the post-contractual non-compete agreement.

The distributor is not responsible for the termination

Distributors may be eligible for indemnification up to the average of their last five years’ net annual earnings from the distribution relationship. If the distributor has terminated the distribution agreement itself, no goodwill indemnity will be due, unless the supplier has been responsible for the termination.

Goodwill indemnity is mandatory.

There is a tendency for suppliers to exclude goodwill indemnities from distribution agreements. If, however, an analogous application of article 418u CO to the distribution agreement is justified and all goodwill requirements are contractually excluded. Provisions of this nature would be invalid. Despite this, specific provisions in distribution agreements related to goodwill indemnity remain relevant, for instance, provisions addressing how the supplier should compensate the distributor for acquired customers. Goodwill indemnities could be rendered inequitable by such rules.

In conclusion

The concept of goodwill indemnity in Swiss law provides a means for parties to a distribution agreement to protect their interests in the event of termination. By clearly documenting the distributor’s contributions and potential losses, parties can ensure that the goodwill indemnity is fair and reasonable. It also helps in maintaining a healthy business relationship between the parties.

LLC

Why Set Up an LLC (Limited Liability Company) in Switzerland

January 24, 2023 0 Comment digilegal.blog read

Swiss Limited Liability Company Formation

Located in central Europe, Switzerland is a favorable place for setting up business since it is a country with a strong focus on banking and finance. Due to its highly efficient banking and finance industry, it is especially attractive to foreigners for registering a company.

Limited Liability Company (LLC) is one type of commercial company that can be formed in Switzerland. LLCs are limited to the contributions made by their members. Hence, the name of the organization is “Société à Responsabilité Limitée” (SARL), which is French for “Society with Limited Responsibility.”

A company with limited liability is also referred to as a GmbH (Gesellschaft mit beschränkter Haftung) in German. There are many benefits associated with this type of company in the country, making it a popular type of entity.

Advantages of a Swiss LLC

One of the main advantages of setting up a Switzerland LLC is the limited liability protection it provides for the shareholders. This means that the shareholders are only responsible for the company’s debts and obligations up to the amount of their capital contributions. This can provide peace of mind for investors and can make it easier to raise capital for the company.

Another advantage of a Swiss LLC is its flexibility in terms of management and ownership. The management of an LLC can be carried out by one or more managing directors, and the ownership can be divided among multiple shareholders. This allows for a more decentralized decision-making process and can make it easier to scale the business as it grows.

Switzerland is known for its stable political and economic environment, which can provide a solid foundation for businesses to operate. The country is also known for its favorable tax laws, which can make it an attractive destination for businesses looking to minimize their tax burden. Switzerland LLCs can benefit from the country’s favorable tax laws, including low corporate income tax rates and a wide range of double tax treaties with other countries.

Additionally, Switzerland LLCs are relatively simple and quick to set up compared to other forms of companies. The process can be completed in as little as a few weeks, and the minimum capital requirement is CHF 20,000. Additionally, compared to other forms of companies, Switzerland LLCs have less formal requirements, which can make it a more convenient option for businesses.

Setting up a Swiss LLC

Switzerland offers a straightforward and easy process for setting up a Limited Liability Company. A quick and efficient start-up is ultimately achieved by eliminating unnecessary inconveniences and time-wasting.

There is a minimum shareholding requirement in Switzerland for an LLC of CHF 20,000 (which is relatively small), of which CHF 10,000 must be fully financed. Additionally, the company must have at least one resident managing director who is authorized to sign on its behalf. Managing the LLC and representing it jointly is the responsibility of all members. Non-members, however, can be given management privileges.

The business can also be owned 100% by foreigners. Therefore, foreign investors receive the same treatment under Swiss law as their Swiss counterparts, including the right to own 100% of the company. It is also not necessary to have more than one founding member.

Switzerland has low taxes on limited liability companies (8.5 to 15%). As a result, investors and shareholders in the company will benefit from greater returns and profits.

In conclusion

Setting up a Swiss LLC can be a great option for businesses looking to operate in Switzerland. The limited liability protection, flexibility in management and ownership, stable political and economic environment, and favorable tax laws can make it an attractive destination for businesses. Furthermore, the process is relatively simple and quick, and the minimum capital requirements are low. It is recommended that business owners consult with legal and financial experts before making a decision.

Corporation

Types of Business Entities in Switzerland

January 24, 2023 0 Comment digilegal.blog read

Switzerland is a popular destination for businesses due to its stable political and economic environment, as well as its favorable tax laws. Several different types of companies can be formed in Switzerland, each with its own set of characteristics and requirements.

Generally speaking, Swiss civil law differentiates between partnerships (sole proprietorships, partnerships with limited liability, general partnerships) and legal entities (public companies, limited liability companies). Based on her or his activities and strategic objectives, a foreign investor can select the most appropriate type of company. Creating a company usually takes no more than three weeks, and it can often be accomplished online.

A sole proprietorship

Sole proprietors conduct this type of business, and it must be registered with the commercial register. To be registered, it must produce at least CHF 100,000 gross income per year. The owner is personally responsible for the company’s operation (there are no limits on his/her liability), and the company is subject to taxes. Small businesses commonly use this type of organization.

Individual Partnership (Einfache Gesellschaft)

There is a difference between an ordinary partnership and a limited partnership because the latter is based on a contract of association between two or more partners and does not have the legal status of a company.

Rather than the partnership itself being liable for taxes, each partner is personally liable. Each partner is responsible for his or her private assets in the event of business debt. Commercial registers do not accept ordinary partnerships. Business organizations using this form are typically used for short-term activities or specific projects (consortia, joint ventures, etc.).

General partnership (Kollektivgesellschaft KG)

As a result of a contract of association between two or more individuals, a general partnership is formed to operate a commercial enterprise. It is necessary to register a general partnership on the commercial register and give it a trading name.

The general partnership in itself is not a legal entity, although it can acquire rights, incur liabilities, and take judicial action. Partners are jointly and severally liable for debts not only on the capital of the partnership but also on their private assets. These companies can only be set up by individuals, and their liability is limited to their capital.

Company limited (Kommanditgesellschaft)

As with a general partnership, a limited partnership allows only one person to be held liable without limitations, while others are liable only up to their capital contribution. Partnerships with unlimited liability can only be formed by individuals, while partnerships with limited liability can also be formed by legal entities such as corporations.

GmbH or LLC (Limited Liability Company)

Legal entities with fixed capital are known as limited liability companies. 20,000 CHF is the minimum capital amount, and it must be paid in cash or kind in full. A minimum contribution of CHF 100 is required from each partner (individual or company). Non-Swiss citizens may be partners and managers. Except for appointing and dismissing management, directors and management of a limited liability company are entrusted with the same duties as those of a corporation. Managing the company without being appointed is the right and obligation of shareholders (principle of self-management). When a shareholder wishes to withdraw from the company, he or she may petition the court for permission to do so.

Public Company (Aktiengesellschaft, AG)

In Switzerland, public companies are the most common. A minimum of CHF 50,000 must be paid by the founders when the company is incorporated. Shares represent the company’s capital, which can be registered or bearer.

In conclusion

Switzerland offers a variety of options for businesses, from public limited companies to individual enterprises, each with its own advantages and disadvantages. The choice of the appropriate legal form depends on the specific needs and goals of the company. It is recommended that business owners consult with legal and financial experts before making a decision.