Contact us

Tel: +30 210 3613379
Tel: +41 32 5101465


Legal issues

Effects of the revision of the Swiss Code of Obligations on existing companies limited by shares ("AG") and limited liability companies ("GmbH"):

Article appeared on the corporate newsletter of our quality partners in Switzerland Prager Dreifuss Law offices ( Zurich, 8008: Muhlebachstr.6, Bern, 3011: Schweizerhofpassage 7).

Contribution by corporate attorneys Marco Strahm (also a Notary) and Dr. iur. Hans-Ulrich Brunner.

On January 1, 2008 new provisions on the law of the limited liability compay (Gesellschaft mit beschränkter Haftung/GmbH), the law of the companies limited by shares (Aktiengesellschaft/AG) together with the total revision of the Commercial Register Ordinance came into force. These new provisions relate not only to the new companies that are being set up; they are also of relevance in relation to existing limited liability companies and companies limited by shares and the question arises as to what effect these amendments will have on them and in particular whether there will be any need to amend existing articles of association.

A. When must the articles of Association of existing companies be amended?

The following list of questions allows you to quickly decide whether there is any need for action. If you answer yes to one or more of the questions below, we recommend that you contact us so that the required amendments can be made at good time.

1. Test questions for companies limited by shares.

1.1 Has the Company name been used so far without the addition of "AG" or "Aktiengesellschaft"?

1.2 Are there any regulations in the articles of Association on the required nationality or place of residence of the members of the board?

1.3 Are there regulations in the articles of Association according to which members of the board must also be shareholders?

1.4 What form of audit must or should be carried out? Can or should a (limited) audit be dispensed with?

1.5 Are there any regulations on acquisitions in kind in the articles of Association?


2. Test questions for limited liability Companies.

2.1 Has the registered capital not been fully paid up?

2.2 Are the nominal values of the capital contributions ("GmbH-shares") and the level to which they are paid up shown in the articles of association?

2.3 Is public certification of the transfer of a GmbH-share required by the articles of Association?

2.4 Does the company not have any auditors at present?

2.5 Does the company have two or more executive managers?

2.6 Are there any regulations on acquisitions in kind in the articles of association?

2.7 Is a unanimous resolution required from capital increase?

2.8 Are there any regulations on withdrawal of subscription rights (public offer to subscribe for GmbH shares)?

2.9 Should there be obligations to contribute additional capital or ancillary obligations in the articles of association?

2.10 Should a prohibition of competition be included in the articles of association?

2.11 Should the creation of bonus certificates or the issue of preferential GmbH-shares be provided for?

2.12 Should the transferability of a GmbH share be prohibited or should it be possible without the consent of the members’ general meeting?

2.13 Should the chairperson be prohibited from having a casting vote?

2.14 Should company members have a veto on resolutions made by the member’s general meeting?

2.15 Should the organizational structure be revised?


B. Comments on the test questions

1. Why is an amendment of the articles of association necessary?

If a company has regulations in its articles of association that are not compatible with the new provisions, these remain effective for two more years and then cease to apply unless they are replaced by mandatory legislative provisions. So that you do not run the risk of having invalid regulations in your articles of association and/or if you want to avoid any lack of clarity as to the applicable regulations, we recommend that you amend the articles of association as quickly as possible to bring them in line with the new provisions. It should also be noted that the provisions on auditors apply from the first financial year that begins on or after the commencement of the amendment to the law. This means if your financial year is the same as the calendar year, the new provisions apply from 1 January 2008. For existing limited liability companies that must now have an auditor, this means that the transition period of two years does not apply to giving notice of the auditor appointed.

2. Who still needs an auditor under the new law, or now needs an auditor for the first time?

The audit requirement is no longer based on the legal form. In theory, all companies must now have an auditor. The extent of the audit depends on the size of the company. The relevant thresholds are listed in Art. 727 ff of the Code of Obligations (CO). In addition a so- called opting system was introduced, which allows a degree of movement between the audit categories.

