New Stock Corporation Law: What are the Relevant Changes for SMEs?

The recently enacted stock corporation laws in Switzerland have brought about crucial changes to the existing regulations, some of which are especially relevant to small and medium enterprises (SMEs).

These reforms aim to enhance capital flexibility, strengthen shareholder rights, and modernize rules for shareholder meetings to align with the digital era. In this blog, we outline the most significant changes to the law, and explain what you need to know about updating your company’s statutes during this critical transition period.

Background to the new stock corporation laws

After many years in the works, major reforms in company law in Switzerland were finally passed by Parliament in June 2020 and came into force on January 1st, 2023. The primary aims of the reforms are to make company formation and capital regulations more flexible, to increase shareholder rights, protect minority shareholders, and tighten the responsibility of the Board of Directors to monitor liquidity issues.

The reforms are also geared to adapting to the modern digital age by allowing virtual AGMs among other updates.

We will highlight some of the most significant changes to stock corporation law in Switzerland and their relevance to SMEs:

More flexible capital structure

The new stock corporation laws bring about increased flexibility in capital structure through two main updates:

1.    Capital band

The “approved share capital increase” has been replaced by the “capital band”. With this approach, the Board of Directors are authorized to increase or decrease the share capital within a predetermined range (capital band) within a maximum period of five years from when the approval takes place.

While the precise limits of the increase/decrease in share capital are decided at the general meeting, regulations stipulate that the maximum allowable increase or decrease is 50% of the current registered share capital.

2.    Alternate currencies accepted

With the increasingly multi-national nature of the Swiss business environment, the new stock corporation laws allow companies to denominate their share capital in one of several foreign currencies alternative to the Swiss franc, including the euro, US dollar, British pound, and Japanese yen. All bookkeeping must be carried out in the same currency, and the minimum capital requirement of the equivalent of CHF 100,000 still applies.

Virtual AGMs

The new stock corporation laws recognize the evolving digital nature of business communication. As such, general meetings may now be held virtually. The meeting location may also be abroad and in several locations at once.

It is even allowable to replace the actual AGM with a written circular resolution, and the chairman may be assigned the casting vote at the general meeting. This is particularly useful for SMEs conducting most of their business remotely with limited time and resources to organize a physical AGM in an office in Switzerland each year.

Increased shareholder rights

Any shareholder of an SME who holds at least 10% of the share capital or voting rights can request information about the company in writing from the Board of Directors at any time. Before the reforms, shareholders were limited to the right to information at the general meeting only.

Minority shareholder protection

Shareholders of private SMEs with at least 5% of the share capital or voting rights now have the right to make proposals, put items on the agenda at the general meeting and call for an extraordinary general meeting. The previous threshold was 10%.

Additionally, shareholders with 5% of the share capital have the right to inspect the books of the business and correspondence at any time without authorization from the general meeting insofar as it is necessary to exercise their shareholder rights and make informed decisions.

The interests of the company that need to be protected are still excluded, but a refusal to provide certain information must now be justified in writing by the Board of Directors.

Interim dividends

Corporations may now pay interim dividends. The condition is that an interim balance sheet must be prepared beforehand which shows that there is freely distributable equity available. The same auditing rules apply to the interim financial statements as to the annual statements.

Increased responsibility to monitor liquidity and over-indebtedness

The new stock corporation laws have tightened the Board of Directors’ responsibility to monitor and act on over-indebtedness and liquidity issues.

Obligation to act on detection

As soon as any of the directors have a justified concern about insolvency while monitoring the company’s liquidity, they must take active measures to ensure the company remains solvent. In other words, the law now stipulates that simply recognizing the risk of insolvency makes it mandatory for the Board of Directors to act in response.

Mandatory audit with half capital loss

Corporations which meet certain criteria may opt out of appointing an auditor to audit their financial statements. However, according to the new corporate laws (Art. 725a OR), if the most recent annual financial statements reveal that net equity (assets less liabilities) is less than half of the sum of the share capital, statutory capital reserve not repayable to shareholders and statutory profit reserve, the Board of Directors must take action to try to eliminate the capital loss.

In addition, even if the company has previously opted out of the audit, they must now subject the most recent annual financial statements to a limited audit by an approved auditor appointed by the Board of Directors before it can be approved at the general meeting.

Resolving over-indebtedness

Under the new company law, the Board of Directors is no longer required to immediately deposit the balance sheet with the bankruptcy court in the event of over-indebtedness.

Instead, a deadline for resolving the over-indebtedness has been set by the law. If there is a reasonable prospect of resolving the over-indebtedness within 90 days of the audited interim financial statements being available, the company is allowed to attempt to remedy the situation on their own with the Board of Directors taking primary responsibility for doing so.

Do corporations need to update their statutes?

Most SMEs that drafted their statutes before January 1st, 2023, would contain provisions based on the old company law and which thereby contradict the new regulations. As such, the articles of association must be updated to be in accordance with the new laws by January 1st, 2025, at the latest.

Aside from this legal requirement to update the corporation’s statutes, it is in any case advantageous for SMEs to do so at the earliest. This is because it’s not possible to benefit from the additional flexibility that the new company law offers SMEs while their own internal statutes restrict them to the old regulations. The articles of association can be updated at any time to be in accordance with the new laws, which is likely to be advantageous to SMEs on the whole.

For more information on how to change a corporation’s statutes, read our blog post on company statutes.