Wrong handling of shares and shareholders is dangerous
On November 1, 2019, further tightening of the rules for shareholders of privately held Swiss companies came into force: Violations of reporting and documentation obligations will be punishable by law, both for the company and the shareholders concerned! And bearer shares will definitely be abolished for SMEs.
Stricter transparency regulations for legal entities were already introduced in mid-2015. However, the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) deemed these provisions to be inadequate, which is why further tightening was decided in an accelerated procedure and came into force at the beginning of November this year.
What are the benefits of the new law?
De facto abolition of bearer shares in the SME sector
In future, bearer shares will only be permitted if
the company has listed equity securities on the stock exchange, or
the bearer shares are structured as intermediated securities, deposited with a custodian in Switzerland or entered in the main register
This means that all privately held companies must cancel any existing bearer shares or convert them into registered shares within the statutory period of 18 months, i.e. by May 1, 2021. After this date, no further entries can be made in the commercial register until the corresponding amendment to the Articles of Association has been entered.
Bearer shareholders are already subject to a reporting obligation (name, address and details of the beneficial owners). The bearer shares of correctly registered shareholders will be entered in the new share register to be created.
Holders of bearer shares who have not registered within the deadline can still assert their ownership rights in court until November 1, 2024. After that, they will be expropriated without further ado: Their shares will be replaced by the company's own (registered) shares!
Criminal liability for breach of reporting and record-keeping obligations
Anyone who acquires shares in a company alone or in joint agreement with third parties and thereby holds at least 25 percent of the capital or voting rights must notify the company of the name and address of the beneficial owner within one month.
This provision has been in force since July 2015, but the sanctions for non-compliance have now been tightened. According to the law, a shareholder who does not make the notification or does not make it on time forfeits their dividend entitlement, i.e. no dividends may be paid out until the correct notification has been made! Payment is also not permitted retroactively, i.e. the entitlement is definitively forfeited.
A new article (327) in the Swiss Criminal Code now also makes the intentional violation of reporting obligations a punishable offense. Fines of up to CHF 10,000 can be imposed.
Mandatory obligation to keep the share register and the register of beneficial owners
However, the company is also liable to prosecution under Art. 327a of the Swiss Criminal Code if it fails to keep the share register or the list of beneficial owners of the shares in accordance with its obligations. This also applies mutatis mutandis to limited liability companies and cooperatives! Not to be forgotten is the obligation to retain all supporting documents on which the entries are based for 10 years after the deletion of the relevant entry.
Last but not least, failure to keep the registers in accordance with the regulations is considered an organizational deficiency that will be prosecuted ex officio. Such proceedings could lead to the dissolution of the company.
What does that mean for you?
In our experience, many SMEs have not kept a share register at all or only negligently, let alone a list of beneficial owners. In view of the threatened sanctions, it is urgently recommended that these registers be kept or updated correctly and promptly.
As the management bodies are responsible for compliance with the statutory obligations, they must impose the sanctions provided for by law on shareholders who fail to comply with their reporting obligations, e.g. by denying them access to the AGM. The Board of Directors is therefore also liable for unjustly paid dividends.
We can support you in "cleaning up" and provide you with suitable tools for the correct management of the relevant directories (both conventionally and with state-of-the-art technologies): With our blockchain-based product SMARTSHARES or the service based on it rta trust you have all processes and regulations under control. We would be happy to show you how this efficient tool can relieve you of all your administrative worries.
