In the Swiss venture capital scene, an investment without a detailed Shareholders' Agreement (SHA) – in German usually called Aktionärbindungsvertrag (ABV) – is unthinkable. The Swiss corporate law (CO) is a rigid framework primarily designed for creditor protection and the formal structure of traditional companies. The dynamic, often asymmetric interests between founders (who bring "sweat equity") and investors (who bring "cash") cannot be captured by the law alone.
The SHA is a contract that exists parallel to the articles of association. While the articles of association are publicly accessible, the SHA remains confidential. It regulates the internal relationship and is the actual instrument of power behind the investors' capital injection.
Classically, the provisions in such a contract can be divided into two major main categories:
- Economics clauses are all financial provisions that regulate the direct economic conditions as well as the financial risk distribution between the company and its shareholders.
- Governance clauses steer, in a broad sense, how the company is managed operationally and strategically, how control among the shareholder base is guaranteed, and how the parties involved must behave toward one another.
The following structure guides you through the most important key points of these two worlds in Swiss practice.
1. Economics: Value Protection and Proceeds Distribution
The financial clauses regulate the financial framework of the deal. They aim, on the one hand, to protect the invested capital from value loss during the holding period (e.g., in a lower subsequent round) and, on the other hand, steer the final distribution of proceeds upon an exit. This is not about theoretical percentages on paper, but about the real economic value of the shares.
1.1. The Liquidation Preference
It determines the order of payout in a "Liquidity Event" (sale, merger, or liquidation).
- The Practice: Investors demand protection in the event that the company is sold for less than the valuation suggested at entry.
- Standard (SECA): A 1x Non-Participating Liquidation Preference.
- Mechanics: The investor has a choice: either they receive their invested capital (1x) back, or they waive the preference and participate pro rata (according to their shareholding) in the total proceeds resulting from the "Liquidity Event".
Warning for Startups: Avoid "Participating" (double-dipping) or multiples above 1x. With a participating preference, the investor first gets their money back AND then participates again in the remaining pool. This can lead to founders walking away empty-handed in a mediocre exit.
1.2. Anti-Dilution (Verwässerungsschutz)
If a subsequent financing round takes place at a lower valuation than the previous one (Down Round), this protective mechanism kicks in.
- Broad-Based Weighted Average: This is the fair Swiss standard. The new, lower price is not adopted one-to-one; instead, a weighted average price is calculated that takes all issued shares into account.
- Full Ratchet: This is the aggressive variant that founders should avoid at all costs. Here, the price of the old shares is simply reduced to the new, low price. This leads to a massive, often existence-threatening dilution of the founder team.
2. Governance: Who Holds the Wheel and How Do the Parties Behave?
This section essentially regulates how control over the company is distributed and secured within the shareholder base. It is about the balance between the operational freedom of the founders, the control needs of the financial backers, and the rules of the game for the entry and exit of shareholders.
2.1. Board Composition (Board of Directors)
Under Swiss law, the Board of Directors (VR) has the ultimate management of the company. Whoever sits here determines the strategic direction.
- The Practice: Often, after a Series A, the VR consists of 5 people: 2 founders, 2 investor representatives, and 1 independent industry expert.
- Governance Consideration: Investors often demand observer status (Observer Rights) if they do not occupy a seat. Founders should ensure that the body remains small (agility) and that they secure their seats mutually through voting pooling agreements (Stimmbindungsklauseln).
2.2. Veto Rights (Reserved Matters)
This is a list of transactions that the VR or management may not enter into without the consent of the investors (usually a majority of the preferred shareholders).
- Classic Examples: Budget overruns > 10%, sale of IP (Intellectual Property), taking out loans exceeding CHF 100,000, changing the business plan.
- Advantage/Disadvantage: For investors, this is an "insurance policy" against management errors. For startups, it means administrative effort. Practical Tip: Define clear thresholds so that not every office furniture order becomes a veto case.
2.3. Exit Mechanisms: Clearing the Path
An SHA prepares the strategic "endgame" at an early stage. Since VCs aim for an exit within 5–10 years, they need legal tools to enforce it in case of emergency.
- Drag-Along (Drag-Along Right): If a qualified majority (e.g., 50% or 66% of the shareholders including the investor majority) wants to sell the company, the remaining shareholders (including the founders) must sell their shares under the same conditions. Buyers practically always want to acquire 100% of the shares upon exit; a single small minority shareholder must not be able to block the deal. Founders should agree on a floor (minimum valuation) here.
- Tag-Along (Tag-Along Right): If a major shareholder (often the founders) sells their shares, the remaining investors have the right to sell their shares in the same proportion ("pro rata") to the same buyer. This prevents founders from secretly leaving the company and leaving the investors behind with an rudderless shell.
2.4. Transfer Restrictions: Who is Allowed on Board?
Startups are "closed corporations". You want to know and control exactly who is sitting at the table at all times.
- Right of First Refusal (ROFR): If a shareholder wants to sell their shares to a third party, they must first offer them to the existing shareholders under the same conditions.
- Right of First Offer: Similar to the ROFR, but the seller must first ask the remaining shareholders whether and at what price they want to buy before they can search externally for interested parties.
2.5. The "Leaver" Provisions: The Team Insurance
Venture capital invests primarily in people. If a key founder leaves, the value of the company drops massively. The leaver clauses steer the team's behavior and ensure continuity.
- Reverse Vesting: Founders legally own their shares from day 1, but economically they "earn" them over time (usually over a 4-year period). If a founder leaves after 2 years, for example, they must return the remaining unvested 50% of the shares to the company or the remaining founders.
- Good Leaver vs. Bad Leaver: This regulates the price at which shares must be given up upon departure. A Bad Leaver (termination for cause such as fraud or material breach of contract) usually receives the lower of market value and nominal value as a sanction. A Good Leaver (departure due to illness, death, or termination without cause) receives the full, fair market value for their already vested shares.
Conclusion: Agility vs. Protection
An SHA under Swiss law is a highly complex set of instruments. For startups, it offers the opportunity to present themselves as a reliable and professional partner for international investors.
The Three Golden Rules for Founders:
- Use the standard: Only deviate from the SECA standard for good, specific reasons. Too exotic special clauses scare off subsequent investors in future rounds.
- Play out scenarios: What happens if we fall out in 3 years? The SHA must work in a crisis, not just when the sun is shining.
- Focus on economics: A 20% discount in the preceding convertible loan (CLA) is a nice tool, but a poorly negotiated liquidation preference in the SHA can cost millions at the later exit.
