Corporate governance and directors' duties in Switzerland: overview
A Q&A guide to corporate governance law in Switzerland.
The Q&A gives a high level overview of board composition, the comply or explain approach, management rules and authority, directors’ duties and liabilities, transactions with directors and conflicts, company meetings, internal controls, accounts and audit, institutional investors and reform proposals.
To compare answers across multiple jurisdictions, visit the Corporate Governance Country Q&A tool.
The Q&A is part of the global guide to corporate governance law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corpgov-guide
Corporate governance trends
In November 2014, the Swiss Federal Council published its draft proposal for an amendment of the Swiss Code of Obligations. It incorporates the Federal Ordinance against Excessive Compensation in Public Corporations, which governs directors' and executive management compensation. The draft proposal also contains, among other things, provisions regarding gender diversity on the board of directors and executive management (on a ''comply or explain'' basis), and provides for more flexibility with respect to increases or reductions of share capital.
A revised proposal is expected to be published in November 2016 and to be discussed by the Swiss Parliament between 2018 and 2020.
Business activities can be pursued in various ways and legal forms. The main forms of corporate entity used in Switzerland for doing business are:
Stock corporation (German: Aktiengesellschaft (AG), French: société anonyme (SA), Italian: società anonima (SA)).
Limited liability company (LLC) (German: Gesellschaft mit beschränkter Haftung (GmbH), French: société à responsabilité limitée (Sàrl), Italian: società a garanzia limitata (Sagl)).
While the LLC is sometimes chosen for small and medium-sized businesses, businesses, in particular larger businesses, are often better served by incorporating a stock corporation, which has the following advantages over an LLC:
Only a stock corporation can be listed on the stock exchange.
A stock corporation offers a legal framework better suited to serve a modern and flexible corporate governance structure and to raise capital.
This article will focus primarily on stock corporations. Where necessary, the article will differentiate between listed and non-listed stock corporations.
Corporate governance and directors' duties are primarily governed by the:
Swiss Code of Obligations.
Federal Act on Mergers, Demergers, Transformations and Transfers of Assets.
Federal Act on the Approval and Supervision of Auditors.
Company's articles of association (articles), organisational regulations and other regulations.
Listed stock corporations are subject to the following additional regulations:
Federal Ordinance against Excessive Compensation in Public Corporations.
Federal Act on Financial Market Infrastructure.
Federal Ordinance on Financial Market Infrastructure.
Federal Ordinance of the Swiss Financial Market Supervisory Authority on Financial Market Infrastructure.
Federal Takeover Ordinance.
Regulations of the Takeover Board.
For stock corporations listed on the SIX Swiss Exchange (see below, Regulatory authorities) the following rules and directives apply, among others:
Directive on Information relating to Corporate Governance.
Directive on Ad hoc Publicity.
Directive on Disclosure of Management Transactions.
Directive on Financial Reporting.
Directive on Regular Reporting Obligations.
Financial institutions and securities dealers are subject to additional regulations.
Further, the following non-binding codes have been issued:
Swiss Code of Best Practice for Corporate Governance (Swiss Code of Best Practice). The Swiss Code of Best Practice (http://www.economiesuisse.ch/sites/default/files/publications/economiesuisse_swisscode_e_web.pdf) was issued by economiesuisse and sets out non-binding recommendations concerning the corporate governance of listed companies, which to some extent can also be applied to non-listed companies.
Best Practice in Small- and Medium-Sized Companies (BP-KMU). The BP-KMU (http://www.icfcg.org/best-practice/bestpractice-en.pdf) are recommendations for the management and supervision of small- and medium-sized companies developed by the IFPM-HSG Center for Corporate Governance at the University of St. Gallen.
Familie: Unternehmen: Umfeld, Governance für Familienunternehmen (Swiss Code for Family Companies) (http://www.vpag.ch/pdf/publikationen/2011-Corporate-Governance-Leitfaden.pdf). These are governance guidelines for family businesses developed by a group of experts.
There is no official regulatory body in Switzerland designated for the enforcement of corporate governance. However, the following (among others) supervise compliance with the regulations within their scope:
The Swiss Financial Market Supervisory Authority (FINMA) (www.finma.ch). FINMA's task is to supervise financial markets and financial institutions.
The Takeover Board (www.takeover.ch). The Takeover Board is a federal authority, which ensures that provisions regarding public takeover offers and share buyback programmes are complied with.
The Federal Audit Oversight Authority (FAOA) (www.revisionsaufsichtsbehoerde.ch). The FAOA decides on the admission of individuals and audit firms offering audit services, and supervises audit firms that audit listed stock corporations.
The SIX Swiss Exchange (Switzerland's main stock exchange) (www.six-swiss-exchange.com). The stock exchange enforces the Listing Rules and directives of the SIX Exchange Regulation.
