In a nutshell:
- Issuance of bearer shares not permissible anymore after 1 January 2020.
- Automatic conversion of existing bearer shares into registered shares on 1 July 2022.
- New sanctions for violation of existing reporting obligations by bearer shareholders.
- Criminal sanctions for violations of beneficial ownership disclosure obligations.
- Criminal sanctions for not keeping the share register and beneficial ownership register in accordance with the law.
On 21 June 2019, the Federal Assembly adopted a new Federal Act implementing the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum Act). The Global Forum Act inter alia introduces the following changes:
- The bearer share is abolished. Exceptions exist for publicly listed companies and for bearer shares issued in the form of intermediated securities.
- Existing bearer shares not falling under the exemption regime have to be converted into registered shares. Bearer shares still in existence 18 months after entry into force of the Global Forum Act will automatically be converted into registered shares.
- Bearer shareholders who have not complied with their reporting obligations pursuant to article 697i of the Swiss Code of Obligations and who do not comply with such obligations after the conversion of their bearer shares into registered shares risk the (irreversible) loss of all rights.
- The violation of the beneficial ownership disclosure obligations may result in additional criminal sanctions.
- Members of the board of directors or managing directors who deliberately fail to correctly keep the share register or the register of beneficial owners will be fined.
What it means to you
The Global Forum Act is expected to enter into force on 1 January 2020 and will directly apply to all existing companies. Accordingly, all Swiss stock corporations and limited liability companies and their shareholders potentially have to take action. In order for stock corporation with bearer shares not to be affected by the new regime, the conversion of issued bearer shares into registered shares before 1 January 2020 is advisable.
What you need to do now
- Proactive conversion of existing bearer shares into registered shares in order to preserve the company's ability to act.
- Proactive notification to the competent commercial register authorities in case of an application of a safe harbour rules for bearer shares (listed equity securities or bearer shares issued as intermediated securities).
- Ensure that holders of bearer shares comply with their statutory reporting obligations.
- Ensure that the share register as well as the register of beneficial owners are kept in accordance with the law.
- For lenders: Verify whether any bearer shares are subject to a security interest in existing credit arrangements and initiate work to replace such security with registered shares or other assets.
Abolition of bearer shares
Abolition and obligation to convert into registered shares
After the Global Forum Act has come into force, companies whose equity securities are not listed on a stock exchange and who do not wish to issue their shares as intermediated securities may no longer issue bearer shares. Companies not falling under the exemption regime must convert all bearer shares that have already been issued into registered shares.
If the conversion is not effected within 18 months, i.e., by 1 July 2022 (expected), the existing bearer shares will automatically be converted into registered shares. In this case, the converted shares retain their nominal value, their pay-in ratio and their status with respect to membership and pecuniary rights and remain fully transferable. In the event of a conversion by operation of law, the company must adapt its articles of association to the new circumstances. As long as the relevant amendment has not been made, each application for registration of another amendment to the articles of association will be rejected by the competent commercial register authorities.
After bearer shares have been converted into registered shares, those (former) bearer shareholders who have complied with their reporting obligations pursuant to article 697i of the Swiss Code of Obligations will be entered into the share register.
Exceptions for publicly listed companies and companies with bearer shares taking the form of intermediated securities
Bearer shares remain permissible if any equity securities of the relevant stock corporation are listed on a stock exchange or if the bearer shares take the form of intermediated securities and are deposited with or entered into the main register of an intermediary located in Switzerland and designated by the company. In this case, the company has to inform the competent commercial register authority within 18 months of the entry into force of the Global Forum Act (i.e., by 1 July 2022) that one of these exceptions applies. This fact will subsequently be entered into the commercial register.
Sanctions in case of a violation of the new rules concerning bearer shares
Shareholders who have not complied with their reporting obligation pursuant to article 697i of the Swiss Code of Obligations and who could not be entered in the share register by the Company after the conversion of the bearer shares held by them cannot exercise their membership rights. In addition, any pecuniary rights coming into existence are forfeited as long the relevant notification has not been made.
Remarkably, the new law stipulates that it is no longer possible to make a notification pursuant to article 697i of the Swiss Code of Obligations to the company in order to regain all rights attached to the shares after the conversion into registered shares has taken place: Instead, a (former) bearer shareholder may, within five years of the entry into force of the Global Forum Act, file an application to the competent court for registration into the share register. However, such an application requires the prior consent of the company. It is unclear under which conditions the company must give its consent.
If the application for the registration in question is not filed within the five-year period, the shares concerned will automatically become null and void and are replaced by treasury shares of the company. The board of directors may then freely dispose of these shares.
Shareholders whose shares have become null and void through no fault of their own may claim compensation from the company within a time period of ten years. The prerequisite for such a compensation claim is proof of the ownership of the shares at the time when they have become null and void. The compensation is based on the lower of (i) the effective share value at the time of the conversion and (ii) the value of the shares at the time the claim is asserted. Compensation is always excluded if the company does not have sufficient freely disposable equity to pay the compensation.
Changes to the beneficial ownership disclosure rules
In addition to the new provisions relating to the (limited) abolition of bearer shares, the Global Forum Act introduces some clarifications in connection with the beneficial ownership disclosure rules which have entered into force on 1 July 2015:
- Firstly, it is clarified that a legal entity or partnership holding a relevant stake in a Swiss company must report the natural person who ultimately holds a controlling position within the meaning of article 963 para. 2 of the Swiss Code of Obligations as beneficial owner. If there is no such person, the shareholder must inform the company accordingly.
- Secondly, it is clarified that in all cases a publicly listed company is directly or indirectly holds a relevant stake in a Swiss company, no beneficial ownership notification is required. Instead, the fact that a publicly listed company is a direct or indirect shareholder and the identity of such shareholder (name and registered office of the publicly listed company in question) have to be notified to the company.
- Thirdly, it is specified that changes in the person of the beneficial owner must be reported to the company within three months after the change has occurred. To date, the law has not provided for a deadline in this respect, which has caused some uncertainty.
Sanctions in the event of a violation of the beneficial ownership disclosure obligations or the duties relating to the maintenance of the required shareholders and beneficial ownership registers
So far, the sanctions for a violation of the applicable beneficial ownership disclosure obligations have been limited to the fact that the shareholders could not exercise their membership and pecuniary rights and forfeited the pecuniary rights arising during the period of non-compliance. With the new Global Forum Act, the sanctions regime will change considerably:
- Anyone who intentionally fails to comply with the obligations pursuant to article 697j of the Swiss Code of Obligations or article 790a of the Swiss Code of Obligations to report the beneficial owners of the shares will not only forfeit its property rights, but may also be fined.
- Members of the board of directors or managing directors who deliberately fail to keep the share register or the register of beneficial owners in accordance with the law or who infringe the associated obligations under corporate law may be fined.
- Organisational deficiency proceedings can be initiated against a company that does not keep its share register or register of beneficial owners in accordance with the law. Possible measures which could be taken by the competent court in such a proceeding include the setting of a deadline to restore the lawful status of the company or, in the worst case, the dissolution of the company by court order.