id est avocats – 4th may 2016 – for discussion purposes only
Checklist for Shareholders’ Agreement
This document contains an illustrative list of provisions typically included in agreementsbetween shareholders of Swiss stockcompanies ("sociétés anonyme" / “Aktiengesellschaft”). It contains only general comments and does not purport to be comprehensive nor exhaustive. Its main purpose is to help (potential) shareholders decide the main points of their agreement to facilitate its drafting and negotiation.
General Information
N°. / Required information / Information / Documents to be provided / Comments1. / Company name and address / []
2. / Share capital / []
3. / Number of shareholders and respective shares (incl. par value) / []
4. / Not fully paid up shares / [] / Please provide information on not fully paid up shares (relevant shareholders, paid up quota, etc.), if any.
5. / Articles of Association / Date (if already in force): [] / Please provide the latest version of the Articles of Association, if there are several versions.
6. / General description of the business and objectives of the company / []
Organization and Management
The organs of a Swiss SA are the Shareholders’ Meeting, the Board of Directors and the Auditors, if any. By default, the company is managed jointly by all the Members of the Board. However, the Articles of Association may allow a different management structure, such as the delegation of certain management powers to certain Members of the Board or to Managers (CEO, COO, CFO, etc.).The Shareholders’ Agreement will usually govern (i) the delegation of management responsibilities to certain Members of the Board and/or; (ii) Managers; (iii) theappointment of the Chairman of the Board (casting vote or not); (iv) notice for Shareholders’ andBoardmeetings and circulation of agenda; (v) quorum for such meetings; (vi) procedures for the adjournment of board meetings; (vii) circulation and approval of minutes.
Certain aspects in particular with regards to the delegation of management responsibilities [cf. (i) and (ii) above] may be further specified in Organizational Rules.
If the Shareholders have equal holdings, the right to appoint the Chairman of the Board may be rotated regularly amongst the shareholders. If one of the Shareholders holds a majority then that Shareholder may be entitled to appoint the Chairman of the Board. However, there are many different options which allow addressing a variety of different situations (e.g. the Founders’ right to cast the Chairman, etc.).
A quorum may require the presence of a certain number of Shareholders or Members of the Board appointed by each of the Shareholders, failing which the meeting will be adjourned or certain important decisions specified in the Shareholders’ Agreement may not be taken.
The arrangements for the approval of reserved matters is a mechanism which provides minority Shareholders with protection and influence over certain key decisions of the company, or in a consortium of equal shareholdings that one Shareholder cannot be outvoted by the others (cf. below).
Shareholders’ Meeting7. / Powers of the Shareholders’ Meeting / Particular duties and powers assigned to the Shareholders’ Meeting according to the Articles of Association, if any:[] / As a principle, any duties and powers that are not reserved by the law to the Shareholders’ Meeting (inalienable powers set forth in 698 para. 2 CO), are within the responsibility of the Board (716 para. 1 CO; cf. below).
In addition, the Articles of Association may attribute further powers to the Shareholders’ Meeting, subject to the inalienable powers of the Board set forth in 716a para. 1 CO.
8. / Voting rights / Particular regulations with regard to voting rights, if any:[] / According to the law (692 CO), voting rights are according to the par value of each shareholder’s shares, whereas each shareholder has at least one vote, by default. However, the Articles of Association may provide (i) for restrictions of the voting rights of certain shares (692 para.2 CO) or (ii) that each share has one vote (693 para. 1 CO), if the par value of the smallest share is at least 1/10 of the other shares (693 para. 2 CO), subject to restrictions with regard to certain topics (693 para. 3 CO).
9. / Important resolutions / Important resolutions and respective applicable quorum/qualified majority, if any:
[; usually none] / In general, resolutions are adopted by absolute majority of voting rights represented at the meeting.
Certain important resolutions listed in Article 704 CO are subject to a two thirds majority of the voting rightsrepresented at the meeting and the absolute majority of all voting rights. The Articles of Association and/or the Shareholders’ Agreement may provide for additional important resolutions subject to a quorum and/or qualified majority.
10. / Casting vote / [] / The law does not address the issue of the casting vote for decisions of the Shareholders’ Meeting (an issue of particular importance for companies with a limited circle of shareholders).
The Articles of Association may provide that the chairman of the meeting (usually the Chairman of the Board) has a casting vote in case of a tie.
Board of Directors / Senior Management / Management may be independent or undertaken by one of the shareholders.
For independent management, the Board of Directors will approve key positions (unless otherwise provided in the Shareholders' Agreement) and those people will become permanent employees of the company.
If management is undertaken by one of the Shareholders there will be a separate management / employment agreement to regulate the position.
11. / Appointment of the Members of the Board / [] / Please specify the Members of the Board and the Chairman, respectively the mode of appointment.
If there are different classes of shares, each group of shareholders’ within one class must be represented in the Board of Directors by at least one Board Member (709 para. 1 CO).
If there is more than one Member of the Board, by default, the Board appoints its Chairman.However, the Articles of Association may provide for the appointment of the Chairman of the Board by the Shareholders’ Meeting.