The cantonal commercial registers (www.zefix.ch)(www.bj.admin.ch//bj/de/home/themen/wirtschaft/handelsregister.html). The commercial registers record certain important information, in particular, the persons that may represent and bind a company. Companies must register with the commercial register of the Canton where they are incorporated. The cantonal commercial registers are overseen by the Federal Office of the Commercial Register.
Violations of criminal provisions, including those contained in the Ordinance against Excessive Compensation in Public Corporations are generally prosecuted by the cantonal authorities. Violations of the prohibitions of insider trading and market manipulation are prosecuted at federal level.
Institutional investors and other shareholder groups
The influence of institutional investors and other shareholder groups on corporate governance has increased in recent years, mainly through voting recommendations, reports of proxy advisors and the dialogue of institutional investors and proxy advisors with the companies.
The recommendations of ISS (the US proxy advisor) have a significant influence on many Swiss-listed companies.
Among Swiss proxy advisors, Ethos, which has been set up by Swiss pension funds, is most influential. Actares, zRating and Swipra are other players in this market.
Switzerland has not adopted an official, binding corporate governance code in addition to the general binding acts, ordinances and stock exchange regulations. However, private organisations have developed a number of non-binding corporate governance codes (see Question 3).
The most influential non-binding code is the Swiss Code of Best Practice, which is largely observed by listed stock corporations. The Swiss Code of Best Practice requires companies, which are not complying with its recommendations, to provide a suitable explanation for non-compliance (known as the "comply or explain principle").
The Swiss Code of Best Practice covers the following areas:
Exercise of shareholders' rights.
Functions, composition, independence requirements and procedures of the board of directors.
Chairmanship of the board of directors.
Dealing with conflicts of interest and advance information.
Chairman of the board of directors and chief executive management in relation to the appropriate balance between management and ultimate control of the company.
Internal control systems dealing with risk and compliance.
Committees of the board of directors.
Flexibility of the Swiss Code of Best Practice's rules in particular circumstances.
Disclosure of corporate governance information.
The Swiss Code of Best Practice was established by economiesuisse, an umbrella organisation for businesses from all sectors of the economy, and was based on international discussions regarding corporate governance. It was revised in 2014. The Swiss Code of Best Practice contains guidelines and recommendations for listed stock corporations. It is intended that non-listed stock corporations should be able to develop appropriate guidelines based on the Swiss Code of Best Practice.
Corporate social responsibility and reporting
There is no legal obligation or non-binding recommendation for companies to report on social, environmental and ethical issues.
However, an increasing number of companies have adopted their own codes of conduct and report on the social, environmental and ethical impact of their business on a voluntary basis.
SIX Exchange Regulation proposed an amendment to the Directive on Information relating to Corporate Governance with respect to sustainability reports of listed stock corporations. The publication of a sustainability report remains voluntary. However, if the report is published, it must comply with internationally recognised standards.
Board composition and restrictions
Under Swiss law, the default board structure of a stock corporation is unitary. The board of directors has the ultimate responsibility for all matters not expressly reserved to other corporate bodies.
To the extent that the powers and responsibilities are not reserved to the board of directors by statutory law, they may be delegated to one or several managers or a managing board (see below, Management). Therefore, a structure similar to a two-tiered structure can be established.
The board of directors is responsible for the overall management of the stock corporation and ultimate supervision of the persons entrusted with its management.
However, the Swiss Code of Obligations allows for the delegation of management to:
Individual members of the board of directors.
Third parties (such as executive managers).
The delegation of management must be based on a respective provision in the articles. The organisational regulations of the stock corporation must determine:
Duties and powers of management.
Reporting obligations to the board of directors.
It is customary, at least for medium- and large-sized companies, to delegate management.
Financial institutions are subject to additional rules, which, among other things, require a strict separation of the board of directors and management.
The members of the board of directors are individually elected by the shareholders' meeting. The Swiss Code of Obligations only requires that directors have the necessary qualifications and experience to ensure an independent supervision and decision-making process. However, the articles, the organisational regulations or other internal regulations can stipulate additional requirements as to qualifications, experience and independence.
Employees are not entitled to a representation on the board of directors based on Swiss law. However, the company's articles can provide for a representation.
Number of directors or members
The board of directors can consist of one or several members. The articles of the stock corporation can specify minimum or maximum numbers.
Under the Swiss Code of Best Practice, the size of the board of directors should match the needs of the individual company and should be small enough in number for efficient decision-making and large enough for its members to contribute experience and knowledge from different fields and to allocate management and control functions among themselves. As a benchmark, the Best Practice in Small- and Medium-Sized Companies (BP-KMU) recommends:
Three directors for small companies (up to 50 employees).
