Corporate Governance Switzerland 2023

• Law Firm: Baer & Karrer
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Corporate Governance, Shareholders
• Author: Dr. Urs K'gi, Vera Naegeli and Marie-Cristine Kaptan
• Published date: 08 March 2023

1. What are the most common types of corporate business entity and what are the main structural differences between them?

The two most common types of corporate entities are the stock corporation or company limited by shares (Aktiengesellschaft, hereinafter referred to as stock corporation or company) and the limited liability company (Gesellschaft mit beschränkter Haftung)

The share capital of a stock corporation is divided into shares and its liabilities are covered by its own assets only. The shareholder's sole legal obligation is to pay-in a fixed amount per share. Further obligations may be covered in a shareholder agreement. The minimum share capital is CHF 100'000.- (or the equivalent amount in a foreign currency). The stock corporation is the only type or entity that can be listed on a stock exchange.

The minimum capital of the limited liability company is CHF 20'000.-, divided into quotas held by one or more partners. The partner's liability is limited to the predetermined nominal capital of the company. In addition to the financial obligation of the partners to deposit the entire issue price of the capital contributions, each partner is bound to further personal obligations, such as the duty of loyalty and the prohibition of competition. Similar to the stock corporation, the creditors of a limited liability company can generally take recourse to its assets only, unless its articles of association require the partners to make additional contributions. The limited liability company is particularly suited to small and medium-sized enterprises and family-owned firms.

Since 2021, the number of limited liability companies exceeds the number of stock corporations. Both types are incorporated by at least one or more individuals or legal entities and require at least one board member or officer with sole signature (or two with joint signature) rights who is a Swiss resident. By law, both listed and non-listed stock corporations are required to have three corporate bodies: the general meeting of shareholders, the board of directors and the external auditors. Limited liability companies also have three corporate bodies: the members' general meeting, the management and the external auditors. Private companies may waive the requirement to perform an audit of their annual accounts (and, therefore, to appoint external auditors) if certain criteria are met.

The responses in this Q&A focus on the stock corporation (Aktiengesellschaft), unless mentioned otherwise.

2. What are the current key topical legal issues, developments, trends and challenges in corporate governance in this jurisdiction?

In January 2023, a general corporate law reform entered into force which fine-tunes shareholder rights and the general meeting's process in particular and includes several alterations in the area of corporate social responsibility (see question 24 below). Among other things, the corporate law reform allows shareholders' meetings to be conducted virtually (or in a hybrid form). It remains to be seen at what rate this possibility will be adopted and used by companies; however, given that during the COVID-19 pandemic many companies gained first experiences with virtually held shareholders' meetings, we expect a trend towards virtual shareholder participation.

Additionally, and as part of a separate bill, new reporting obligations and mandatory due diligence requirements on environmental, social and governance (ESG) matters entered into force on 1 January 2022 and must be implemented for the first time with respect to the financial year starting in 2023 (see question 24 below). We further expect the influence of proxy advisors and shareholder activism to continue to increase (see question 19 below). Partly as a response to such challenges, the trend towards non-executive, mostly independent boards, as well as more sophisticated and formalized governance arrangements is picking up (see question 8 below). Moreover, and also in response to these developments, the business organization economiesuisse is currently revising the Swiss Code of Best Practice for Corporate Governance (see also question 5 below), which is expected to be published in the first half of 2023 and increase the standards and scrutiny applied to corporate governance set-ups.

Finally, also in light of the recent enactment of the Screening Regulation in the European Union, which established a framework for the screening of foreign direct investments, we see a certain political pressure in Switzerland to impose foreign investment controls. Compared to other countries, Switzerland has been considered as being very liberal towards foreign investments so far. In March 2022, the Swiss Federal Council presented the draft of a new federal act on foreign investment controls. The respective consultation period ended in September 2022. It remains to be seen whether new investment control measures will ultimately be introduced to Swiss law. If adopted, we would expect such law to mainly impact the M&A market, and it might also give rise to new, creative governance structures to mitigate its consequences.

3. Who are the key persons involved in the management of each type of entity?

The key persons involved in a stock corporation are the board of directors, the executive management and the shareholders (acting at the general meeting of shareholders). While the law states that the shareholders' meeting is the supreme governing body, its powers are generally confined by law and may be extended by the articles of association in limited cases only. The board of directors may pass resolutions on all matters not reserved for the shareholders' meeting by law or the articles of association. Subject to certain nontransferable duties pursuant to statutory law which include, among other things, determining the strategy of the stock corporation and supervising management, the board of directors may delegate all other duties, namely the management of the stock corporation, to the executive management based on an authorization in the articles of association and the adoption of organizational regulations. In listed stock corporations as well as larger private companies, the day-to-day management is typically delegated to the executive management. But the organizational regulations in most cases reserve certain matters for approval by the board of directors, such as significant acquisitions or disposals. Members of the executive management are appointed and removed by the board of directors.

The key bodies involved in a limited liability company are the members' general meeting and the management, with the members' general meeting being the supreme governing body. Compared to a stock corporation, the members' general meeting of a limited liability company may have direct influence on the business of the company because the members' meeting has decisional authority vis-à-vis the management. Furthermore, in contrast to the stock corporation, the members of the limited liability company are in general authorized and obliged to manage and supervise the company, but may still delegate the management to a third party.

4. How are responsibility and management power divided between the entity's management and its economic owners? How are decisions or approvals of the owners made or given (e.g. at a meeting or in writing)

As outlined in question 3 above, the day-to-day management of a stock corporation is usually delegated by the board of directors to the executive management. The shareholders are entitled to elect and remove the members of the board of directors. According to the Swiss Code of Obligations ("CO"), the following matters are subject to the approval by the general meeting of shareholders: adoption and amendment of the articles of association; appointment or removal of the members of the board of directors and the auditors (and, in case of listed companies, of the members of the compensation committee); approval or rejection of the management report, including, if applicable, the consolidated financial statements and the report on non-financial matters; approval or rejection of the use of the balance sheet profits and, in particular, the declaration of dividends (including any repayment of the statutory capital reserves and the approval of interim dividends and the interim financial statements required for such purpose); discharge of the members of the board of directors and executive management from liability; and matters that are by law or by the articles of association reserved to the shareholders' meeting. In case of listed companies, the general meeting of shareholders also has the power to approve the aggregate amounts of compensation of the members of the board of directors and the executive management and to delist the shares or other equity instruments of the company.

Unless otherwise provided by law or the articles of association, the shareholders' meeting passes resolutions by an absolute majority of the voting rights represented. The CO sets out certain important matters, such as, but not limited to, the amendment of the purpose of the stock corporation, the restriction of the transferability of registered shares or the dissolution of the stock corporation, for which at least two-thirds of the voting rights represented and an absolute majority of the nominal value of shares represented are required. The articles of association...