On 1 November 2019, the new "Federal Act on the Implementation of Recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes" came into force. Following the introduction of reporting duties for bearer shares in 2015, the new law goes even further and, with a few exceptions, results in the complete abolition of bearer shares. The following summary shall provide a brief overview of the consequences of the new law and show the need for action that arises thereof for companies and shareholders.
Admissibility of bearer shares under new law
As of 1 November 2019, bearer shares are only permitted if the Company has listed equity securities on a stock exchange or has structured bearer shares as book-entry securities. If a company wishes to retain existing bearer shares, it must fulfil one of these conditions within 18 months of the new law coming into force, i.e. by 30 April 2021, and arrange for an entry in the commercial register to be made stating which condition the company fulfils.
Conversion of bearer shares into registered shares
All companies that do not meet these requirements must convert their bearer shares into registered shares by 30 April 2021. If the company remains inactive, bearer shares will be converted into registered shares by law on 1 May 2021. In this case, the Commercial Register Office will automatically adjust the entry in the Commercial Register of the companies concerned accordingly and note under the heading "Remarks" that the conversion has taken place by operation of law and that the supporting documents contain data deviating from the entry in the Commercial Register. As long as the Company has not amended the Articles of Association regarding the conversion of its shares, all applications for registration of other amendments to the Articles of Association will be rejected by the Commercial Register. The aforementioned remark will only be deleted after the company has adapted the Articles of Association to the conversion. In order to avoid a forced conversion and the associated negative effects, it is advisable to plan and execute the necessary adjustments in good time.
Reporting obligation and cancellation of undeclared shares
Following the conversion of bearer shares into registered shares, the Company shall enter in the share register those shareholders who have fulfilled their notification obligation under the previous law.
If shareholders fail to comply with the reporting obligation, the Board of Directors must note this in the share register for the corresponding shares, with the result that all shareholder rights in respect of these shares are suspended.
In this case, the shareholders will have the opportunity to request their entry in the share register by 31 October 2024 at the latest, with the prior consent of the Company, at the court. As soon as the court approves the application, the shareholder can exercise his shareholder rights again. If this period expires unused, the shares of those shareholders who have not applied for registration in the Company's share register will be null and void by law. This means that the shareholders lose their shareholder status and all associated rights for good.
The null and void shares shall be replaced by the Company's own shares (treasury shares). The Company may retain or sell its own shares or reduce its capital accordingly. However, if the nominal value of the treasury shares exceeds the threshold of 10 percent of the share capital, the excess share must be sold or destroyed by a capital reduction.
If shares have become null and void through no fault of the shareholder's own, the latter may assert a claim for compensation against the Company within ten years of the nullity occurring, providing proof of his shareholder status at the time the nullity occurred. Compensation is excluded if the Company does not have the required freely usable equity.
Civil and criminal law consequences in the event of breach of reporting obligations under company law
According to the previously applicable law, the violation of reporting obligations resulted exclusively in civil law sanctions (suspension of the shareholder's participation and financial rights). As of 1 November 2019, shareholders who provide false information about the beneficial owners or fail to provide such information may also be prosecuted and fined up to CHF 10,000.00.
The same applies to directors who intentionally violate the duties under company law to keep shareholders registers.
Furthermore, the improper keeping of the share registers or the issue of bearer shares without equity securities being listed on a stock exchange or bearer shares being structured as book-entry securities constitutes an organizational deficiency according to the new law, which may lead to measures being taken by the competent court. The most serious measure that the judge can theoretically order is the dissolution and liquidation of the company.