Five directors for middle-sized companies (up to 500 employees).
Directors must be at least 18 years of age. Apart from this requirement, there are no age restrictions under Swiss law. However, a stock corporation's articles or organisational regulations can provide for age limitations. The Swiss Code for Family Firms recommends including an age limitation.
There are no nationality restrictions. However, at least one director or one officer authorised to act and validly bind the stock corporation must reside in Switzerland (irrespective of the person's nationality).
There are no restrictions, quotas or relevant disclosure requirements regarding gender for directors of Swiss companies. However, the Swiss Code of Best Practice recommends that the board of directors comprises male and female members and guarantees appropriate gender diversity. The Best Practice in Small- and Medium-Sized Companies (BP-KMU) also recommends that small companies have at least one woman on their board of directors and larger companies have two to three women on their board of directors.
There is no legal definition or recognition of non-executive, supervisory or independent directors. Under the Swiss Code of Best Practice, a non-executive director is independent if both:
He is not involved in the management of the company, and has not been involved in the company's management within the previous three years.
He has no (or has comparatively minor) business relations with the company.
Swiss law does not require the board of directors or parts of it to consist of independent directors.
The Swiss Code of Best Practice recommends that the majority of the board of directors should consist of non-executive members and most Swiss stock corporations comply with this as good corporate governance.
Since Swiss law does not impose any requirements regarding independence, non-executive or supervisory directors are not required to be independent of the company by law. However, a stock corporation's articles, organisational regulations or other internal regulations can include independence requirements in relation to non-executive directors.
Listed stock corporations must disclose whether their directors are executive or not. In relation to non-executive directors, it is required to disclose whether the director:
Was a member of management of the company or one of its subsidiaries in the last three financial years.
Has significant business connections with the company or its subsidiaries.
The Swiss Code of Best Practice recommends that the members of the audit committee and the compensation committee be independent, and that the majority of the members of the nomination committee be independent.
Banks and securities dealers subject to the supervision of the Swiss Financial Market Supervisory Authority (FINMA) must comply with additional independence requirements.
As a rule, the board of directors constitutes itself and determines its organisation and allocation of powers and duties. In particular, the board can appoint the chairman as chief executive officer.
In listed stock corporations, the chairman of the board of directors is elected by the shareholders' meeting, which may restrict the board's flexibility in this regard.
Further, the articles, the organisational regulations or other internal regulations can include restrictions regarding such dual mandate.
If a person assumes the roles of chairman and CEO, the Swiss Code of Best Practice recommends that the board of directors provide for adequate control mechanisms. For example, it can appoint an experienced non-executive director as a senior independent director or lead director. The senior independent director must specifically be:
Entrusted with exercising adequate and independent control.
Entitled to convene and chair meetings of the board of directors when necessary.
In general, regulations require a two-tier system (separation of board of directors and executive management) in banks and insurance companies.
Appointment of directors
The directors are elected by the shareholders' meeting. Election requires the absolute majority of the votes represented at the shareholders' meeting in person or by proxy, unless the articles provide for a lower or higher majority requirement.
In non-listed stock corporation, the chairman of the board is appointed by the board of directors from among its members, unless the articles provide otherwise. In listed stock corporations, the chairman of the board of directors and the members of the compensation committee are elected by the shareholders' meeting.
The Swiss Code of Best Practice recommends that the board of directors establish a nomination committee, which should enact rules for the selection of nominees and their re-election, and support the board of directors in the nomination process.
If a stock corporation has more than one class of shares, each class of shares is entitled to one representative on the board of directors.
Removal of directors
Directors can be removed at any time by the shareholders' meeting without cause. Removal requires the absolute majority of the votes represented at the shareholders' meeting in person or by proxy, unless the articles provide for a lower or higher majority requirement.
In listed stock corporations, the shareholders' meeting can also remove the chairman and the members of the compensation committee, subject to the same majority requirements.
Directors of non-listed stock corporations are elected for a term of three years, unless the articles provide for a shorter or longer term (but no longer than six years).
Directors of listed stock corporations are elected for a term of one year. Therefore, staggered or classified boards are not permissible.
Directors can be re-elected without limitations, unless the articles provide limitations for age or maximum term of office.
Directors employed by the company
There is no requirement for directors to be employed by the company (and in most cases they are not). However, executive directors can have an employment agreement with the company.
The board or a shareholders' meeting can generally authorise shareholders to review the directors' service contracts, provided that no commercial secrets or other interests of the company are jeopardised. Under certain conditions, directors must provide access (see Question 31).
The following rules apply to listed stock corporations:
Directors' compensation must be disclosed on an aggregate and individual basis (see Question 14).
The aggregate compensation of the board of directors must be approved by the shareholders' meeting in a binding vote (see Question 14).
