Companies commonly enter into loan agreements with their shareholders. However, whenever directors of a Swiss company are contemplating granting loans to shareholders, they must be mindful of the specific restrictions and conditions imposed by general principles of Swiss corporate law. The principles of adequate risk diversification and diligent liquidity management must be observed.
In a recent decision the Supreme Court commented on the prerequisites for the delegation of management by boards of directors. A distinction must be made between internal and external corporate acts. While the delegation of powers for internal affairs requires both a provision in the articles of incorporation and a written organisational resolution, powers regarding external acts may be delegated by power of attorney.
Following a Supreme Court ruling, it is now possible to provide in purchase agreements that the seller will forfeit the right to claim part of the purchase price if it breaches contractually stipulated obligations. However, penalty clauses which provide for the loss of the right to claim part of the purchase price in case of breach of the seller's contractual obligations in an excessive manner may be mitigated by the court.
In a recent decision, the Supreme Court had the opportunity to comment on the requirements regarding founders' liability and the calculation method for the respective damages under company law, in particular for a limited liability company. The court held that the common definition of the term 'damages' applied, as opposed to a specific meaning of the term as has been argued for in legal literature.
German law requires notarization when transferring or pledging limited liability shares. In the past it was possible to make significant savings by obtaining notarization in foreign jurisdictions, especially certain Swiss cantons. Following the amendment of a number of relevant provisions of Swiss and German law, controversy has arisen as to whether foreign notarization can still be validly obtained in Switzerland.
An organization's internal control system covers all of the procedures, methods and controls established by its board of directors and management in order to ensure the proper functioning of business operations. The recent revisions to auditing law have resulted in the need for auditors to audit these systems and present their findings to the board of directors.
In light of the global financial crisis, the federal government has extended the revision of the law on corporations and new accounting legislation that will create standardized rules for all company forms in Switzerland. It has also issued an additional opinion as a counter-proposal to a popular initiative submitted in 2008.
In a recent landmark ruling the Supreme Court deviated from its previous practice to hold that, in certain circumstances, exclusive distributors have a claim for mandatory compensation upon termination of the distributorship agreement. The court further held that the distributor's claim for client compensation is mandatory and cannot be waived in the distributorship agreement.
In two recent decisions the Supreme Court took the opportunity to lay down the minimum standards for an authorized delegation of management competency from the board of directors to individual board members or a third person. Board members in Switzerland may now want to take appropriate steps to ensure that they have correctly delegated the management of their company.
The revised auditing legislation which entered into force on January 1 2008 implemented new requirements for the independence of auditors. The primary principle for both ordinary and limited audits is that independence may not be affected either in fact or in appearance.
Directors have a duty to manage a corporation with due care and are personally liable for damages caused by wilful or negligent breach of this duty. Where a corporation is over-indebted, the directors risk becoming personally liable to anyone that suffers losses if the corporation subsequently goes bankrupt, except where they have complied with their duties under the Swiss Code of Obligations.
The revised auditing legislation has entered into force, which comprises changes to the Code of Obligations and the entry into force of the new Audit Supervision Act. The amendments establish uniform requirements for all legal entities and provide for an overall auditing law which no longer differentiates between the legal form of entities, but rather focuses on the economic importance of the company.
Under Swiss law, a shareholder may request at the shareholders' meeting that certain areas be subject to a special audit if this is necessary for the exercise of shareholders' rights and if the right to information or inspection has been exercised previously. The Supreme Court has reviewed the prerequisites for shareholders to appoint a special auditor.
The Supreme Court has previously outlined the requirements subject to which a company deleted from the Commercial Register can be reregistered. In most cases a creditor requests re-entry, and it must show credibly the existence of its claim and that it has interests in the reregistration of the company worthy of protection. A recent case considers the existence of these interests.
A release from the general shareholders' meeting shelters the board members from liability claims by the company arising from the intentional or negligent violation of their duties. Recently the Supreme Court dealt with a case involving the release of three members of a board of directors. The court defined the scope of application and the effects of a release granted to the board members.
New legislative amendments are intended to adapt the Swiss corporation to reflect current business needs and afford greater flexibility in relation to the organization and incorporation of such companies. The changes are the first step in an initiative to revamp Swiss corporate law to accommodate the needs of modern businesses and to take account of issues that have emerged over the past decades.
According to the Swiss Code of Obligations, at the general meeting of shareholders any shareholder is entitled to request information from the board of directors concerning the affairs of the company, and from the auditors concerning the execution and results of their examination. The Supreme Court recently stated more precisely the scope and limitations of this right.
Weaknesses in the Swiss Company Law mean that small private businesses choose to operate far more often as stock corporations than as limited liability companies (LLCs). In addition, the reputation of the LLC is not as good as that of the stock corporation. To remedy this situation, the government has proposed amendments to the law.
Directors cannot be held liable for violation of duty if they can prove that they acted with the consent of the company which suffered damage. If sued by the company, a director may refer to this principle in his or her defence if he or she acted with the explicit or implicit consent of all shareholders, or executed a lawfully passed resolution of the general meeting which was not challenged in court by a shareholder.
The Supreme Court recently decided a case which involved the question of whether a partner in a partnership had acted within or beyond the ordinary scope of the partnership's business and whether the partner's actions had been binding for the partnership. The court held that the type and magnitude of a legal transaction must be considered when deciding whether a legal transaction is ordinary.