Switzerland (almost) abolishes bearer shares

Alain Friedrich
Alain Friedrich

Swiss company law distinguishes two different categories of shares. On the one hand, there are registered shares which are registered in the name of the owner of the shares. On the other hand, there are bearer shares. In the case of those shares, the public limited company does not need to know the identity of the paper owner. Bearer shares are there for characteristic for their anonymity.

According to global regulators, it is precisely this anonymity that leads to problems. Bearer shares could favour abuse for money laundering and tax evasion through their anonymity. On 26 July 2016, the Global Forum on Transparency and Exchange of Information for Tax Purposes, an OECD working group, published a report with various recommendations concerning the exchange of information and transparency of legal entities. If these proposals are not implemented, Switzerland is threatened with an insufficient overall rating of "partly compliant" and a placement on the black list.

In November 2018, the Federal Council responded with a dispatch on the implementation of the recommendations of the Global Forum and a proposal to amend the legal provisions on bearer shares in the Swiss Code of Obligations (CO). In order to achieve the transparency demanded by the Global Forum, the draft law provides for stricter rules for bearer shares. In addition, breach of the obligations to report the beneficial owners and to maintain the share register and the list of beneficial owners will be punishable by law.

In the final vote of the Councils on 21 June 2019, Parliament adopted the proposals by a majority and thus (almost) abolished the bearer shares.

Future legislative amendment

With regard to bearer shares, Art. 622 CO is supplemented by paragraphs 1bis and 2bis. These stipulate that bearer shares are only permissible if the stock corporation either

  • has listed its equity securities on a stock exchange, or

  • has structured the bearer shares as intermediated securities which are deposited with a custodian designated by the Company in Switzerland.

In addition, stock corporations with bearer shares must enter in the commercial register whether they have listed equity securities on a stock exchange or have structured them as intermediated securities. This contributes to legal certainty by allowing the Commercial Register Office and third parties to check whether the company is also entitled to issue bearer shares.

Of the more than 50,000 companies that have issued bearer shares in Switzerland, the vast majority are unlikely to meet these requirements. They must therefore convert their bearer shares into registered shares.

Need for adjustment

Companies that are not listed on a stock exchange and continue to issue bearer shares only have the option of structuring the bearer shares as book-entry securities and depositing them with the custodian within 18 months of the enactment of the legislative amendment. As a rule, the design of bearer shares as intermediated securities entails recurring costs.

If book-entry securities are out of the question for the company concerned, the only option is to convert the bearer shares into registered shares. This must take place within 18 months of the enactment of the amendment and be entered in the commercial register. For the conversion of the shares, a resolution of the General Meeting is required.

As this is accompanied by an amendment to the Articles of Association, the resolution requires public certification.

If no conversion is carried out by the company within this period, the law provides for an automatic conversion of the bearer shares into registered shares by the commercial register office. The Commercial Register Office acts officially and independently enters the corresponding adjustment in the Commercial Register.

However, this has not solved the problem for the company. Rather, in such cases there will be a so-called organizational deficiency. This entitles the Commercial Register Office to request the court to restore the company to its legal condition, i.e. to amend the Articles of Association to take account of the conversion of shares. If the company does not comply with its obligations even after a court order, it is threatened with liquidation under bankruptcy law.

Our team of lawyers and notaries is happy to advise companies that have outstanding bearer shares and owners of bearer shares on the next steps to avoid the adverse consequences of this amendment to the law.

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