The following companies must arrange for their annual accounts and if applicable their group accounts to be audited by an audit specialist or a state supervised audit company that has been licensed and which is registered in the Commercial Register (a "fullaudit"):

  • publicly traded companies in terms of Art. 727 para. 1 Sec. 1 CO.
  • companies that exceed the following thresholds in two successive financial years: (1) a balance sheet total exceeding CHF 10 million; (2) turnover exceeding CHF 20 million; (3) more than 50 full- time positions
  • companies that are required to prepare group accounts
  • an ordinary audit must also be carried out (so-called opting-up) if it
  • is requested by shareholders who together represent at least 10% of the share capital, or company members subject to a duty to pay in further capital, or excluded company members whose compensation has not been paid in full;
  • is required in terms of the articles of association or of a resolution of the general meeting (in the individual case)

If the requirements for an ordinary audit are not fulfilled, the company must arrange for its annual accounts to undergo a limited audit (a "review") by a licensed auditor registered in the Commercial Register.

The possibility of not having any audit at all (instead of a limited audit) arises if company’s employees fill no more than ten full- time positions on annual average and all company members agree to dispense with the limited audit (Art. 727a para. 2 CO; so-called opting-out). But even then, the company accounting practices must continue to comply with the law and the company must prepare annual accounts. If a company member gives notice at least ten days before the annual general meeting that he or she wants a limited audit to be carried out, the general meeting must appoint an auditor. Notice of this must be given to the Commercial Registry Office and the articles of association must be amended accordingly.

Instead of dispensing with a limited audit completely, a company may dispense with certain requirements of the limited audit only (e.g. professional qualifications of the auditor or sufficient independence) and have an audit tailored to the needs of the company carried out by an auditor instructed by the company (so-called opting-down). In this case, the auditor is not registered in the Commercial Register. Even though a company has dispensed with an auditor by opting out, there may still be third parties (e.g. banks) that request the company to have its accounts audited. The exact arrangement is a matter for the contractual parties and may amount to less than a limited audit. This so-called opting-in may also be enforced by company members who no longer wish to consent to opting out.

Existing companies limited by shares may dispense with auditors in the first year in which a limited audit has to be carried out under the new law. A waiver of a limited audit is recorded in the Commercial Register when a member of the Board of Directors confirms in writing that the auditors have audited the annual accounts for the financial year in which the new law came into force. Existing limited liability companies that have not had their annual accounts audited so far and continue to dispense with this must notify the Commercial Registry Office of this. They can submit a “Waiver of Audit” with relevant documents to the Commercial Registry Office. In addition, the executive manager must confirm that the company has so far dispensed with appointing an auditor and accordingly is not having its annual accounts for 2007 or 2007/2008 audited.

It may therefore be necessary to amend the articles of association in relation to the auditors: as the articles must not contradict the true situation, the current provisions on the election of auditors must be amended if the company members dispense with an auditor or appoint an auditor in contradiction of the articles of association. The articles of association must also be amended if they provide for an ordinary audit, but only a limited audit is carried out or vice-versa. In order that the articles of association do not have to be amended with every change in circumstances, it is recommended that the provision on the auditors be formulated to cover all possible cases (election of an auditor, waiver of audit, ordinary or limited audit).


3. Details of the amendments relating to companies limited by shares.

3.1 The name of a company limited by shares must in future always include the adjunct "AG" or "Aktiengesellschaft". In business correspondence, on order forms and invoices as well as in public notices, the company name must be given in full and unamended. If the company name is not amended in the articles of association before the deadline provided, the Commercial Register will carry out the amendment ex officio. In such a case, the company name must be amended in the next revision of the articles of association.

