Posts in "Corporation"

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

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).

Incorporating Capital Bands into the New Swiss Corporate Law

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.

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

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.

The Swiss Joint-Stock Company And Its Advantages

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.

Types of Business Entities in Switzerland 

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.