Shareholders’ Rights & Shareholder Activism 2022 Comparisons

The corporation limited by shares (société anonyme (SA)/Aktiengesellschaft (AG)) and the limited liability company (Société à responsabilité limitée (Sàrl)/Gesellschaft mit beschränkter Haftung (GmbH)) are the most common corporate forms in Switzerland. A corporation can be either privately held or publicly listed. Equity quotas issued by a limited liability company (LLC) cannot be publicly traded on an exchange in Switzerland or abroad, so LLCs remain privately held (it is, however, possible to subsequently transform a Swiss LLC into a Swiss corporation).

There are no legal restrictions (such as nationality/residence/status) on who may invest in a Swiss corporation or LLC, bearing in mind that in certain regulated industries, such as banking, the acquisition of a qualifying participation will be subject to regulatory approval; further restrictions may apply to companies whose corporate purpose includes the acquisition of residential real estate.

As its French name implies, the identity of the shareholders of a Swiss corporation is not a matter of public record (with the exception of shareholders who hold a qualifying participation in a publicly listed corporation). On the other hand, a shareholding in a Swiss LLC is a matter of public record, as is any subsequent transfer (the conditions of such transfer are not publicly recorded, however).

Foreign investors usually use the form of the corporation limited by shares, as it offers a familiar governance structure, with a board of directors that focuses on strategy, governance and control and usually delegates the day-to-day management to the senior officers of the company. The shares issued by a corporation limited by shares are more easily transferable (and can be listed) and less subject to potential transfer restrictions. With appropriate provisions in the articles of association of a Swiss LLC, it is possible to essentially mimic the structure of a corporation limited by shares, but these shares cannot be publicly listed.

The corporate organisation of Swiss LLCs can be simpler than that of a corporation, so Swiss LLCs are often the preferred corporate form for wholly owned Swiss subsidiaries of foreign conglomerates.

Corporations

A Swiss corporation may issue registered shares or bearer shares. However, for bearer shares to be validly issued, the issuing corporation must be publicly listed or the shares must be issued as intermediated securities (ie, book-entry securities). Bearer shares in physical form (bearer share certificates) are no longer permitted under Swiss law. Registered shares in certificated form remain common in Switzerland for privately held corporations.

A Swiss corporation may issue common shares, preferred shares, participation certificates and/or profit-sharing certificates. The type of shares issued and the rights attached to such shares are set out in the articles of association of the issuing corporation.

Common Shares

Ordinary shares have voting rights and financial rights (dividend and liquidation right) that are proportional to their par value. Unless the articles of association of the issuing corporation provide otherwise, shares issued are common shares.

Preferred Shares

Preferred shares are common shares with voting rights and/or financial rights that have been altered through specific provisions set forth in the articles of association of the corporation.

Shares with Preferred Voting Rights

A Swiss corporation may issue shares with preferred voting rights by issuing classes of shares with different par values and providing in its articles of association that voting rights are no longer proportional to the par value of the shares but exercised on a "one share, one vote" basis. The class of shares with the lowest par value will then be considered a share with a preferred voting right compared to the other classes of shares with a higher par value since, for the same investment, purchasing shares with the lower par value will yield more shares (and therefore more voting rights) than purchasing shares with a higher par value. The par value of the shares with the highest par value may not exceed ten times the par value of the class of shares with the lowest par value.

Shares with a preferred voting right are used in privately and publicly held companies by founders and/or historical shareholders to maintain a controlling stake in terms of voting rights, despite retaining only a minority stake in terms of financial rights.

Shares with Preferred Financial Rights

A Swiss corporation may issue shares with preferred financial rights, such as a preferred right on dividend or on liquidation proceeds. Other types of preference rights (such as a preferred right of subscription of future shares issuance) are possible but less common.

The dividend or liquidation preference right attached to a specific class of shares will be set out in the articles of association of the corporation. Such preference right may be limited in time or limited to a maximum amount, after which the preference right lapses. It is also possible to provide that, once the preferred right of dividend/liquidation proceeds has been satisfied, the preferred shares are entitled to no further dividend or, on the contrary, to a pro rata share of any additional dividend.

Depending on how the dividend/liquidation preferred right is drafted, the preferred shares may have a lower economic value than common shares, although it is not possible to issue a class of shares with no dividend or liquidation right.

Participation Certificates

Participation certificates are sometimes referred to as "non-voting shares" because, like shares, they have a par value and are an integral part of the stated capital of the corporation. However, unlike shares, the holders of participation certificates have no voting rights and, unless the articles of association provide otherwise, do not have any of the social rights attached to shares (such as the right to attend the shareholders' meeting, and the right to ask questions and obtain information).

The corporation can issue different classes of participation certificates with preferred rights of dividend and/or liquidation on the condition that the least favoured class of participation certificates has financial rights that are as favourable as the financial rights attached to the least favoured class of shares.

Profit-Sharing Certificates

Profit-sharing certificates have no par value and do not form part of the stated capital of the company. The rights and privileges attached to profit-sharing certificates are set out in the articles of association and are limited to the right to a share of the dividend or liquidation proceeds, or a right of preferred subscription in a future share issuance.

LLCs

An LLC can only issue registered equity quotas. The equity quotas issued by an LLC have a par value (minimum CHF100).

