What Rights Do Substantial Minority Shareholders Have in a Swiss Company Limited by Shares?
A Swiss company limited by shares (Aktiengesellschaft) can be established by one or more people. When startups are founded, majority relationships can often be slim, for example, a 51% majority as opposed to a 49% minority.
Even a small difference in the capital contributions to a company can have a significant effect on its legal control.
Organization of a company limited by shares
The highest body of a company limited by shares is the general meeting. All shareholders are entitled to participate in the general meeting and to vote in accordance with their voting rights. The general meeting determines the articles of association and can amend these as required. It also approves the annual accounts and decides how profits are distributed. In addition, the shareholders elect the members of the board of directors and, where required, appoint auditors.
The board of directors is the executive body of the company and consists of one or more members, who may also be shareholders. It is responsible for the management of the company, unless this is delegated to one or more directors, and calls the general meeting.
Shareholders who hold at least 10% of share capital or have a shareholding with a nominal value of at least CHF 1 million are entitled to call a general meeting or add items to the agenda.
Majority rule as a key principle
In principle, the general meeting makes decisions and appointments in accordance with an absolute majority of the votes cast. Normally, shareholders exercise their voting rights in proportion to the amount of share capital they hold. Exceptions may arise with voting shares. In this situation, shares with different nominal values are issued, whereby each share accrues one vote.
The law also provides for some exceptions where a two-thirds majority is mandatory. For example, a qualified majority is required for a change of purpose, change of registered office or dissolution of the company. Decisions regarding a conditional or authorized increase in capital also require a qualified majority, as do those relating to the introduction of a capital band under the revised law. However, a simple majority is sufficient for the appointment and dismissal of board members, for an ordinary increase in capital, or for dividend distribution.
Where the board of directors has more than one member, decisions are made in accordance with the majority principle. Unless the articles of association provide otherwise, minority shareholders have no right to a seat on the board.
Therefore, a shareholding of 51% is sufficient to exercise significant control over a company limited by shares at both general meeting and management level and to make key decisions for the company.
What protection do minority shareholders have?
All shareholders have the irrevocable right for a company limited by shares to be run for a profit, as well as to share in profits, proportionate to their share of capital.
In addition, the law protects minority shareholders from dilution of their shareholding. When new shares are issued, all shareholders are entitled to subscribe to new shares in proportion to their existing shareholding (subscription right). The subscription right can only be canceled or restricted for an important reason. This could occur, for example, where there is an increase in capital in the context of a company take-over, or to enable employee participation. The withdrawal or restriction of subscription rights requires the approval of a two-thirds majority of shareholders.
However, a right of subscription only grants the right to subscribe to new shares at the set price. On the other hand, minority shareholders are not protected against dilution if they are not able to participate in a capital increase, or do not want to pay the set issue price.
In addition to property protection, all shareholders have certain information and audit rights. Furthermore, the right to equal treatment protects shareholders from being disadvantaged by unlawful acts by majority interests.
If a majority decision infringes the rights of minority shareholders, it can be challenged in the courts by any individual shareholder. If board members breach their duties, for example, by carrying out transactions which are desired by majority shareholders but are not in the interest of all shareholders, minority shareholders may seek damages from respective board members.
In addition to the statutory legal protection outlined above, it is also usual for shareholders with substantial minority shareholdings to negotiate certain additional rights within a shareholders’ agreement.
This could include additional information and voting rights, or additional claims regarding the protection of their shareholding (for more: What Founders Need to Know about Shareholders’ Agreements)