Lukas Handschin Dr. iur., Attorney at Law Professor at the University of Basel Swiss Company Law Fully revised second edition The book is based on a translation of «Gesellschaftsrecht in a nutshell» by Lukas Handschin, lawyer in Zurich and Professor at the University of Basel. The translation was done in collaboration with Cecilia Subido, lawyer, LLM (University of Melbourne). DIKE
Abbreviations XXIII Part 1: Basics 1 I. Legal basis 1 II. Terms and definitions 2 1. Corporate body (corporation) or foundation 2 2. Partnership vs. legal entity 2 3. Relation to third parties: can a company acquire rights and incur liabilities? 3 4. Partnership or capital company? 4 5. Internal and external relationships 4 6. Commercial enterprise 5 III. Company name 6 1. Basics 6 2. Deceptive company names 6 2.1 Relation between company name and object of the company 6 2.2 Advertising elements in a company name 7 2.3 Simple terms as company names 7 3. Geographic terms as part of a company name 7 4. Obligation to use the company name 8 IV. Domicile, statute and nationality 8 V. The possible company forms 9 1. Association (Art. 60 et seqq. CC) 9 2. Foundation (Art. 80 et seqq. CC) 9 3. Simple Partnership (Art. 530 et seqq. CO) 9 4. General Partnership (Art. 552 et seqq. CO) 10 5. Limited Partnership (Art. 594 et seqq. CO) 10 6. Corporation (Art. 620 et seqq. CO) 10 7. Partnership limited by Shares (Art. 764 et seqq. CO) 11 8. Limited liability company (LLC) (Art. 772 et seqq. CO) 11 9. Cooperative (Art. 828 et seqq. CO) 11 V
Part 2: Association (Art. 60 et seqq. CC) 13 I. Basics 13 II. Setting up the association 13 III. Financial Situation 14 1. Property rights 14 2. Equity 14 3. Criminal law aspects 15 IV. Internal relationships 15 1. Basics 15 2. Decision-making (managing and non-managing members, how they decide) 16 2.1 Basics 16 2.2 institutionalized separation of managing and non-managing members 16 2.3 Assembly of members 16 2.4 Management / executive committee 18 2.5 Revocation of managing competences 18 3. Inspection and control rights of the non-managing members, annual report and financial statement 18 3.1 Basics 18 3.2 Inspection and control rights of the non-managing members 19 3.3 Annual report and financial statement 19 3.4 Audit 19 4. Profit participation 20 5. Right to keep status, voting right, preemptive right 21 6. Loss participation, obligations to contribute 21 7. Loyalty 22 8. Change of members 22 8.1 Basics 22 8.2 Admission 23 8.3 Resignation / expulsion 23 8.4 Expulsion 23 8.5 Change of members 23 V. External Relations 24 1. Basics 24 VI
2. Name of the association 24 3. Representation and action of the association toward third parties 24 3.1 Basics 24 3.2 Acting through governing bodies 25 a) Basics 25 b) Representation authority of the governing bodies 25 c) Optional constitution of the governing body 26 d) Diverging rules for the representation power to conclude agreements 26 e) Other representatives 27 4. Liability of the managing and non-managing members 27 VI. Termination / dissolution of the association 28 1. Termination 28 2. Liquidation 29 Part 3: Foundation (Art. 80 et seqq. CC) 31 I. Basics 31 II. Setting up the Foundation 31 III. Financial Situation 32 1. Property rights 32 2. Equity 32 3. Criminal law aspects 32 IV. Internal relationships 33 1. Basics 33 2. Decision-making 33 3. Inspection and control rights, audit 33 4. Profit participation 34 V. External Relations 34 1. Basics 34 2. Foundation name 34 3. Representation and action of the foundation toward third parties 35 3.1 Acting through governing bodies 35 3.2 Representation authority of the governing bodies 35 VII
