The rights and equitable treatment of shareholders and employees

Shareholder powers

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

The shareholders’ meeting elects and removes the members of the board of directors (the board). This duty is non-transferable. The shareholders’ meeting of listed companies is required by the Ordinance against Excessive Compensation in Listed Companies to hold these elections on an annual basis; non-listed companies may provide for a term of office of more than one year. The shareholders’ meeting of listed companies also elects the chair of the board and the members of the compensation committee, which must be established mandatorily; in non-listed companies the board may define its organisation without requiring a shareholders’ vote.

Pursuant to the Swiss Code of Obligations, one or more shareholders representing at least 10 per cent of the company’s share capital may request that the board convene a shareholders’ meeting. These shareholders, or any other shareholders representing shares with a nominal value of 1 million Swiss francs or more, may demand that an item be put on the agenda. Listed companies often reduce the threshold in their articles of association to increase their governance ratings.

There are various rights of individual shareholders, for example, to request a special audit to be conducted regarding the conduct of business by the board (subject to a shareholders’ vote with the required quorum) and to present motions to shareholders’ meetings, to the extent covered by the agenda items.

Elections of board members and most other resolutions of the shareholders’ meeting require the absolute majority of the votes represented at the respective meeting. Beyond these resolutions regarding shareholders’ matters, the shareholders have no right to require the board to pursue a particular course of action.

Shareholder decisions

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

In listed and non-listed companies, the following non-transferable matters require a resolution by the shareholders’ meeting:

  • adoption and amendment of the articles of association;
  • election of the members of the board and the auditors;
  • approval of the management report and, if applicable, the consolidated group financial statements;
  • approval of the annual financial statements and use of the balance sheet profits; in particular, the determination of dividends;
  • discharge of the members of the board; and
  • adoption of decisions reserved for the shareholders’ meeting by law or the articles of association.

 

In listed companies, the following additional matters require a resolution by the shareholders’ meeting:

  • election of the chair of the board;
  • election of the members of the compensation committee;
  • election of the independent proxy; and
  • approval of the compensation of the board, the top-level management (management) and the advisory body.

 

Swiss corporate law does not provide for non-binding shareholder votes. However, non-binding votes regarding past compensation reports are still held in shareholders’ meetings of most listed companies to allow the shareholders to express their opinion.

Disproportionate voting rights

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

Companies may introduce classes of shares with a voting preference or a voting limit in their articles of association (ie, a clause that limits the ability to exercise voting rights by a shareholder or group of shareholders to a certain percentage of the total votes). The maximum ratio permitted between common shares and shares with a voting preference is 1:10. Voting preferences do not apply for certain decisions of the shareholders’ meeting, in particular the appointment of experts to audit the company’s management, special audits or the initiation of a liability claim against board members.

Shareholders’ meetings and voting

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

In the case of registered shares, a shareholder needs to be registered in the share register to participate and exercise its membership rights in a shareholders’ meeting. With respect to bearer shares, the authority to participate and to exercise the membership rights derives from the possession and presentation of the bearer shares. A shareholder may be represented by a third party, which, unless otherwise provided for in the articles of association, must not be a shareholder.

The membership rights (including the right to vote) in non-listed companies are suspended if and as long as the shareholder fails to comply with its reporting obligation regarding the beneficial ownership of the shares. This reporting obligation applies, with respect to registered shares, if a stake of 25 per cent or more of the share capital or votes is acquired and, for bearer shares, in respect of any acquisition, in both cases unless the shares are issued as intermediated securities in accordance with the Federal Act on Intermediated Securities.

Except as a temporary measure to fight the covid-19 pandemic, shareholders’ resolutions by written consent (without a physical meeting) or virtual meetings of shareholders (including direct electronic voting) are not permitted under Swiss law. Multisite shareholders’ meetings (including video and sound transmission) are, however, considered permissible. In addition, listed companies are required to provide for means allowing the electronic issuing of powers of attorney and voting instructions to an independent proxy.

Shareholders and the board

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

Outside of shareholders’ meetings, shareholders may require shareholders’ meetings to be convened by the board if, alone or together, they represent 10 per cent of the issued share capital of the company or shares with a nominal value of at least 1 million Swiss francs. Such a request to the board must be made in writing and be sufficiently precise. If such a request is not complied with within a reasonable time period, the shareholders may request a court to convene a shareholders’ meeting.

With the exception of resolutions on the convocation of a shareholders’ meeting, on the appointment of an auditor, or to carry out a special audit, an amendment of the agenda will generally be necessary to vote on resolutions against the wishes of the board. Such an amendment of the agenda is subject to the same requirements that apply to requests to convene a shareholders’ meeting and must be requested sufficiently early to allow the amended invitation to the shareholders’ meeting to be issued in time (ie, in accordance with the law, at least 20 days before the shareholders’ meeting (the articles of association may prolong this deadline but not shorten it)). However, it is often impossible to obtain a decision of the court in time, so it is also necessary to request a convocation of a new shareholders’ meeting.

It should be noted that:

  • the aforementioned requirements may be made less (but not more) stringent by the company’s articles of association (this is often the case in listed companies and is addressed by the Swiss Code of Best Practice for Corporate Governance as a way to comply with the recommendation that companies should endeavour to facilitate the exercise of shareholders’ statutory rights);
  • during a shareholders’ meeting, any shareholder may require a vote on the convocation of another shareholders’ meeting; and
  • shareholders representing 100 per cent of the share capital are always free to hold a universal assembly, in which case the limitations mentioned above become irrelevant.

 

Dissident shareholders may require statements to be made into protocols in the minutes of the shareholders’ meeting. However, they may not request that the board circulate dissenting statements prior to or after shareholders’ meetings.

Controlling shareholders’ duties

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

In non-listed companies, the only duty of all shareholders, including controlling shareholders, is to pay the issue price for their shares.

In listed companies, shareholders (or groups of shareholders) reaching or exceeding the threshold of 3 per cent of all voting rights have certain disclosure obligations, and shareholders (or groups of shareholders) reaching or exceeding the threshold of one-third of the voting rights have the duty to make an offer to all other shareholders to acquire their shares at a certain minimum price. The threshold for this duty to make a mandatory offer may be increased in the articles of association to up to 49 per cent of the voting rights or the company may opt out from the requirement to make such an offer. The Swiss Financial Market Supervisory Authority and the Swiss Takeover Board may enforce these duties.

Recently, it has become more common for controlling shareholders to enter into relationship agreements with the (listed) company they control. These agreements typically contain provisions regarding the composition of the board, information flow to the shareholders, the taking of decisions, and other matters found in shareholders’ agreements.

Shareholder responsibility

Can shareholders ever be held responsible for the acts or omissions of the company?

The piercing of the corporate veil and, thus, a direct liability of a shareholder for acts or omissions of a legal entity is limited to highly qualified abuse of right situations. Additionally, if a shareholder is involved in the management of a company, he or she may be deemed to be a de facto body of this company and, thus, be held liable for intentional or negligent breach of his or her duties.

Law stated date

Correct on

Give the date on which the information above is accurate.

1 April 2020