The articles must include provisions regarding the maximum term or the maximum termination notice period of agreements with directors regarding their compensation.
Directors are permitted, but not required to own shares in the company. However, the articles, the organisational regulations or other internal regulations can require directors to hold a certain number of shares in the company.
Directors of listed stock corporations must comply with insider trading and market manipulation rules (see Questions 20 and 30). Further, share-related transactions and the share or option holdings of directors must be disclosed.
Determination of directors' remuneration
The board of directors determines the directors' and executive management's remuneration in compliance with general principles of corporate law (such as the duty of care and loyalty and the obligation to reimburse unjustified benefits under certain conditions).
For listed stock corporations, the following specific rules apply:
While the individual compensation is determined by the board of directors (or to the extent delegated to it, the compensation committee), the maximum aggregate amount of board and executive management compensation must be approved by the shareholders' meeting (see below).
The stock corporation must establish a compensation committee and determine the main principles regarding its powers and duties in the articles. Its members are individually elected by the shareholders' meeting.
Certain types of compensation are prohibited (in particular, severance compensation and bonuses in connection with certain types of M&A transactions).
Additional minimum standards on compensation schemes of financial institutions have been imposed by the Swiss Financial Market Supervisory Authority (FINMA).
Listed stock corporations. They must disclose (whether paid, granted or held directly or indirectly):
The compensation of current (and under certain circumstances, former) directors on an aggregate and individual basis.
The compensation of current (and under certain circumstances, former) members of executive management on an aggregate basis and, with respect to the highest paid member only, on an individual basis.
Loans and credits granted to current (and under certain circumstances, former) directors and members of executive management.
Shareholdings in the company (as well as conversion and option rights) held by current directors and members of executive management and related persons on an individual basis.
In addition, companies listed on the SIX Swiss Exchange must disclose in their corporate governance report the:
Main principles of their compensation system.
Method of determining the compensation, including the respective authorities and procedures.
Provisions in the articles regarding compensation, loans and certain pension benefits of directors and members of the executive management.
Non-listed stock corporations. They are not required to disclose compensation, loans and credits as well as shareholdings of members of the board of directors and executive management.
Listed stock corporations. The shareholders' meeting must approve annually, and in two separate and binding votes, the compensation for directors and compensation for the executive management. The approval relates to the (maximum) aggregate amount of compensation payable (in any form) to each body.
Companies have significant flexibility in implementing these requirements and can determine a tailor-made ''say on pay'' regime in their articles. For example, companies can opt to hold any of the following:
A retrospective vote on the actual compensation paid.
A prospective vote on a maximum compensation amount (cap).
A mixture of the above (such as a prospective approval of a maximum amount for fixed compensation elements and retrospective approval of short-term bonuses).
The articles may provide for an adequate process in the event of a negative vote, including the possibility of the companies to continue to pay out compensation on a conditional basis. In addition, the articles may provide for amounts reserved for new hires. This avoids the necessity to convene a shareholders' meeting in case of changes in the composition of the executive management.
In line with the recommendation of the Swiss Code of Best Practice, the majority of companies hold a retrospective advisory vote on the compensation report disclosing the actual compensation paid in addition to the binding vote on the aggregate (maximum) amounts of compensation.
Non-listed stock corporations. Compensation paid to directors and executive management is not subject to shareholder approval, except for a particular type of profit sharing right (Tantiemen/ tantièmes/ partecipazione agli utili), which is no longer used in practice due to negative tax consequences. Shareholder approval on an advisory basis is rare.
General issues and trends
All listed stock corporations have implemented the new rules under the Ordinance against Excessive Compensation in Public Corporations, which entered into force on 1 January 2014. The implementation did not cause notable issues. At the annual shareholders' meetings in 2015 and 2016, shareholders approved almost all binding "say on pay" proposals.
As in most other jurisdictions, directors' and executive management compensation remains under increased scrutiny by proxy advisors and institutional investors. In particular, the recommendations of ISS (the US proxy advisor) have a significant influence on the compensation principles of many Swiss-listed companies.
Management rules and authority
The company's internal management is governed by the company's articles, organisational regulations or internal regulations.
Meetings are usually convened by the chairman of the board. Each board member can require the chairman to convene a meeting on short notice, stating the reasons for the meeting. Resolutions that are passed at a board meeting that was held without having properly convened all board members are generally null and void.
Resolutions of the board of directors are taken by the majority of the votes cast, unless otherwise provided in the articles or internal regulations. There is no requirement for a minimum number of directors to be present, unless this is provided in the company's internal regulations. The chairman has the casting vote, unless otherwise provided in the articles. Board decisions can be taken by written resolutions, unless a member requests oral deliberation.