3.3 Applicability of the rules regarding other legal entities 35 4. Liability of the board of trustees 35 VI. Termination / dissolution of the foundation 36 Part 4: Partnerships (Simple, General and Limited Partnerships) 37 I. Basics 37 1. Simple Partnership (Art. 530 et seqq. CO) 37 2. General Partnership (Art. 552 et seqq. CO) 38 3. Limited Partnership (Art. 594 et seqq. CO) 38 II. Setting up the Partnerships 39 1. Simple Partnership 39 2. General and Limited Partnerships 40 III. Financial Situation 41 1. Property rights 41 1.1 Basics 41 1.2 Contribution of assets by the partners (Art. 531 CO) 41 2. Equity 42 2.1 Basics 42 2.2 Change of equity, reduction of the company's assets 43 2.3 Criminal law aspects 43 IV. Internal relationships 44 1. Basics 44 2. Decision-making 44 2.1 Basics 44 2.2 Assembly of partners / partnership resolutions 45 2.3 Management 46 2.4 Revocation of management competences 46 2.5 Specific rules for the Limited Partnership 47 3. Inspection and control rights of the non-managing members, annual report and financial statement 47 3.1 Basics 47 3.2 Simple Partnership / General Partnership 48 3.3 Limited Partnership 48 3.4 Annual report and financial statement 48 3.5 Audit 48 VIII
4. Profit participation 49 4.1 Simple Partnership 49 4.2 General and Limited Partnership 49 5. Right to keep status, voting right, preemptive right 50 6. Loss participation, obligations to contribute 50 6.1 Basics 50 6.2 Simple Partnership 51 6.3 General and Limited Partnership 52 7. Loyalty 52 7.1 Simple Partnership 52 7.2 General and Limited Partnership 53 8. Change of members 53 8.1 Basics 53 8.2 Admission after formation of the partnership 53 8.3 Resignation 54 8.4 Change of members 54 8.5 Vesting of membership rights 55 V. External Relations 55 1. Basics 55 2. Name of the Partnership 55 2.1 Simple Partnership 55 2.2 General Partnership 56 2.3 Limited Partnership 56 3. Representation and action of the company toward third parties 57 3.1 Basics 57 3.2 Simple Partnership 57 3.3 General and Limited Partnership 58 a) Basics 58 b) Acting through governing bodies 58 c) Other representatives 59 d) Self-conclusion 61 4. Liability of the managing and non-managing members 61 4.1 Basics 61 4.2 Simple Partnership 61 4.3 General and Limited Partnership 62 IX
VI. Termination / dissolution of the partnership 63 1. Simple Partnership 63 1.1 Ordinary reasons for termination 63 1.2 Extraordinary reasons for termination 63 1.3 Consequences of termination 64 2. General and Limited Partnership 64 2.1 Reasons for termination 64 2.2 Avoidance of termination 64 2.3 Consequences / Execution of termination and liquidation 65 Part 5: Corporation (Art. 620 et seqq. CO) 67 I. Basics 67 II. Setting up the corporation 68 1. Founders' partnership 68 2. Incorporation / deed of incorporation (Art. 629, 631 CO) 69 3. Subscription of shares and contributions (Art. 630, 632 et seq. CO) 69 3.1 Basics 69 3.2 Money contribution 70 3.3 Contribution in kind 70 3.4 Contribution by set-off 70 4. The articles of incorporation 71 5. Founders' report (Art. 635 CO) 72 6. Entry in the Commercial Register (Art. 640, 641 CO) 72 7. Acquisition of the status of a legal entity (Art. 643 CO) 73 8. Partnership limited by Shares 74 III. Financial Situation 74 1. Basics 74 2. Equity and its protection 74 2.1 Basics, Function of Equity 74 2.2 Specific equity rules for Corporations 77 a) Amount 77 b) Share capital and participation capital 77 c) Protection of equity 77 X
3. Change of equity, reduction of the company's assets 78 3.1 General remarks, terms and definitions 78 a) Capital increase 78 b) Capital reduction, reduction of the company's assets 78 c) Criminal law aspects 79 3.2 Capital increase 79 a) Basics 79 b) Ordinary increase of share capital (Art. 650 CO) 80 c) Authorized increase of capital (Art. 651 CO) 81 d) Common rules for ordinary and authorized capital increase (Art. 652 CO) 81 e) Capital increase subject to a condition (Art. 653 CO) 83 3.3 Capital reduction (Art. 732 et seqq. CO) 84 a) Basics 84 b) Capital reduction as partial liquidation 84 c) Capital reduction as part of financial restructuring 85 d) Form 86 3.4 Capital band 87 IV. Internal relationships 88 1. Basics 88 2. Decision-making (managing and non-managing members, how they decide) 88 2.1 Basics 88 2.2 General assembly of shareholders 90 a) Competences 90 b) Calling the general assembly of shareholders 90 c) Voting rules 91 (1) Basics 91 (2) Shares with privileged voting rights (Art. 627 fig. 10, 693 CO) 91 (3) Own shares 91 (4) Important resolutions 92 XI