12. / Senior Management / [] / Please specify if any Managers (CEO, etc.) are to be appointed and, if this is the case, the mode of appointment (this may also be addressed or specified in Organizational Rules).
Please note that management powers may only be delegated if foreseen in the Articles of Association (716 para. 1 CO).
13. / Resolutions / casting vote / Particular regulations with regard to the casting of resolutions by the Board of Directors, if any:
[●] / By default, resolutions are taken by the majority of votes.If there is no stipulation to the contrary in the Articles of Association, the Chairman has a casting vote in case of a tie.
The Articles of Association may provide for a different mode for the casting of resolutions (i.e. exclusion of the Chairman’s casting vote, quorum and/or qualified majority, etc.).
14. / Important resolutions / [●; e.g.
(a)any acquisition of a business or any part thereof (whether a share or asset transaction);
(b)the sale, disposal or transfer of all or substantially all of the company's business (as defined in the Shareholders Agreement) and/or assets;
(c)the proposal by the Board to the shareholders to approve a transfer of the company's shares where the transfer of shares results in the acquirer holding, directly or indirectly, more than [number]% of the then issued share capital or voting rights in the company;
(d)the entering into any joint venture or partnership or any profit sharing agreement (other than routine arrangements wholly within the ordinary course of business);
(e)any investment, capital expenditure, sale of assets, incurrence of debt or any contract obligation by the company in excess of CHF[amount] (whether by a single transaction or a series of related transactions) unless such expenditure has been specifically provided for in the budget and Business Plan (in each case as defined in the Shareholders’ Agreement); / Certain important resolutions may be subject to a different voting mode / majority.
(f)the execution of any agreement providing for obligations in excess of CHF[amount] (whether by a single transaction or a series of related transactions), save as specifically set forth in the Budget and Business Plan;
(g)the appointment and removal of the company's CEO and all other members of the Management;
(h)the approval of the Budget and Business Plan, and any change thereto;
(i)the creation of any security interests upon any part of the company's property or assets in any form whatsoever exceeding CHF[amount] in aggregate (whether by a single transaction or by a series of related transactions) save as set forth in the Budget and Business Plan;
(j)any related-party transactions or arrangements including variations thereof;
(k)any transactions or arrangements other than on arm's-length terms and/or in the ordinary course of business;
(l)the approval and amendment of any share option plan and option and/or share grants to the Management[, except as set forth in the company's ESOP (if any)];
(m)any material change in accounting policies or principles save with the prior approval of the company's auditors;
(n)any purchase by the company of any of its own shares or the exercise of a right of first refusal in combination with the designation of a third party acquirer;
(o)any proposed transfer of Shares.]
15. / Resolutions subject to approval by the Shareholders’ Meeting / Matters that must be submitted to the Shareholders’ Meeting for consultation, if any:
[; cf. above]
Matters that may be submitted to the Shareholders’ Meeting for consultation, if any:
[; cf. above] / Responsibilities of the Board may not be delegated to the Shareholders’ Meeting. However, certain matters may be submitted to the Shareholders’ Meeting for consultation, in order to mitigate the risk of subsequent liability claims of Shareholders against Members of the Board.
Representation of the company towards third parties
16. / Representation of the company towards third parties / Particular regulations with regard to the representation of the company, if any:
[; in general, we recommend joint signatory powers by two for all Members of the Board and the CEO, if applicable] / Specify signatory powers of theMembers of the Board and, if applicable, theSenior Managers.
This may also be further specified in organizational regulations.
Non-compete
17. / Covenants not to compete / exceptions / Regulations with regard to the duty of allegiance:
[]
[e.g. non-compete for 1-3 years as of the exit from the company for, limitation to a certain territory (Switzerland/UE) and/or specific activities] / Members of the Board and, if applicable, third parties with management powers (717 para. 1 CO) have a general duty of allegiance. Such duty may be further specified in the Shareholders’ Agreement (e.g. non-compete).
In addition, the Shareholders’ Agreement may impose such duties to shareholders which are not Members of the Board and have no management powers.
Please note that the provisions of the Shareholders’ Agreement are only applicable to its parties. If a Member of the Board / Manager is not a party to the Shareholders’ Agreement, such obligations would need to be stipulated elsewhere (e.g. employment agreement).
18. / Penalty / []
[e.g. one year’s salary] / A penalty in case of violation of the non-compete obligations may be provided, in order to facilitate its execution.
Transfer restrictions
In a Swiss stock company,shares are transferable with no restriction, by default (subject to not fully paid-up shares; 685 CO). The Articles of Association may however provide for transfer restrictions on shares, within the limits of the law (685a et seq CO).
In addition,the Shareholders' Agreement may complement and specify the legal regime or provide for exceptions, for example with the following regulations: (i) no transfer for a defined period (lockup); (ii) transfer to a third party subject to a right of first refusal/offer in favor of the other Shareholders and to approval of the third party by the other Shareholders; (iii) no pledging, mortgaging, or otherwise encumbering the shares; (iv) no granting options over the shares.
Transfer is usually permitted to other parties to the Shareholders' Agreement or to affiliates (for as long as they remain affiliates) of a Shareholder.
