Adriano Antonietti lic. iur.
Valentine Schnyder MLaw
A commercial activity in Switzerland may be carried out through commercial structures that focus either on personal commitment and liability (partnerships) or on share capital commitment (capital companies).
In this context, there are many different legal forms available in Switzerland to do business, such as sole proprietorship, general partnership, limited partnership, corporations, LLCs or cooperatives. In addition, the simple partnership is available as contractual arrangements among partners. It is, how-ever, not a legal entity but a bare agreement.
The two most frequent forms for entrepreneurs who wish to develop a commercial activity in Swit-zerland are (i) corporations and (ii) LLCs.
This chapter shall therefore be limited to the review of the main aspects and particularities related to the incorporation of a Swiss corporation (see section 2 below) and LLC (see section 3 below).
I. Legal Forms of Companies
1. In General
Art. 620 CO provides that a corporation is a company formed under a corporate name, whose share capital is determined in advance, divided into shares, and whose debts are covered only by the com-pany's assets.
The corporation acquires legal personality upon its registration with the competent commercial reg-ister (available under www.zefix.ch) and the publication thereof in the Swiss Official Gazette of Com-merce (available under www.shab.ch).
The minimum share capital required by law is CHF 100,000 divided into shares with a minimum nom-inal value of CHF 0.01 each. The minimum amount to be contributed upon incorporation must equal 20% of the nominal value of each share, but at least CHF 50,000. The share capital may be contrib-uted in cash or in kind.
The amount of the paid-in capital (in case of cash payment) must be deposited in escrow with a Swiss bank. The amount of the contributed share capital shall be released by the depository bank upon completion of the registration procedure of the company with the competent commercial reg-ister. In case of contribution in kind, the value retained for the assets contributed must be reviewed and confirmed by a licensed auditor.
Shares of a corporation can be issued as registered shares or bearer shares. Registered shares are, if issued, issued in the name of the (initial) shareholder and listed in a share register held by the com-pany. Bearer shares do not mention the name of the shareholder and may only be issued in the form of shares or shares certificates if the nominal capital has been fully paid-in.
In the case of registered shares, the articles of association of the corporation may provide for re-strictions to their transferability, in which case an assignment, respectively acquisition of shares is subject to the approval of the company, i.e. its board of directors.
Since issuance of the revised FATF Recommendations, in particular Recommendation no 10 on cus-tomer due diligence, additional disclosure and notification, obligations have been implemented in
2. Corporation 2.1. Constitution
2.2. Shares Issuance and Transfer
the CO in relation to transfer of shares. In summary, in case of acquisition of bearer shares (not listed on a stock exchange) the acquiring shareholder must (i) give notice of the acquisition to the company within one month following acquisition, (ii) prove its ownership and (iii) identify himself (by provid-ing a passport/ID/drivprovid-ing licence for individuals or excerpt from the commercial register for entities).
The company shall in addition keep a register of bearer shareholders (containing first name, sur-name/business name, address, nationality and date of birth of the shareholder).
Further, the company shall also keep a list of the beneficial owners of the shares and such beneficial owner (necessarily being a natural person) of bearer and registered shares (not listed on a stock exchange) must in any case be disclosed to the company by the shareholder when the threshold of 25% of the share capital or votes is reached through the acquisition of shares, within one month following such acquisition.
The board of directors of the corporation must ensure that no shareholder exercises its rights while in breach of its obligations to give notice.
With regard to the organisation of the corporation, the entity has necessarily two bodies, namely (i) the general meeting, which is the supreme authority of the corporation (regulated under articles 698 et seq. CO), and (ii) the board of directors, which is the executive body of the corporation (reg-ulated under articles 707 et seq. CO). The third body of the corporation is the auditor of the company (regulated under articles 727 et seq. CO), which is mainly responsible for the audit of the company's accounts. Under certain conditions, the company may limit its audit to a review of its accounts or even waive the audit requirement (see chapter on Corporate Governance, section 2.5).
The LLC has similar characteristics to the corporation. However, it constitutes a combination be-tween (i) a company limited by shares since the rights and obligations of the partners are measured in principle according to their financial holdings, and (ii) a partnership as far as the management of the company is concerned.
2.3. Organisation
3. Limited Liability Company
Pursuant to articles 772 and 773 CO, the LLC is a share capital company with separate legal person-ality formed by one or more persons or commercial enterprises. As the corporation, the LLC is liable for its obligations only to the extent of its assets.