d) Representation of the shareholder at the general assembly of shareholders 94 (1) Basics 94 (2) Member of the company or an independent person as proxy / proxy of deposited shares 94 (3) Notice of proxy 94 e) Unauthorized attendance (Art. 691 para. 2 and 3 CO) 95 f) Participation of members of the board of directors 95 g) Challenging resolutions of the general assembly of shareholders 95 2.3 Board of directors 96 a) Constitution 96 b) Term of office 96 c) Resolutions of the board of directors 96 d) Information rights 97 e) Competences of the board of directors 97 f) Duties of the board of directors 98 g) Delegation of the management to inferior bodies 98 h) Revocation of management competence 98 2.4 Partnership limited by Shares 99 a) Basics 99 b) Assembly of shareholders 99 c) Board of directors 99 d) Auditing board 100 e) Revocation of management competences 100 Inspection and control rights of the non-managing members, audit 100 3.1 Basics 100 3.2 Notification of business report 101 3.3 Right to information and inspection 101 3.4 Special audit 101 a) Basics 101 b) Approval of the general assembly of shareholders 102
c) Disapproval of the general assembly of shareholders 102 d) Appointment of the special auditor 102 e) Activity report of the special auditor 102 f) Communication of the special auditor's report 103 3.5 Partnership limited by Shares 103 3.6 Statutory audit 103 a) Basics 103 b) Categories of Auditors 104 c) Ordinary audit 104 (1) Basics 104 (2) Execution of the ordinary audit 105 (3) Independence of the auditor 106 d) Limited audit 106 (1) Basics 106 (2) Execution of the limited audit 107 (3) Waiver of the audit (Opting out) 107 e) Audit liability 108 4. Profit participation 108 4.1 Basics 108 4.2 Dividend payments 108 4.3 Purchase of own shares 111 4.4 No repayment of contributed share-capital 111 4.5 Partnership limited by Shares 111 5. Right to keep status, voting right, preemptive right 112 5.1 Basics 112 5.2 preemptive rights 112 5.3 Partnership limited by Shares 113 6. Loss participation, obligations to contribute 113 6.1 Basics 113 6.2 No shareholders' obligation to contribute 114 6.3 Partnership limited by Shares 114 7. Loyalty 114 7.1 Basics 114 7.2 Shareholder agreement 115 7.3 Partnership limited by Shares 115 8. Change of members 116 8.1 Basics 116 XIII
8.2 Admission after establishment of the corporation 116 8.3 Resignation / Expulsion 116 8.4 Change of members 117 a) Basics 117 b) Bearer shares 117 c) Registered shares 117 (1) Basics 117 (2) Shares not listed on a stock exchange (Art. 685b CO) 117 (3) Registered shares / shares listed on a stock exchange (Art. 685d et seqq. CO) 118 8.5 Vesting of shareholder rights 119 a) Basics 119 b) Participation certificates 119 8.6 Partnership limited by Shares 119 V. External Relations 120 1. Basics 120 2. Company name 120 3. Representation and action of the corporation toward third parties 121 3.1 Basics 121 3.2 Acting through governing bodies 122 a) Basics 122 b) Representation authority of the governing bodies 122 c) Optional constitution of the governing body 123 d) Diverging company rules for the representation power to conclude agreements 123 3.3 Other representatives, proxies 123 3.4 Self-conclusion 125 4. Liability of the managing and non-managing members 125 4.1 Basics 125 4.2 Obligation to contribute to subscribed shares 126 4.3 Directors' liability (Art. 754 et seq. CO) 126 a) Basics 126 b) Violation of duties 127 c) Effect of a resolution of release (discharge) 127 d) Intent or negligence 128 xrv
VI. e) Organizational rules, delegation to management 128 f) Enforcing the directors'liability 128 (1) Basics 128 (2) Persons entitled to claim the directors' liability outside of bankruptcy proceedings 128 (3) Filing by a shareholder of a responsibility suit against the directors 129 (4) Claims in case of bankruptcy 129 (5) Piercing the corporate veil 130 4.4 Partnership limited by Shares 130 The corporation in crisis; duties and responsibilities of the board in corporate restructuring 130 1. Basics 130 2. Analysis of the corporation's economic and financial status 131 2.1 Basics 131 2.2 Going concern; analysis of corporate liquidity 131 3. Duty of the board of directors to rescue the corporation 133 4. Restructuring by the assembly of shareholders in case of loss of capital 133 5. Notice to the judge in case of over-indebtedness 134 5.1 Basics 134 5.2 Revaluation of hidden reserves 135 5.3 Subordination 136 5.4 Bankruptcy 136 VII. Termination / dissolution of the corporation 137 1. Basics 137 2. Protection of creditors 138 3. Ordinary reasons for termination (Art. 736 fig. 1 / 2 CO) 138 4. Extraordinary reasons for termination (Art. 736 fig. 3-5 CO) 139 5. Termination without liquidation / restructuring 139 6. Implementation of the liquidation / dissolution with liquidation 139 7. Partnership limited by Shares 141 XV