3.2 The requirement that most of the members of the board of directors are resident in Switzerland and are citizens of Switzerland or a member state of the EU or EFTA will no longer apply. The residence requirement is fulfilled if the Company registers either (a) one person with authorization to sign alone on behalf of the company who is domiciled in Switzerland or (b) two persons with joint authorization to sign together (a procura on the other hand would be insufficient) and domiciled in Switzerland. Under these requirements, in future it will be possible for all the members of the Board of Directors to be foreign nationals with domicile abroad.

3.3 The members of the Board of Directors no longer have to be shareholders, so related regulations in the articles of association can therefore be deleted. By virtue of a new express statutory provision, members of the board will now be entitled to participate in the general meeting and may table their own motions.

3.4 In future, acquisitions-in-kind and intended acquisitions-in-kind must be indicated in the articles of association only if the assets acquired are those of a shareholder or a person closely related to a shareholder. Related provisions in the articles of association can now be deleted before the expiry of the 10-year period if the company makes a final decision to dispense with the acquisition-in-kind in question.

3.5 Contracts between the company and its representatives must now be in writing, provided the payment to be made by the company exceeds CHF 1000.00.

3.6 In the event of a reduction in company capital, there will no longer be any so-called “phantom shareholders”, i.e. current shareholders who do not participate in the increase in capital will not in future be granted so-called “virile” voting rights. However in the event of a further increase in the share capital, existing shareholders have an irrevocable subscription right. Membership rights of existing "phantom shareholders" lapsed when the new provisions came into force.

3.7 For the ordinary dissolution of the company by the general meeting, a resolution of the general meeting is now necessary, which must be passed by a minimum of two thirds of the votes represented and at the same time an absolute majority the nominal values of the shares represented.


4. Details of the new provisions on limited liability companies

4.1 The registered capital must now be fully paid up, i.e. for every capital contribution an investment must be made, held in a blocked account, that corresponds in full with the issue amount. This payment must be made within two years. Until the GmbH-shares are paid up in full, the subsidiary joint and several liability of the company members continues to apply.

4.2 The minimum nominal value of a GmbH-share now amounts to CHF 100.00, whereby any company member may be owner of more than one GmbH-share.

4.3 If the articles of association require public certification, the undertaking to assign and the transfer of the GmbH-share must still be publicly certified. If a company makes use of the relaxed formal requirements under the new provisions, according to which a written document is sufficient for the assignment and for the undertaking to assign, then the articles of association must be amended accordingly. It should be noted in this connection that in the contract of assignment, the same references to the rights and obligations under the articles of association should be included as in the case of subscription (obligations to contribute additional capital, ancillary obligations, non-competition clauses, pre-emption and purchase rights, contractual penalties).

4.4 If a company has more than one executive manager, a chairman of the management board must be appointed. This is done by the members’ general meeting, but this power may be delegated in the articles of association to the executive managers. If the position is not filled retrospectively, this amounts to an organizational flaw, which will result in notification being sent to the court by the Commercial Registry Office.

4.5 For increases in capital, the new statutory provisions require only a qualified majority of two thirds and no longer unanimity. If the articles of association call for the qualified majorities of the previous law, then they may be amended within two years in accordance with the new majority requirements by an absolute majority of the votes represented.

4.6 Subscription rights may only be revoked for good cause, and a public offer to subscribe for a GmbH-share is not permitted.

4.7 The articles of association may require the company members to pay additional contributions. The additional amount required may not exceed twice the nominal value of the GmbH-share to which it is related. The company members are liable only to the extent of the additional contributions tied to their own GmbH-shares. It must be clearly indicated in the articles of association which capital contribution the requirement to pay further capital relates to and how much capital must be paid, and a notice must be recorded in the Commercial Register giving a precise description of the obligations to contribute additional capital in the articles of association. Existing obligations to contribute additional capital in the articles of association that require the payment of more than twice the nominal value of the capital contribution remain valid and the amount due may only be reduced by using the procedure under Art. 795c CO (reduction of the company capital). Ancillary obligations may also be provided for in the articles of association, provided they are conducive to the objects of the company, the preservation of its independence or the safeguarding of the composition of the group of company members.

