Transparency of legal persons and disclosure of shareholdings
The entry into force of the Swiss Federal Act on the Implementation of the Recommendations of the Financial Action Task Force or FATF (loi fédérale sur la mise en œuvre des recommandations du Groupe d’action financière, GAFI), these having been revised in 2012, entails significant changes to the requirements for keeping registers of shares in Swiss corporations (sociétés anonymes) not listed on the Stock Exchange and in Swiss limited liability companies (sociétés à responsabilité limitée). This new law also introduces the requirement to keep a list of beneficial owners and a duty of disclosure by holders of shares and/or participating interests. A thorough knowledge of these new rules is essential for professionals (including business lawyers, notaries, accounting and tax consultancy service providers, financial intermediaries, etc.) so that they can provide their clients with the best possible advice.
Our firm THEVOZ Attorneys will shortly be organising a seminar that specifically addresses the matter of putting these new legal provisions into practice. Should you be interested, you can register now to receive your invitation for the seminar in due course.
During its review of Swiss legislation in 2005, the Financial Action Task Force or FATF (Groupe d’action financière, GAFI) brought to light certain shortcomings in respect of the transparency of legal persons. Further to this, in 2012, Switzerland approved 40 revised recommendations issued by the FATF introducing, inter alia, measures on the transparency of companies not listed on the Stock Exchange and issuing bearer shares, with a view to identifying their beneficial owners.
In order to comply with FATF standards and implement those of the Global Forum on Transparency and Exchange of Information for Tax Purposes, which also require beneficial owners of bearer shares to be identified, the Swiss Parliament passed the Swiss Federal Act on the Implementation of the Recommendations of the Financial Action Task Force (FATF), on 12th December 2014. This law led to changes that entered into force on July the 1st 2015 under the Swiss Code of Obligations or CO (Code des Obligations, CO) in relation to holding bearer shares. Since then, a duty of disclosure by holders of bearer shares in companies not listed on the Stock Exchange, along with a duty of disclosure incumbent on beneficial owners of shares or participating interests above a certain threshold, has also been integrated into Swiss law.
The new rules are mainly to be found in articles 697i to 697m of the Swiss Code of Obligations. The new rules provide primarily for the following changes :
- Persons acquiring bearer shares from a company must disclose their identity to the latter within one month of said acquisition, giving their first and surname or company name, along with their address. They must also prove their possession of the relevant bearer shares and identify themselves by means of an official identification document for natural persons or an excerpt from the Trade Register for legal persons. They are obliged to notify the company of any future changes to their (company) name or address.
- If a shareholder, whether acting alone or in concert with a third party, holds more than 25% of a company’s share capital or voting rights, they must disclose the identity of the beneficial owner of such shares to the company (art. 697i and 697j CO). ‘Beneficial owner’ means that the natural person ‘for whom they are ultimately acting’ (Swiss Federal Gazette, Feuille Fédérale, 2014 585, 639) can only be a natural person. Should the beneficial owner or any of their contact details change, the company must be notified accordingly. It is important to note that this duty of disclosure not only applies to holders of bearer shares but also, where their interests reach or exceed 25% of the relevant company’s share capital, to holders of registered shares or shares in a Swiss limited liability company (société à responsabilité limitée) (art. 697j and art. 790a CO);
- The shareholders’ general meeting for the company may resolve that the aforementioned disclosures shall not be made to the company itself but to a financial intermediary as defined by the Swiss Anti-Money Laundering Act or AMLA (loi sur la lutte contre le blanchiment d’argent, LBA). Under these circumstances, the board of directors shall be entitled to appoint said intermediary and must inform the shareholders of their identity accordingly (art. 697k CO);
- The conversion of bearer shares into registered shares is provided for under article 704a of the Swiss Code of Obligations. Even if a company’s articles of association provide for another quorum, such conversions shall henceforth only require the majority of votes cast at the shareholders’ general meeting to be passed. It should also be noted that it is no longer necessary for the articles of association to expressly provide for the possibility of converting registered shares into bearer shares (art. 627 chap. 7 CO having been repealed);
- For bearer securities issued in the form of intermediated securities, a custodian must be appointed by the company and be able to access the information collected by the financial intermediary, who will already have identified the holder (art. 23a of the Swiss Federal Act on Intermediated Securities or FISA, loi fédérale sur les titres intermédiés, LTI);
- Companies whose capital includes bearer shares must now keep a register of shares along with a list of those beneficial owners whose identities have been disclosed to them. Both the register of shares and the list of beneficial owners must include the surname, first name, company name and address of the relevant persons. The register of shares must also include the nationality and date of birth of the respective shareholders (art. 697l CO);
- At least one board director or executive officer domiciled in Switzerland must be able to represent the company and have access to the register and list of beneficial owners. These must be kept for ten years and in such a way that they may be accessed in Switzerland at any time (art. 718 para. 4 CO and 747 CO);
- Failure to comply with their duties of disclosure may lead to very serious consequences for shareholders. Their ability to exercise their participatory or pecuniary rights may be forfeited. It should be noted that the board of directors must ensure that no shareholder exercises any such rights whilst in breach of their respective duty of disclosure. It should be noted that resolutions of the shareholders’ general meeting that fail to comply with the relevant provisions- these new requirements included- may be subject to annulment (art. 706 CO).
- The transitional provisions provide that companies shall have a period of two years in which to bring their articles and bylaws into line as necessary. Persons holding bearer shares as of the date on which the new law enters into force shall be granted a period of six months in which to disclose their shareholdings in case of acquisition (697i CO and 697j CO). It is also important to note that, as far as holders of registered shares or participating interests are concerned, they have no formal duty of disclosure in relation to the shares they already held as of the date on which the new law enters into force.
The above highlights the need for shareholders to develop a full understanding of the new rules in order to avoid losing their rights and to make the required disclosures within the time limits prescribed by law. As for company directors, these should take the necessary steps to prevent shareholders who have failed to comply with their duties of disclosure from exercising their participatory and pecuniary rights.
Furthermore, the law provides for the following two changes (non-exhaustive list) :
- Religious and family foundations must henceforth be entered in the Trade Register. Existing foundations will be granted a period of five years as of 1st July 2015 to complete this registration (52 para. 2 of the Swiss Civil Code, Code Civil, final provisions, art. 6 para. 2);
- Co-operatives must now keep a list of their partners (art. 837 CO).
Annex : the Swiss Federal Act of 12 December 2014 on the Implementation of the Recommendations of the Financial Action Task Force or FATF (loi fédérale sur la mise en œuvre des recommandations du Groupe d’action financière, GAFI), revised in 2012