The board of directors can exercise all powers that are not allocated to the shareholders' meeting by law or the articles. In addition, the board can delegate everyday management to separate executive management. However, the following powers and duties cannot be delegated:
Ultimate direction of the stock corporation and issuance of the required instructions.
Determination of the organisation of the stock corporation.
Organisation of accounting, financial control and financial planning.
Appointment and removal of the persons entrusted with the management and representation of the stock corporation.
Ultimate supervision of the persons entrusted with management duties, in particular with regard to compliance with applicable laws, the articles, regulations and directives.
Preparation of the business report (and for listed stock corporations, the compensation report).
Organisation of the shareholders' meeting and implementation of its resolutions.
Notification of the court if the stock corporation is over-indebted (that is, where its liabilities exceed its assets).
The following powers are reserved to the shareholders' meeting and cannot be delegated:
Adoption and amendment of the articles.
Election of the members of the board of directors and the auditors (and for listed stock corporations, the chairman of the board of directors, the members of the compensation committee and the independent voting rights representative).
Approval of the annual statutory financial statements and, if applicable, the annual management report and the consolidated financial statements.
Allocation of the balance sheet profit, in particular the determination of any dividend.
Discharge from liability of the members of the board of directors and executive management.
Resolutions on matters that are reserved to the shareholders' meeting by law (such as the approval of mergers, demergers and transformations) or the articles.
For listed stock corporations, the approval of the compensation of the board of directors and executive management (see Question 14).
If the directors transact on behalf of the stock corporation with bona fide third parties in violation of their statutory duties or of internal restrictions, as a rule, the transaction is nevertheless valid. However, the transaction is invalid if either:
The transaction is outright excluded by the stock corporation's business purpose.
The limitation of the authority to represent the stock corporation is recorded in the commercial register; only collective signature authority and the limitation of the authority to either the principal establishment or a particular branch can be recorded.
Subject to the powers which cannot be delegated (see Question 16, Directors' powers), the board of directors can delegate management to individual members of the board of directors, committees or third parties based on a respective provision in the articles and in accordance with the company's organisational regulations.
Listed stock corporations must establish a compensation committee, whose members are elected by the shareholders' meeting (see Questions 10 and 14). The articles must determine the main principles of its powers and duties. The compensation committee can be given the power to decide or only to make proposals to the full board of directors. The Swiss Code of Best Practice also recommends that the following committees be appointed:
Audit Committee (to support the board in audit matters; required for certain financial institutions).
Nomination Committee (to support the board in the selection and evaluation of board nominees, among other things).
Directors' duties and liabilities
A stock corporation is managed by or under the ultimate supervision and direction of its board of directors. In performing its tasks, the board must:
Apply due care and pursue the company's interests in good faith (duty of care and loyalty).
Treat shareholders in similar circumstances equally.
Unless delegated to a separate management, the board is also responsible for the management of the stock corporation's business. Certain duties cannot be delegated by the board of directors (see Question 16, Directors' powers).
Directors (and members of executive management) are personally liable to the company, its shareholders and creditors for damages resulting from an intentional or negligent breach of their duties as directors or members of executive management of the company (or in their capacity as founders or liquidators of the company). Any damages awarded by the court must be paid to the company itself (and not to its shareholders or creditors), unless in exceptional circumstances where the shareholders or the creditors have suffered direct damages.
In the event of bankruptcy, the bankruptcy trustee is first entitled to assert the shareholders' and creditors' claims. As a rule, the shareholders or creditors can only collectively assert their claims in situations where the trustee in bankruptcy waives its right to do so. Outside bankruptcy, claims for directors' and officers' liability are very rare.
If the management of the company has been delegated by the board of directors to a separate management, the board's liability is limited to how carefully it selected, instructed and supervised the management (see Question 25).
In most cases the courts will not second-guess the board's or management's discretion (business judgement) in managing the stock corporation, as long as their decisions have been prepared both:
With due care (based on a sound information basis and in consideration of chances, risks and alternatives).
In good faith (in particular, without conflicts of interests affecting the decisions).
The Criminal Code provides for certain specific offences, including:
Filing false statements with the commercial register (Article 153).
Disclosing manufacturing or commercial secrets (Article 162).
Fraudulently obtaining an incorrect official recording (Article 253).
Economic espionage (Article 273).
Failure to comply with accounting regulations (Article 325).
Violation of regulations pertaining to business names (Article 326ter).
Under the Criminal Code, directors can be subject to criminal liability for intentional acts in relation to theft and fraud under the following provisions (among other things):
Misappropriation (Article 138).
Fraudulent representations (Article 146).
False statements about commercial business (Article 152).
Criminal mismanagement (Article 158).
Forgery of documents (Article 251).
Money laundering (Article 305bis).
