General Information
Equity investors gather and exercise their rights in the corporation’s general meetings; hence, ordinary or extraordinary general meetings are a key component of the CG in Switzerland. Attempts to rank the degrees of shareholder protection are usually somewhat arbitrary. Switzerland ranks approximately in the center in this respect compared to other countries. The Swiss norm for the CG, on the other hand, is interpreted differently outside of Switzerland.
For example, the Organization for Economic Cooperation and Development (OECD) classified Switzerland as very weak on CG matters in a 1998 research. The World Economic Forum (WEF) has placed Switzerland 41st out of 133 countries to protect minority shareholders’ rights in its Global Competitiveness Report 2009-2010126.
Fiduciary Duties of Controlling Shareholders
According to article 680 para 1 CO, shareholders have one and only one obligation under Swiss corporation law, namely to contribute the amount fixed at the time of issue for a share (Liberierungspflicht); SESTA introduced two additional obligations for equity investors in listed companies at the end of the 1990s (article 20 SESTA: disclosure obligation; article 32 SESTA: mandatory takeover offer to the other shareholders).
In Switzerland, fiduciary obligations of shareholders in general, and controlling shareholders in particular, are a rare matter of legal debate. Only a few writers believe that shareholders have any fiduciary obligations at all, with the vast majority of commentaries explicitly rejecting such an idea for (controlling and other) shareholders under Swiss law.
Nonetheless, the majority and other controlling owners must comply with the law. According to article 717 CO, the board must ensure that these investors follow the laws – even if the board members may be dismissed later by controlling shareholders’ votes in the general meeting (article 705 CO).
Tunneling by controlling shareholders, for example, is unlawful under Swiss law and has implications under both corporate laws and tax law. According to article 678 CO, shareholders who have received unjustifiably and in bad faith, for example, shares of profits and interests as well as other company performances, are required to return them to the corporation (para 1/para 2); the damaged corporation and any of its shareholders may file an action (para 3) for which the current statute of limitations is five years.
Shareholders’ Rights – in Particular, Information Rights
It is practically difficult to completely define the shareholders’ rights under Swiss law in the restricted space of this Country Report.
In general, an equity investor in a firm obtains two types of entitlements: financial rights (such as dividends and pre-emptive rights) and non-financial rights (e.g., rights to call a general meeting and to participate at a general meeting, rights to speak and to vote at a general meeting, rights to file different actions against the corporation or the board members, respectively, and finally, a variety of information rights).
The many information rights (articles 696 et seq. CO) are critical for protecting (minority) shareholders in Switzerland. Under Swiss law, four information rights are paramount: article 696 CO, article 697 CO, articles 697a et seq., and article 697h CO:
– Article 696 CO: no later than 20 days before the ordinary general meeting of shareholders, the business report and, if any, the auditors’ report shall be made available for inspection at the corporation’s domicile (article 696 para 1 CO); a shareholder may request these documents in copy after approval by the general meeting (article 696 para 3 CO). In truth, most Swiss companies are significantly more forthcoming in their dealings with their investors.
– Article 697 CO: At the general meeting, each shareholder has the right to obtain information from the board on the “affairs of the business” (article 697 para 1 CO). Furthermore, if the general meeting or the board of directors has provided the necessary authorization, every shareholder has the right to see the company’s records and files (article 697 para 3 CO).
– Article 697a et seq. CO: In the early 1990s, the Swiss Parliament enacted the special audit (articles 697a et seq. CO: Sonderprüfung), which foreign models influenced (e.g., Germany). The special audit attempts to improve shareholders’ knowledge level to launch, for example, a liability action against board members.
Only facts, and therefore not legal issues, may be subject to a special audit, on which the general meeting must vote in any event; the facts must be required for exercising shareholders’ rights (article 697a para 1 CO). If the general meeting does not approve the special audit, only shareholders who fulfill specified share capital criteria may go to court at all (article 697b para 1 CO).
Following then, there is a very convoluted back-and-forth between one shareholder and the company (articles 697c et seq. CO).
Finally, at the next general meeting, the special auditor’s report will be delivered to the judge (article 697e CO) and, finally, to all shareholders (article 697f CO).
Switzerland does not have a group corporate law. Nonetheless, certain norms and precedents are vital for organizations. For example, the parent company’s shareholders have the right to see the books and files of other group companies under certain situations, and the special disclosure duty under article 697h CO also applies to the consolidated financial statements.