Their end was unavoidable. Following a recent legislative amendment which entered into force on November 1st, 2019, the Swiss Parliament has put an end to the possibility of holding a company through bearer shares. The change is significant, as it concerns more than 55'000 companies located in Switzerland.
If you are a stakeholder in one of the 55'000 Swiss companies concerned, then please feel free to contact us for a first free assessment of your immediate next steps. In simple cases, we will be happy to refer you directly to a competent notary public who will support you with the conversion; in more complex cases, we will set out a high-level step plan, tailor-made to your needs, and provide you with a fee quote for you to decide whether we can be your legal partner of choice throughout the conversion process.
According to the new provisions, bearer shares will no longer be permitted. There are two exceptions to this rule:
- If the company has publicly traded equity securities; or
- If the bearer shares are issued in the form of book-entry securities (i.e. securities registered in an account deposited with a custodian).
Given the substantial impact that this change brings for Swiss companies, the latter will benefit from a transition period of 18 months to convert bearer shares to registered shares. The transition period will expire on May 1st, 2021.
The Swiss legislator has also strengthened the obligation to report the beneficial owner. In fact, the notification requirement already came into effect on July 1st, 2015 and applies to bearer shares as well as registered shares. For registered shares, the notification obligation is triggered the moment a shareholder holds, alone or in concert with third parties, 25% of the share capital or voting rights of a company. If the shareholder does not comply, the economic rights connected to the shares are suspended.
From November 1st, 2019, the legislator has decided to penalize, by means of a fine of up to CHF 10'000, the violation of the obligation to announce the beneficial owner of registered shares. Companies that have established the share register or the register of beneficial owners in an improper manner may also be affected by the fine.
Failure to comply with the new corporate laws can have significant consequences for companies and shareholders.
In fact, if they fail to convert bearer shares to registered shares by the transitional period fixed by law, i.e. May 1st, 2021, recalcitrant companies will have their shares automatically converted into registered shares by the trade register. Following this automatic conversion, the companies concerned will no longer be able to make changes in their registration as long as they have not modified their articles of incorporation accordingly; the trade register will indeed refuse any request to this effect.
Moreover, persistent refusal to comply with the legal obligations could lead, in the most serious cases, to court-mandated liquidation of the recalcitrant companies.
The conversion of bearer shares into registered shares will have the following consequences for shareholders:
- Shareholders who have complied with their notification obligations will automatically be entered into the share register of the company.
- Shareholders who have not complied with their obligation to notify will not be entered into the company's share register. If they wish to be entered, they will have to go to court with the prior consent of the company concerned. Shareholders will have until November 1st, 2024 at the latest to take legal action, otherwise their shares will be automatically void.
Avoid violations and ensure good compliance
In view of the new applicable provisions and the risks of non-compliance with these rules, Swiss companies concerned by the changes must quickly take the necessary steps.
The companies will have to ensure the modification of their articles of incorporation (by a decision of the shareholders' assembly recorded in a public deed). On the other hand, the shareholders (and the companies) will have to make sure that the declarations relating to the beneficial owner of the shares are duly recorded and up to date. Otherwise, shareholders' rights must be limited by the organs of the company under penalty of sanctions.
In an ever more transparent international context, the Swiss legislator continues to follow the path set by the Financial Action Task Force (FATF). Faced with ever stricter regulations, Swiss companies must remain fully in line with the applicable regulations to avoid the risk of being hindered in their commercial activities.