Insufficient diligence in financial transactions (Article 305ter).
Any violation of these provisions can also result in civil liability.
Criminal liability can arise under the following provisions:
Insider trading (Article 154, Federal Act on Financial Market Infrastructure (FMIA)) (see Question 30).
Price manipulation on a stock exchange (Article 15, FMIA).
Misleading statements about commercial business (such as in a prospectus) (Article 152 Criminal Code (CC)).
Fraudulent representations (such as in a prospectus) (Article 146, CC).
Other specific offences under the FMIA.
Civil liability can arise from:
Incorrect or misleading statements made in a prospectus offering securities or bonds (Article 752, Swiss Code of Obligations).
Any violation of the provisions listed above.
Under the Criminal Code, criminal liability can arise under the following provisions:
Fraudulent bankruptcy and fraud in connection with a seizure procedure (fictitious reduction of assets or creation of debts) (Article 163).
Intentional reduction of assets to the prejudice of creditors (Article 164).
Mismanagement (Article 165).
Granting of preferences to certain creditors (Article 167).
Appropriation of seized property (Article 169).
Obtaining a judicial composition agreement by fraud (Article 170).
Directors can be subject to civil liability:
If they do not promptly fulfil their notification obligations in the case of over-indebtedness (see Question 16, Directors' powers).
Due to any violation of the provisions listed above.
Directors can be subject to civil and criminal liability for violations of data protection and specific criminal law provisions.
Directors can further face criminal or civil liability for:
Violations of specific provisions of the Ordinance against Excessive Compensation in Public Corporations.
Failure to pay the required social security contributions.
Failure to pay certain taxes owed and other violations of tax laws.
According to prevailing views, although this has not been tested by the courts, a director's liability to the company can be restricted to wilful or grossly negligent violations of their duties.
Furthermore, the board of directors' or management's liability to the company can be waived by way of a discharge resolution of the shareholders' meeting. However, discharge is only effective with regard to:
Facts that have been sufficiently disclosed to the shareholders.
Claims of the company and those shareholders who approved the discharge.
Discharge has no limiting effect on:
Claims in the context of a company's bankruptcy.
Claims of shareholders who have not consented to the discharge (however, such shareholders must file their claims with court within six months of the shareholders' meeting).
To the extent the board of directors validly delegates management, its responsibility is limited to the duty of care in selecting, instructing and supervising the delegated persons.
Directors or officers who have been found liable may be indemnified for negligent breaches of their duties. However, indemnification cannot be granted for criminal monetary penalties or fines, or for liability resulting from gross negligence or wilful misconduct. A company can further:
Advance court costs and attorneys' fees to a director or member of executive management who has been sued by the company or a third party.
Enter into settlements on his behalf, unless a court has determined that he is grossly negligent or has intentionally breached his duties (or where such breach is prima facie evident).
Transactions with directors and conflicts
Directors must perform their duties with due care and safeguard the company's interests in good faith.
In relation to conflicts of interest, as a rule, a director must disclose a relevant conflict to the board and not participate in the respective decision.
The Swiss Code of Best Practice includes appropriate procedures to address conflicts of interest. In addition, it recommends that any director with a permanent conflict of interest should not serve as a board member.
Due to the directors' duty of loyalty and care, directors with an interest in the transaction must not enter into transactions with the company unless either the:
Members of the board without an interest in the transaction or the shareholders' meeting have approved the transaction beforehand or ratified afterwards.
Company's interests are not jeopardised.
Further, the transaction must be concluded at arm's length.
Any self-dealing transaction must be documented in writing, except for transactions not exceeding CHF1,000.
There are no specific restrictions on loans from the company to directors or executive management. However, listed stock corporations can only grant loans if and to the extent that the articles allow, and any loan must be disclosed in the compensation report.
Insider trading and market manipulation rules apply (see Question 20).
The board of directors must provide for adequate measures to prevent insider trading, for example by imposing blackout periods (that is, periods of time during which the directors are prohibited from buying or selling the company's shares or other financial instruments).
Listed stock corporations must report to the SIX Swiss Exchange any direct or indirect purchases or sales of the company's securities by directors, executive management or related persons. This information will be publicly disclosed on a no-name basis.
Disclosure of information
The commercial register is publicly accessible. It contains, among other things the:
Name, registered seat, address and purpose of the company.
Company's current share capital, including any past share capital increases and reductions, and authorised and contingent capital increases.
Members of the board of directors and the auditor.
Persons authorised to represent the company.
At least 20 days prior to the ordinary shareholders' meeting, the following must be made available to shareholders for inspection at the headquarters of the company (and if requested, be sent to shareholders):
The business report (including financial statements).
The auditors' reports.
The compensation report (for listed stock corporations).