Part 6: Limited liability company (LLC) 143 I. Basics 143 II. Setting up the LLC 143 1. Basics 143 2. Incorporation / deed of incorporation (Art. 777-777cCO) 143 3. Capital Contributions (Art. 773 et seq. CO) 144 4. The articles of incorporation 144 5. Entry in the Commercial Register (Art. 778 CO) 145 III. Financial Situation 145 1. Basics 145 2. Equity and its protection 145 2.1 Basics, Function of Equity 145 2.2 Specific equity rules for the LLC 146 a) Amount 146 b) Function and protection of the company capital 146 c) Protection of equity 146 3. Change of equity, reduction of the company's assets 147 3.1 Basics 147 3.2 Increase of company capital 147 3.3 Capital reduction 147 IV. Internal relationships 148 1. Basics 148 2. Decision-making (managing and non-managing members, how they decide) 148 2.1 Basics 148 2.2 Members' meeting 149 a) Competences 149 b) Calling the members'meeting 150 c) Resolutions 150 (1) Passing of resolutions 150 (2) Shares with privileged voting rights (Art. 806 para. 2 CO) 151 (3) Qualified majority 151 (4) Approval of management decisions by the members'meeting 152 XVI
(5) Right of veto 152 (6) Challenging resolutions of the members' meeting 152 2.3 Management 152 a) Basics 152 b) Revocation of management competences 153 3. Inspection and control rights of the non-managing members, annual report and financial statement 153 3.1 Basics 153 3.2 Notification of business report 154 3.3 Right to information and inspection 154 3.4 Audit 154 4. Profit participation 155 5. Right to keep status, voting right, preemptive right 155 6. Loss participation, obligations to contribute 155 6.1 Basics 155 6.2 Supplementary financial contributions 156 6.3 Other contributions 156 6.4 Assent to the obligation for supplementary contributions 156 7. Loyalty 157 8. Change of members 157 8.1 Basics 157 8.2 Admission after formation of the LLC 157 8.3 Resignation / Expulsion 158 8.4 Change of members 158 8.5 Certificate of shares not a security 158 V. External Relations 159 1. Basics 159 2. Company name 159 3. Representation and action of the company toward third parties 159 4. Liability of the managing and non-managing members 160 VI. Termination / dissolution of the company 160 1. Basics 160 2. Protection of creditors 160 XVII
3. Ordinary reasons for termination (Art. 821 para. 1 fig. 1 / 2 CO) 161 4. Extraordinary reasons for termination (Art. 821 para. 1 fig. 3 / 4; Art. 821 para. 3 CO) 161 5. Execution of termination and liquidation 161 Part 7: Cooperative (Art. 828 et seqq. CO) 163 I. Basics 163 II. Setting up the cooperative 163 1. Minimum number of members 163 2. Constitutive meeting 164 3. Founders'report / contribution in kind 164 4. Articles of incorporation 164 5. Registration in the Commercial Register (Art. 835 CO) 165 III. Financial Situation 166 1. Basics 166 2. Equity and its protection 166 2.1 Basics, function of equity 166 2.2 No statutory equity in cooperatives 166 3. Change of equity, reduction of the company's assets 167 IV. Internal relationships 167 1. Basics 167 2. Decision-making (managing and non-managing members, how they decide) 168 2.1 Basics 168 2.2 General meeting of members (Art. 879 CO) 168 2.3 Administration 170 2.4 Revocation of managing competences 170 3. Inspection and control rights of the non-managing members, annual report and financial statement 170 3.1 Basics 170 3.2 Audit 170 4. Profit participation 171 4.1 Basics 171 4.2 Advance the specific economic interests of its members 171 4.3 Distribution of profits to the members 171 XVIII
