Board of directors members or bearer shares holder? It’s time to act

Since November 1^st, 2019, the Federal Council brought into force the Federal Act on Implementation of Recommendations of Global Forum on Transparency and Exchange of Information for Tax Purposes.

Henceforth, bearer shares are permitted only for companies that have equity securities listed on a stock exchange or if bearer shares are structured as intermediated securities. Otherwise, during a period of 18 months following the application of the law, the company has to convert their bearer shares into registered shares, and thus until April 30^th, 2021 at the latest.

Automatic conversion

As of May 1^st, 2021, the commercial register office will conduct the automatic conversion of unauthorized bearer shares into registered shares of unlisted companies.

Exceptionally and if it is authorised, the company could keep its shares issued before November 1^st, provided that the publication in the commercial register office is made before the time limit and reasons for exceptions are provided. If not published, bearer shares will be converted automatically.

Shareholder’s obligations

According to Art. 697i of the Swiss Code of Obligations, bearer shares holders are required to announce themselves to the company by April 30^th, 2021 at the latest.

However, from May 1^st 2021, the shareholder, who has not complied with his obligation to announce himself, can still obtain his registration to the company share register by legal process, with of course the prior consent of the company (Art. 7 para. 1 of the Federal Act on Implementation of Recommendations of Global Forum on Transparency and Exchange of Information for Tax Purposes). It is important to note that the shareholder has a period of 5 years, i.e. until November 1^st, 2024, to make such a request.

Consequences for failure to report

Bearer shares holders who do not apply the obligation to give notice before April 30^th 2021 will be suspended from their economic and voting rights. Their bearer shares will be by law automatically converted into registered shares.

As of November 1^st, 2024, the shares will be cancelled and the shareholder will definitively be deprived of his rights (art. 8 para. 1 of the Federal Act on Implementation of Recommendations of Global Forum on Transparency and Exchange of Information for Tax Purposes). The cancelled shares will then be replaced by company’s own shares, which will be at the free disposal of the company.

Shareholders whose shares have been cancelled through no fault of their own can still claim compensation from the company until November 1^st, 2034.

Board of Directors obligation

The conversion of bearer shares into registered shares implies a general meeting in order to announce the conversion and to amend the company’s articles of association. Indeed, the conversion of shares necessarily implies an amendment to the company’s articles of association, which constitute a notary act and a publication in the commercial register.

Moreover, following the conversion, the Board of Directors is now required to keep a register of its shareholders from May 1^st, 2021 (art. 697 para. 1 to 4 of the Swiss Code of Obligations). As soon as the conversion of bearer shares into registered shares has occurred, the Board of Directors shall notify in his register the holders of the converted shares who have complied with their obligation to give notice.

If a bearer shareholder (cf. Shareholder’s obligations) has not announced himself to the company by May 1^st, 2021, the Board of Directors should enter a note in its register, which indicates that the shareholder has not complied with his obligation.

As a reminder, companies whose share capital consists of registered shares are already subject to the obligation to keep a share register (art. 698 of the Swiss Code of Obligations), otherwise it may lead to penalties (cf. Consequences in case of violation below).

Finally, we would like to specify that no sanction can be imposed to the Board of Directors if it does not inform the shareholders of the change in the law and the duty to announce themselves. Indeed, it is the bearer share holder sole responsibility to be informed of the legislative changes and to take the necessary measures in order to keep his rights. However, we recommend companies to inform their shareholders, as far as possible, by means of announcement at a General Meeting or by publishing a press release in an official Newspaper.

Consequences in case of violation

A company that does not keep such a register will thus be accused of intentionally violating its corporate law obligations, which can lead to a penal sanction (art. 327 of the Swiss Criminal Code). Please beware that the amount of the fine can be up to CHF 10’000 (Art. 106 para. 1 of the Swiss Criminal Code).

Indeed, according to art. 731b para. 1 et 1bis from the Swiss Code of Obligations, the deliberate violation to keep a share register is enough to present defects in the organisation of the company and thus to constitute a case of legal proceedings. In general, the court will first allow the company to restore the situation within a reasonable period of time. However, it is important to know that such proceedings could lead to the dissolution of the company.

In order to avoid significant legal threat, we highly recommend to members of Boards of Directors to take the necessary measures set out above as soon as possible and thus avoid an automatic conversion by the commercial register office as of May 1^st, 2021. As a matter of fact, contacting the shareholders and managing the administrative procedures may be time-consuming and thus putting the company in a situation of shortcomings in its organisation.

RSM at your service

In order to avoid penal sanctions or the cancellation of bearer shares, we strongly recommend you to be up-to-date with these new rules. We are at your entire disposal to guide you further in this process and will be pleased to provide you with the following services:

• Contact and follow-up with a notary;
• Preparation of the General meeting minutes regarding the shares conversion;
• Preparation of the application to the commercial register for all necessary amendments;
• Establishment of the shares register or the beneficial owners register.