The board must also, on request, provide shareholders with any information relating to the company that is necessary to exercise their rights, unless such disclosure would compromise business secrets or other company interests.
The company's books and correspondence can only be accessed by shareholders if authorised by the shareholders' meeting or the board of directors and to the extent that business secrets are safeguarded.
Listed stock corporations are subject to additional disclosure requirements. Among other things, these include:
The preparation of the financial statements in accordance with recognised accounting standards (for example, IFRS, US GAAP, Swiss GAAP FER).
Disclosure of shareholders exceeding 5% of the voting rights in the business report.
Disclosure of changes to shareholdings of persons or entities that directly, indirectly or in concert with third parties, have acquired or sold equity securities or financial instruments in the company and thereby attain, fall below or exceed the thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50% or 66.66 % of the company's voting rights.
Ad hoc publicity regarding price-sensitive facts (postponement is only permissible under certain conditions).
Disclosure of directors' and executive compensation, loans, credits and shareholdings (see Question 14).
In addition to the above, particular rules apply in relation to:
Public offerings and takeovers.
Financial institutions and securities dealers.
An ordinary shareholders' meeting must be held once a year and no later than six months after the close of the financial year.
The ordinary shareholders' meeting usually resolves on:
The approval of the annual statutory financial statements and, if applicable, the annual management report and the consolidated financial statements.
The use of the balance sheet profit.
The discharge of the board of directors and executive management.
Other matters that require shareholder approval, which for listed stock corporations includes, among other things:
the annual election of the members of the board of directors, including its chairman, the members of the compensation committee and the independent proxy; and
the annual approval of the compensation of the board of directors and the executive management.
The invitation to the shareholders' meeting, including the agenda, must be published at least 20 days prior to the meeting.
Unless all shareholders are present at the meeting, a shareholders' meeting cannot validly pass resolutions on matters that are not on the agenda, except for the proposals to:
Convene an extraordinary shareholder's meeting.
Perform a special audit.
Elect the auditors.
Shareholder resolutions by written consent are not permissible. However, shareholders can be represented at the shareholders' meeting by proxy.
Unless provided otherwise by statutory law (see Question 34), the shareholders' meeting adopts its resolutions with the absolute majority of the votes represented at the meeting in person or by proxy. No minimum presence of shareholders is required.
The articles may provide for higher or lower majority requirements or for presence requirements.
As a rule, one share entitles to one vote. However, the company's articles may provide for:
Preferred voting rights shares (such as a class of shares with a nominal value up to ten times lower than the normal shares, each entitling to one vote).
Transfer or voting rights restrictions (for example, where no shareholder can exercise voting rights exceeding a certain percentage).
A majority of at least two-thirds of the voting rights represented and an absolute majority of the nominal value of shares represented is required for, among other things:
An amendment of the company's purpose.
The introduction of shares with preferential voting rights.
The introduction of a restriction on the transferability of registered shares.
Authorised or contingent capital increases or the creation of reserve capital in accordance with Article 12 of the Banking Act of 8 November 1934.
Capital increases funded by equity capital, against contributions-in-kind or to fund acquisitions-in-kind, and against granting of special privileges.
Restrictions or cancellations of subscription rights.
The relocation of the seat of the company.
The dissolution of the company.
The approval of a merger, demerger or a transformation.
The company's articles can subject further corporate actions to increased majority or presence requirements.
Shareholders representing at least 10% of the share capital can request the board of directors to convene a meeting.
Shareholders representing shares with a nominal value of CHF1 million or 10% of the share capital can request that certain items be put on the agenda of an ordinary or extraordinary shareholders' meeting. The articles usually stipulate a deadline before the ordinary shareholders' meeting for such request.
Minority shareholder action
After a shareholder has exercised its right to information and inspection, it can propose to the shareholders' meeting that, to the extent necessary for the proper exercise of shareholders' rights, specific matters be investigated by means of a special audit. If this proposal is rejected, a shareholder representing shares of at least 10% of the share capital or shares with a nominal value of CHF2 million can request a court to appoint a special auditor.
Report these activities to the relevant criminal authorities.
File a civil action.
Internal controls, accounts and audit
The board of directors is responsible for setting up an internal control system that monitors and addresses financial and operational risks.
The control system must appropriately reflect the size and type of business. The notes to the annual statutory financial statements must disclose information regarding the implementation of the measures taken to evaluate risks.
If the company must have an ordinary audit performed (see Question 39), the auditors must certify the existence and appropriateness of the internal control system.
The Swiss Code of Best Practice recommends that the audit committee (to which the internal audit unit reports) should assess the quality of the internal control system and the risk management.
Specific rules apply to financial institutions and securities dealers.
The board of directors is responsible for the:
Organisation of accounting, financial control and financial planning.