5. Right to keep status, voting right, preemptive right 172 6. Loss participation, obligations to contribute 172 7. Loyalty 173 8. Change of members 173 8.1 Basics 173 8.2 Admission after formation of the Cooperative 173 8.3 Resignation / Expulsion 173 8.4 Transfer of membership 174 8.5 Vesting of membership rights 174 V. External Relations 174 1. Basics 174 2. Company name 175 3. Representation and action of the company toward third parties 175 4. Liability of the managing and non-managing members 175 VI. Termination / dissolution of the cooperative 176 1. Basics 176 2. Protection of creditors 177 3. Ordinary reasons for dissolution / termination (Art. 911 fig. 1 / 2 CO) 177 4. Extraordinary reasons for dissolution / termination (Art. 911 fig. 3 / 4 CO) 177 5. Consequences of termination and liquidation 178 Part 8: Restructurings, mergers and acquisitions 179 I. Basics 179 II. Merger 179 1. Basics 179 2. Delimitations 180 2.1 Share Deal 180 2.2 Asset Deal 180 3. Absorption Merger 180 4. Combination Merger 181 5. Merger of companies with other company forms (Art. 4 MA) 181 6. Procedure 182 6.1 Merger agreement 182 XIX
6.2 Content of the merger agreement 182 6.3 Merger report 182 6.4 Inspection rights of the members 183 6.5 Merger resolution 183 6.6 Entry in the Commercial Register 183 6.7 Protection of creditors 183 6.8 Consultation of employees 184 6.9 Facilitated merger 184 III. Demerger 184 1. Basics 184 1.1 Split-up / Spin-off 184 1.2 Symmetric and asymmetric demerger 185 1.3 Demerger to merge or to establish 185 2. Procedure 185 2.1 Basics 185 2.2 Demerger plan / demerger agreement 186 2.3 Demerger report and audit 186 2.4 Demerger resolution 186 2.5 Entry in the Commercial Register 187 2.6 Protection of the creditors 187 2.7 Protection of employees 187 IV. Conversion (change of company form) 188 1. Basics 188 2. Possible conversions (Art. 54 MA) 188 3. Procedure 189 3.1 Conversion plan and conversion report 189 3.2 Resolution and inspection rights of the members / shareholders 189 V. Transfer of assets and liabilities (Asset Deal) 189 1. Basics 189 2. Procedure 190 3. Protection of creditors 190 VI. Takeover Rules 191 1. Disclosure of shareholdings 191 2. Public takeover offers 191 XX
Part 9: Company Groups 193 I. Terminology 193 1. Group of companies 193 2. Economic unity 193 3. Common management / control 193 II. Interests of the Company-Group and subsidiaries, and purpose of the company 194 III. Agreements between holding companies and subsidiaries 194 1. Contractual relationships between holding company and subsidiary company 194 2. Conclusion of agreements between companies of a Company Group 194 3. Transfer of assets and guarantees between group members 195 IV. Protection of minority shareholders; limits of control 195 1. The minority shareholder in the Company Group 195 2. Limits of control / protection of minority shareholders'rights 196 3. Consolidated financial statement: an image of economic unity 196 4. Duty to prepare consolidated financial statements 197 5. Function of the consolidated balance sheet 198 V. Liability issues in Company Groups 198 1. Basics 198 2. The responsibility of the parent company based on agreement 198 3. Comfort letters 198 4. Trust on groups 199 5. Tort 199 6. Piercing the corporate veil 199 7. Directors' liability for de facto bodies 200 Part 10: Accounting 201 I. Basics, purpose of accounting 201 II. Bookkeeping and accounting rules for commercial enterprises 202 XXI
1. Basics 202 2. Generally accepted financial reporting principles 202 III. Financial reporting 203 1. Balance sheet (Art. 959, 959a CO) 203 2. Profit and loss statement (Art. 959b CO) 204 3. Notes (Art. 959c CO) 205 4. Management report (Art. 961c CO) 206 5. Cash flow statement (Art. 961b CO) 206 IV. Valuation of assets and liabilities 207 1. Going concern assumption 207 2. No-Offsetting 207 3. Prudence 208 4. Capital assets 208 5. Holdings 208 6. Inventories and non-invoiced services 208 7. Securities / Assets with observable market prices 209 8. Own Shares 209 9. Depreciation and value adjustments (impairment) 209 10. Exception - Valuation at the real value, not at acquisition or manufacturing cost 210 11. Hidden reserves 210 12. Liabilities 211 13. Provisions 211 Index 213 XXII