Adieu to Bearer Shares: The Implementation of the Recommendations of the Global Forum on Transparency
On 21 June 2019, the Swiss Federal Assembly adopted the Federal Act implementing the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Act) and revised the Swiss Code of Obligations accordingly.
As a consequence:
- Swiss companies will no longer be able to issue bearer shares and existing bearer shares will automatically be converted into registered shares after a transitional period of 18 months (with certain limited exceptions);
- Enhanced sanctions in case of violation of reporting obligations by bearer shareholders will enter into force; and
- New criminal sanctions are introduced for the (i) violation of disclosure obligations relating to ultimate beneficial owners and (ii) failure to keep the required registers (typically share register and beneficial ownership register) in accordance with Swiss law.
Abolition of bearer shares
Under current law, Swiss companies limited by shares (Aktiengesellschaft; société anonyme) may issue either bearer shares or registered shares (or both). The main difference between these two types of shares is that registered shares are issued in the name of the shareholder, while bearer shares are issued “anonymously” to their current holder. Consequently, the transfer of bearer shares is subject to lighter requirements and no shareholders’ register for bearer shares had to be kept. However, since 1 July 2015, the acquisition of bearer shares leads to an obligation to notify the company, irrespective of the number of bearer shares acquired. Therefore, companies are now required to keep a register of their shareholders, irrespective whether bearer shares or registered shares are issued.
Following the entry into force of the Act, companies will only be permitted to issue registered shares and bearer shares must be abolished within a transitional period of 18 months. Only companies to which one of the following two exceptions applies, will be permitted to keep bearer shares:
- Companies with securities listed on a stock exchange, and
- Companies whose bearer shares are issued as intermediated securities.
If one of these exceptions applies, this will have to be registered with the commercial register. In case of a delisting, the shares will either have to be converted within six months into registered shares or intermediated securities.
Companies will have a transitional period of 18 months to amend their articles of incorporation and to convert their existing bearer shares into registered shares. If bearer shares are still outstanding after this transitional period, they will automatically be converted into registered shares (unless one of the two exceptions applies).The converted shares will retain their nominal value, pay-in ratio and characteristics in terms of voting rights and financial rights. In addition, the transferability remains unrestricted. After the conversion, the company must register the holders of bearer shares who already complied with the notification duties in its share register.
Holders of bearer shares that have not complied with their notification duties within the transitional period cannot exercise their membership rights (in particular voting rights). In addition, any monetary rights attached to these shares are forfeited. After the conversion into registered shares, shareholders who have not complied with their notification duties may no longer be registered in the share register by the company but must file an application for registration to the competent court within five years after the entry into force of the Act. This application requires the prior approval and will be granted if the shareholder can demonstrate its ownership rights. After expiry of this five years period, any “unclaimed” shares will automatically become null and void and be replaced by treasury shares.
During the transition period, all amendments of the articles of incorporation are rejected, unless the changes required by the Act are reflected. Further, existing and future financing and credit agreements with underlying bearer shares as pledge must be amended to the new circumstances.
Disclosure of the Beneficial Owner
Under current law, the acquirer of any (unlisted) shares in a Swiss company who, acting alone or in concert with third parties, reaches or exceeds the threshold of 25% of the share capital or votes of such company must within one month report the beneficial owner of such shares to the company.
The Act introduces some clarifications in connection with this beneficial ownership disclosure obligation:
- In case a legal entity acquires 25% or more in a Swiss entity, the natural persons exercising control within the meaning of article 963 para. 2 of the Swiss Code of Obligations over the acquiring entity will have to be disclosed;
- If no natural person exercises such control or if the acquirer is either a listed entity or is controlled by a listed entity, this will also have to be disclosed; and
- In the event of any change in the first or last name or address of the beneficial owner, such change must be notified within three months.
Sanctions for non-compliance
Under current law, the failure to comply with the beneficial disclosure obligations resulted in a suspension of the monetary and membership rights of the respective shareholder. However, after 1 January 2020, the failure to comply with these obligations as well as intentional failure by members of the board of directors or managing directors regarding the obligation to maintain the required registers will be subject to a fine of up to CHF 10,000.
The Act also introduces the right of any shareholder, creditor or the commercial register to initiate proceedings against a company not maintaining the required registers or having issued bearer shares without any of the exemptions applying. In such a case, the competent court may set a deadline to take the required measures or, as ultima ratio, dissolve the company.
Entry into force of the Act
The Act is expected to enter into force on 1 January 2020 but an earlier entry into force is possible.
Actions to be taken
Each company that has issued bearer shares should pro-actively convert its shares into registered shares or, in case one of the exemptions applies, inform the commercial register accordingly. Additionally, agreements that might be affected by such changes, in particular agreements containing covenants, finance or pledge agreements, should be checked and the parties involved be contacted to implement the required changes.
Further, each company (irrespective of the type of shares issued) should ensure that its shareholders comply with the reporting obligations and keep the required registers. Similarly, shareholders should analyse whether they have confirmed with the updated notification duties.
Please contact your trusted advisor at Loyens & Loeff in case you have any queries. We provide tailor-made, multi-jurisdictional solutions for individuals and companies.
Andreas HinsenLocal partner Attorney at law
Andreas Hinsen, attorney at law, is a local partner in our Zurich office. He focuses mainly on private equity, domestic and international M&A transactions, corporate governance, restructurings as well as general corporate and stock exchange laws.T: +41 43 434 67 40 M: +41 79 792 78 12 E: firstname.lastname@example.org
Marco ToniPartner Attorney at law
Marco Toni, attorney at law, is a partner in our Zurich office. He focuses on domestic and international M&A transactions, private equity, corporate governance and general corporate, stock exchange and capital markets laws.T: +41 43 434 67 15 M: +41 79 557 62 15 E: email@example.com
Beat BaumgartnerPartner Attorney at law, Swiss certified tax expert
Beat Baumgartner, attorney at law and Swiss certified tax expert, is a partner in our Zurich office. He focuses on Swiss and international taxation, M&A, financing and capital market transactions.T: +41 43 434 67 10 M: +41 79 930 63 52 E: firstname.lastname@example.org