The LLC's capital shall amount to at least CHF 20,000 and must be fully paid-in. Since 2008, there is no longer an upper limit to the amount of the share capital. The nominal value of a share quota must amount to at least CHF 100. As for the corporation, the contribution can be made in cash or in kind.
The rules for the constitution and organisation of the LLC are substantially similar to those of the corporation described in sections 2.1 and 2.3 and, by express reference, certain provisions ruling the corporation apply to the LLC.
Following the revision of the provisions of the CO on LLCs in 2008, the two forms of companies no longer present any material differences.
The most relevant differences between a corporation and an LLC we have retained are the following:
i. Publicity of participations: The register of shareholders of a corporation is not publicly avail-able nor disclosed with the commercial register. Instead, quota holders of an LLC have to be disclosed to and registered with the competent commercial register. As a consequence, a transfer of participation in an LLC has to be disclosed to and registered with the commercial register, thus adding transparency of the transfer of quota(s). Save where the articles of as-sociation provide for a restriction, shares in a corporation are freely (and anonymously to-wards third parties) transferable.
ii. Non-compete: The articles of association may impose a non-compete obligation to the quota holders of an LLC, which is not the case for shareholders of a corporation. However, such a non-compete undertaking for shareholders in a corporation may be set forth in a specific shareholders' agreement.
iii. Minimal nominal amount of capital: The minimum amount of the share capital of the
corpo-ration is of CHF 100,000 of which at least CHF 50,000 or 20% of the total nominal value of
4. Corporations vs Limited Liability Companies
4.1. Main Differences between Corporations and Limited Liability Companies
the issued capital must be paid-in. The minimum amount of the capital of the LLC is of CHF 20,000 and must be fully paid-in.
iv. Minimal nominal value of the shares/quota: Whereas the nominal value of the shares of a corporation may amount to CHF 0.01, the minimal value of a quota in an LLC may not be less than CHF 100 (or a multiple thereof).
v. Additional contributions: The articles of association may impose an obligation to the quota holders of an LLC to make additional contributions, which is not the case for shareholders of a corporation who only commit to paying the amount of their initial subscription.
Corporations are generally preferred to LLCs in the event of several shareholders and if the company carries out or contemplates to carry out numerous capital increases. In addition, corporations are usually preferred due to the higher amount of the minimum share capital required (i.e.
CHF 100,000), which is intended to reassure counterparties as to the financial soundness of the com-pany. The minimum nominal value of shares of a corporation set at CHF 0.01 also proves to be more flexible in structuring the capital, including to create different categories of shares.
The Merger Act allows a capital company to transform into another form of capital company, e.g.
from an LLC to a corporation or vice versa. However, such a transformation will not modify the legal relationships of the company. Indeed, despite its change in legal form, the company retains its iden-tity and personality. It is therefore not necessary to create a new company with the desired new legal form.
The conversion is performed under the responsibility of the supreme management or administrative body of the company, which shall establish the conversion plan and conversion report on the basis of a current balance sheet. The conversion balance sheet, conversion plan and conversion report must be audited by an expert auditor. The company must abide the steps necessary for the consti-tution of the contemplated legal form. In addition, the general meeting of shareholders or quota holders must approve the conversion in compliance with special quorums and the decision of con-version must be taken in the form of a public deed. The concon-version becomes effective upon its reg-istration with the competent commercial register, the application to which is the duty of the su-preme management or administrative body.
4.2. Change of Legal Form
Stefan Knobloch
Prof. Dr. iur.
Dimitrios Berger MLaw
This chapter focuses on corporations and the respective provisions of the CO. Apart from the man-datory set of corporate governance rules as provided for by the Swiss legal framework, corporations and self-regulating organisations (such as i.a. stock exchanges) are free to issue additional guidelines to further shape their organisation (or, in case of self-regulating organisations, the organisation of affiliated companies). The statutory corporate governance rules can be distinguished into corporate laws as set forth in the CO and financial market regulations. Additional guidelines may be imple-mented by corporations by way of introducing respective provisions into the articles of association, the organisational regulations and/or other internal regulations. Furthermore, corporate govern-ance rules are commonly also set forth on a contractual level, i.e. in shareholders' agreements.
The CO stipulates that corporations shall have the following corporate bodies: (i) the shareholders' meeting as the supreme governing body, (ii) the board of directors as the supreme managing body and (iii) the statutory auditor, provided that the shareholders did not, if applicable, unanimously opt-out of a limited audit (see section 2.5 below). In addition, the board of directors may delegate the day to day management of the company by virtue of organisational regulations to one or several officers appointed by the board (which do not need to be board members).