Preparation of the business report, the annual statutory financial statements and, if applicable, the annual management report and the consolidated financial statements.
Submission of the annual statutory financial statements and, if applicable, the annual management report and the consolidated financial statements to the shareholders' meeting for approval.
For listed stock corporations, preparation of the compensation report.
Directors can be subject to liability if they intentionally or negligently breach these duties.
There are two different types of audit: ordinary or limited. Under certain circumstances, companies can opt down or opt out (see below).
The following factors determine whether an ordinary or limited audit is required:
Size of the company.
Listing of the company.
Obligation to prepare consolidated financial statements.
If an ordinary audit is not required, the company's financial statements will be subject to a limited audit. An ordinary audit can nevertheless be required (opting up), for the following reasons:
It is required by the company's articles.
It is requested by resolution of a shareholders' meeting.
It is requested by shareholders representing 10% of the voting rights.
If the company has ten or fewer full time employees, the shareholders' meeting can, with unanimous consent of all shareholders, decrease or waive the requirements of a limited audit (opting-down or opting-out).
The auditors are appointed by the shareholders' meeting for a term of office between one and three years. Re-election after their term of appointment is permissible.
There is no absolute limit on the term of office with regard to the audit firm.
However, the lead audit partner must rotate every seven years, and can only resume the same mandate after an interruption of three years.
Auditors performing ordinary or limited audits must be registered with the Federal Auditing Oversight Authority (FAOA). Auditors of listed stock corporations or companies with outstanding bonds are supervised by the FAOA. The required professional qualifications depend on the type of audit.
Auditors must be independent. The required standard depends on whether an ordinary or a limited audit is carried out. The standard will (among other things) relate to the (past and present) services provided to, and relations with, the company, and memberships and shareholdings of the auditors' employees and officers.
Auditors of financial institutions and securities dealers are subject to separate rules.
In case of an ordinary audit, the auditors cannot perform other work for the company that is incompatible with their auditing mandate (for example, accounting).
In case of a limited audit, the auditors can provide accounting and other services to the company being audited. If there is a risk that the auditors will audit their own services, appropriate organisational and staffing measures must be taken (for example Chinese walls (that is, barriers to restrict the flow of information)).
The Swiss Code of Best Practice recommends that the audit committee evaluate the auditors' independence and the compatibility of their auditing responsibilities with any consulting services.
Listed stock corporations must disclose the total fees for non-auditing services charged by the auditors as well as the nature of such services.
Auditors can be liable to the company, its shareholders and its creditors for damages caused by an intentional or negligent breach of their duties. Their liability may generally not be limited or excluded.
In relation to third parties (that is, investors acting in reliance on their report), auditors can only be held liable to such persons if they are in a special relationship with that third party.
The company secretary is appointed by the board of directors and does not have to be a member of the board of directors.
Under the Swiss Code of Obligations, the only legal duty of the company secretary is to sign the minutes of the meetings of the board of directors. However, in practice the company secretary has an increasingly important role in the administration and organisation of the board of directors and in preparing its meetings.
Federal Authorities of the Swiss Confederation
Description. Official website of the Federal Authorities of the Swiss Confederation. Contains the entire federal legislation in German, French and Italian. Some of the legislation is available in English (for information purposes only).
SIX Swiss Exchange
Description. Official website of SIX Swiss Exchange. Contains SIX Rules and Directives. Contains all federal legislation relevant to SIX (English versions for information purposes only).
Swiss Financial Market Supervisory Authority (FINMA)
Description. Official website of the Swiss Financial Market Supervisory Authority (FINMA). Contains a section of relevant legislation.
Swiss Takeover Board
Description. Official website of the Swiss Takeover Board. Contains an English version of the Takeover Ordinance and the Regulations of the Takeover Board for information purposes.
Professional qualifications. LL.M., Harvard Law School, 1999; Dr. iur./ lic.iur., University of Zurich, 1996/91, admitted to the Bar in Switzerland, 1994
Areas of practice. Corporate law and governance; international and domestic mergers and acquisitions; public takeovers; equity capital markets; private equity.
Professional qualifications. LL.M., Harvard Law School, 1997; Dr. iur./lic.iur., University of Zurich, 1992/1989, admitted to the Bar in Switzerland, 1994
Areas of practice. International and domestic mergers and acquisitions; public takeovers; corporate law and corporate governance; directors' and executive compensation; equity capital markets.
Professional qualifications. LL.M., Harvard Law School, 2012; Dr. iur./lic.iur., University of Basel, 2013/2008; admitted to the Bar in Switzerland, 2010; admitted to the Bar in New York, 2013
Areas of practice. International and domestic mergers and acquisitions; public takeovers; corporate law and corporate governance; directors' and executive compensation; capital markets.