The restriction of transfer clauses evidence the commitment of the parties to the company/operation/project, yet provides for an organized exit from the venture if this is required by one of the parties. Excessive restrictions are prohibited under Swiss law.
Approval of the third party by the other shareholders may be subject to certain parameters such as the third party’s ability to fulfill the financial obligations of the shareholders and the third party agreeing to be bound by the terms of the Shareholders' Agreement. The shareholders should not be bound to approve the sale to a third party if it would result in an event of default in a third party financing agreement.
In addition to the transfer restrictions, please note that, as of 1 July 2015, privately held Swiss stock companies must:
-Identify the holders of all bearer shares (as of the first share held) in a bearer share register;
-Identify the ultimate beneficial owner (alone or acting in concert with third parties) of 25% of the company’s share capital or voting rights (bearer and/or registered shares) in a register of beneficial owners.
The acquirer (in the first case) respectively the direct holder of shares (in the second case) must notify the company within one month following the purchase/achievement of the threshold.
Both new types of registers (to date, only a register of the holders of registered shares was to be held), including related documents, must be available in Switzerland at any time and be retained by the company for a term of 10 years.
The new shareholder is barred from exercising any membership or financial rights with respect to the relevant shares until the reporting obligations have been complied with. The financial rights are deemed forfeited if holders do not comply with their obligations within the prescribed period.
For companies existing on 1 July 2015, holders of bearer shares must report their shareholdings at the time of entry into force of the new law as well as ultimate beneficial ownership (if the threshold of 25% is reached or exceeded) to the respective stock company within six months from the date of entry into force 31 December 2015. This deadline does not apply to holders of registered shares. The obligation to report the ultimate beneficial owner(s) for these shares is only triggered by a future purchase of shares as a result of which the respective shareholding reaches or exceeds the 25% threshold.
19. / Share transfers / Particular regulations with regard to the transfer of shares, if any:[] / Cf. above.
20. / Encumbrances / Particular regulations with regard to the encumbrance of shares, if any:
[] / Cf. above.
Exit Mechanisms
The following is a list of possible exit mechanisms usually included in Shareholders' Agreements.
Right of first offer – If a shareholder wishes to sell its interest, the shareholder must first offer to sell the interest to the other shareholders. If the other shareholders do not acquire the interest, then the shareholder may sell the interest to a third party on terms no more favourable than those offered to the other shareholders. There will be a time limit within which the interest must be sold to the third party after which the interest must again be offered to the other shareholders. The other shareholders will have the right to approve the third party purchaser, such approval not to be unreasonably withheld.
Right of first refusal – If a Shareholder secures a third party offer, the other Shareholders must be given full details of the offer (including the name of the third party) and a right of first refusal at the same price and on the same terms and conditions as the third party offer. If the other Shareholders do not accept the offer, then the shareholder may go ahead and sell the interest to the third party on the agreed terms and conditions within a set time period.
Tag along rights – Instead of buying the shares through a right of first offer or a right of first refusal, the non-disposing Shareholders may elect to sell their shares to the third party as well. If the third party is not able to buy the total number of shares offered then the Shareholders’ Agreement may provide (1) that it buys those shares that it can from all of the Shareholders offering their shares for sale, pro rata to their existing shareholdings or (2) that the sale cannot go ahead.
Drag along rights – Where one Shareholder finds a buyer for its shares, if it has drag along rights, it can require the other Shareholders to sell their shares as well.
Stock exchange listing – If a disposing shareholder fails to sell its shares by way of the right of first offer or right of first refusal within a specified time period, then the disposing shareholder may be entitled to give notice that it requires the company to obtain a stock exchange listing.
Call option – A call option is an option to buy shares from another party. Typically a Shareholder wishing to exit would grant an option to the other Shareholders wishing to increase their interests in the business. The option would be to buy a specified number of shares at a fixed price, or according to a specified formula, within a given time period.
Put option – A put option is an option to sell shares to another party. The Shareholder wishing to exit would be granted an option to sell its shares to the other Shareholders. The option would be to sell a specified number of shares at a fixed price, or according to a specified formula, within a given time period.
There may be restrictions on the number of shares that can be sold at any one time using any of the above exit mechanisms.In terms of a right of first offer, if a Shareholder wishes to sell its interest, the Shareholder offers the shares to the other Shareholders before approaching any third parties. Under a right of first refusal, the disposing Shareholder first has to line up a third party before approaching the other Shareholders. The latter is a more onerous procedure for the disposing Shareholder and may deter some third parties from entering into negotiations for the interest.
The advantage of having a tag along right is that it allows a non-disposing shareholder the opportunity to exit the business if desired. Tag along rights make the sale process potentially much more onerous for the disposing Shareholder and the third party.
Options are typically used where the original seller of the shares has sold a significant interest in the business (which is usually when the Shareholders' Agreement is entered into) and wishes to exit from its remaining minority stake over time. There may be a period within which a call option is exercisable and if it is not exercised then a period when a put option is exercisable.The option price may be determined with reference to stock exchange prices if the shares are listed, by independent valuation or according to a formula such as a multiple of EBIT or EBITDA.