On 1 November 2019, Switzerland amended the Swiss Criminal Code and the Swiss Code of Obligations to abolish the use of bearer shares (with two exceptions: 1. the company is listed on a stock exchange or 2. if the shares are issued as intermediated securities held by a Swiss custodian). The alternative are registered shares with a clearly identified owner.
A bearer share is an unregistered interest in stock where ownership is based solely on possession of a physical certificate, making it useful for tax evaders and players in the black market. Switzerland made the decision to abolish bearer shares based on the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum Act) on 21 June 2019. It’s important to understand how the abolition is being phased in, as board members and shareholders can face criminal sanctions for not following the proper procedures for converting bearer shares to registered shares.
Learn why it is important to consult with a Swiss corporate lawyer that specializes in entity administration to ensure that your shares are properly converted.
1. Bearer Shares Must Be Converted To Registered Shares
The Swiss Code requires every corporation that currently holds bearer shares to convert them to registered shares that identify the stockholders by 30 April 2021. It’s important to plan for this in advance because the conversion needs to be done during a shareholders’ meeting. The process requires amending the company’s articles of association to reflect that it no longer holds bearer shares. These amendments must then be filed with the commercial registry. Companies that failed to take action to convert bearer shares before 30 August 2021 will be subject to automatic conversion of those shares. In such cases, the value and preference rights of those shares will remain the same as long as the shareholders are identified.
2. Consequences For Shareholders That Refuse To Be Identified
The company is required to record the shareholders that have identified themselves. Shareholders that refuse to do so will lose their right to receive dividends and voting rights. The Board of Directors has a fiduciary duty to ensure that no shareholders that are not properly identified in the shareholder’s register are allowed to exercise these rights and that the shareholder register properly reflects that the shareholders have failed to comply. Shareholders whose bearer shares were automatically converted have until 31 October 2024 to make a request before a judge to be registered as shareholders. If the judge approves the request, they can receive full rights as registered shareholders. After the grace period expires, these shareholders will no longer have a claim to voting rights or dividends and the shares will be converted by treasury shares. Since criminal penalties can arise from errors in these procedures, it’s prudent to consult with a Swiss corporate lawyer that specializes in statutory compliance to ensure that all the conversion procedures are accomplished properly.
3. Liability For Improper Cancellation of Shares
When shares are cancelled improperly, shareholders are entitled to make a claim for compensation for the value of the shares at the date of conversion. Of course, the compensation can only be obtained if the company has sufficient equity. If you’re a shareholder that believes that your shares have been improperly converted, please talk to us about making a claim for compensation.
In case you require assistance with converting your bearer shares into registered shares, or if you wish to update your share register, please contact us for support.