4.8 The articles of association may require in accordance with Art. 803 CO that all company members must refrain from engaging in activities in competition with the company. Exceptions to such requirements may be made by management resolution in certain circumstances.

4.9 The articles of association may provide for the creation of bonus shares, whereby the provisions of the law on companies limited by shares are applicable. The law does not permit the issue of participation certificates in limited liability companies. Existing participation certificates (shares in a limited liability company with a nominal value that are shown as liabilities on the balance sheet, but which do not carry voting rights) remain valid after two years as GmbH-shares with the same property rights. Alternatively, participation certificates may be cancelled within two years by means of a reduction in capital and redeemed at their true value. For shares in a limited liability company that are not shown as liabilities on the balance sheet, the regulations on bonus shares apply from the commencement of the amendment to the law. The designation of these securities and the articles of association must be amended within two years. GmbH-shares held by the company itself must, if they exceed ten per cent of the company capital, be sold within two years or cancelled by means of a reduction in capital.

4.10 The new law provides for restrictions on transfer, i.e. the refusal of consent to transfer by the members’ general meeting is possible without having to state the reasons. The articles of association may however provide for a different procedure: the requirement of the consent may be dispensed with entirely, or transfer may be excluded altogether. Also conceivable would be a regulation according to which consent may be refused only for good cause. In contrast to the law on companies limited by shares, it is not necessary to specify in the articles of association what is good cause precisely and exhaustively.

4.11 Should the new rules on the casting vote be excluded in the members’ general meeting or in management, the articles of association of the limited liability company must be amended accordingly within the two-year period allowed.

4.12 In a new move, the articles of association may grant all or individual company members a right of veto against any or certain resolutions of the members’ general meeting. The resolutions covered must be clearly indicated in the articles of association. However, a direct right of veto against the decisions of the executive manager is excluded.

4.13 It is advisable to take the revision of the articles of association as an opportunity to generally review the organisational structure of the limited liability company. For example, it may be provided in the articles of association that the management regulates the powers of representation of the executive managers or that company members are authorized to regulate who acts as chairperson. The election of the managers, authorized signatories and authorized agents may also be delegated in the articles of association to the executive managers. Also conceivable is the introduction in the articles of association of provisions that permit or even require certain decisions to be submitted to the members’ general meeting for approval. In addition, the articles of association may provide for a more far-reaching right to withdraw from the limited liability company or for certain grounds for exclusion.

4.14 The new provisions now regulate the claims of a company member who has been ousted: he or she will receive compensation corresponding to the true value of his or her capital contribution. If the member leaves on the basis of a right to withdraw contained in the articles of association, the articles may regulate the situation differently.


5. What is the procedure for making the required amendments?

5.1 An amendment to the articles of association must normally be agreed by the general meeting or the members’ general meeting and must then be registered with the Commercial Register in a publicly certified amendment resolution. If the auditor is to be dispensed with, a "Waiver of Audit" must be filed with the required supporting documents (profit and loss accounts, balance sheets, annual reports, waiver signed by all company members), and this must be signed at least by a member of the highest administrative or executive management body.

5.2 It should be noted in connection with this that matters notified for registration to the Commercial Registry Office after January 1, 2008 are subject to the new law, i.e. if company foundations, increases in capital and amendments to the articles of association under the old law were not reported in full by the end of 2007 to the Commercial Registry Office, the entire procedure must be recertified in accordance with the new law.

Companies that have equity securities listed on a stock market or debentures outstanding or that contribute at least 20% of the assets or of the turnover to the group accounts of such a company. Only in the case of publicly traded companies must the ordinary audit be carried out by a state supervised audit company.

For the assessment of the question of whether the required thresholds have been exceeded in two successive financial years, the two most recent financial years before the new provisions came into force must be considered. This means that the annual accounts for 2008 must be subjected to an ordinary audit if the thresholds were exceeded in the financial years 2006 and 2007.

Including holders of participation certificates (non-voting shares).