An LLC can issue different classes of equity quotas and profit-sharing certificates (but not participation certificates). The rights and privileges attached to such quotas or certificates will be set out in the articles of association of the LLC.

The main rights common to all shareholders are the right to:

• participate in the shareholders' meeting and vote their shares;
• receive a share of dividend or liquidation proceeds; and
• subscribe to any future issuance of shares.

These rights may be varied through the company's articles of association, by resolution of the shareholders' meeting or by agreement among the shareholders, but they may never be entirely eliminated.

An agreement among shareholders of a publicly held company could result in such shareholders being considered as acting in concert, and the shares held by such shareholders will then be aggregated for the purpose of complying with disclosure requirements relating to qualifying participations. With respect to a Swiss corporation listed in Switzerland, a group of shareholders acting in concert would be required to disclose its participation when it acquires or disposes of shares resulting in such participation to reach, exceed or fall below 3%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50% or 66.66% of the voting rights.

The minimum stated capital of a corporation is CHF100, and the minimum par value of a share of capital is CHF0.01. Shares issued by a corporation must have a stated par value expressed in Swiss francs, and the minimum par value is CHF0.01.

The minimum stated capital of an LLC is CHF20,000, and the minimum par value of an equity quota is CHF100.

Once the modernised Swiss corporate law enters into force on 1 January 2023, corporations and LLCs will be allowed to denominate their shares/equity quotas in a foreign currency (GBP, EUR, USD, JPY) and the minimum par value will be abrogated, with the only requirement being that the par value of the share or equity quota is greater than zero.

The minimum number of shareholders for a corporation or an LLC is one, and there is no requirement for such shareholder to be resident in Switzerland.

Shareholders' agreements are very common in privately held companies and can even be considered a necessity for any minority shareholder who wants to exercise a measure of control over the company or desires to be represented on the board of directors of the company.

Shareholders’ agreements will typically contain provisions regarding:

• the governance of the company (composition of the board of directors, decisions of the board or the shareholders’ meeting requiring a qualified majority or subject to veto rights of certain investors);
• the control of the shareholding (right of pre-emption, tag-along, drag-along);
• anti-dilution provisions;
• subsequent financing rounds;
• dividend policy; and
• exit provisions (put/call or other type of liquidity event).

The usual provisions of confidentiality, applicable law and choice of jurisdiction/arbitration would also be included in the shareholders’ agreement.

Shareholders' agreements are enforceable under Swiss law among the parties thereto but are not enforceable against third parties.

An agreement among shareholders of a privately held company does not have to be publicly disclosed and is typically subject to confidentiality provisions.

Corporations and LLCs have to hold an annual general meeting every year within six months of the end of their business year (which is often aligned with the calendar year).

The AGM is summoned by the board of directors of the company, giving the shareholders no less than 20 calendar days' prior written notice. The 20 calendar days’ notice cannot be shortened but if all shareholders are present (universal meeting), an AGM can be validly held without having to comply with the 20 days' notice or the legal requirements for a valid summons.

Both ordinary and extraordinary shareholders' meetings are summoned by the board of directors of the company, giving the shareholders no less than 20 calendar days' prior written notice. Such notice has to include:

• the date, time and location of the meeting;
• the items for resolution on which the shareholders will be requested to vote; and
• the recommendation of the board of directors on such items.

The acceptable form of summons will be specified in the articles of association of the company (registered letter, publication in newspaper, electronic means). The 20 calendar days’ notice cannot be shortened but if all shareholders are present (universal meeting), a shareholders’ meeting can be validly held without having to comply with the 20 days' notice or the legal requirements for a valid summons.

In principle, general meetings are called by the board of directors. Shareholders who hold shares representing 10% or more of the stated capital of the company or having an aggregate par value of at least CHF1 million can request the board of directors to summon a shareholders' meeting and/or to add an item to the agenda of the meeting. Once the modernised Swiss corporate law enters into force on 1 January 2023, these rights will be changed as follows.

• The 10% threshold to summon a shareholders’ meeting will be reduced to 5% for publicly listed companies; the threshold for privately held companies will remain unchanged at 10%. It must be noted that certain Swiss publicly listed companies have already adopted articles that provide for a lower threshold than the 10% mandated by law to summon a meeting or to add an item to the agenda.
• The 10% threshold to add an item to the agenda of the shareholders' meeting will be reduced to 0.5% for publicly listed companies and to 5% for privately held companies.
• The percentage thresholds can be met in share capital or voting rights.

The acceptable form of summons is specified in the articles of association of the company (registered letter, publication in newspaper, electronic means). If the company has opted for an individualised form of summons (registered letter or electronic means), all shareholders are entitled to receive such summons.

Until the modernised Swiss corporate law enters into force on 1 January 2023, a shareholder in a privately held company has no access to the company's documents and records, unless a resolution of the shareholders' meeting has expressly authorised such shareholder to do so, and may only request information from, or ask questions of, the board of directors at the shareholders' meeting. Currently, the only documents that a shareholder is entitled to receive on a yearly basis are:

• the audited accounts of the company;
• the management report of the board of directors; and
• the audit report of the auditors.

Once the modernised Swiss corporate law enters into force on 1 January 2023, shareholders representing 5% of the share capital or of the voting rights shall have the right to consult the company's documents and records upon request to the board of directors. The board of directors of the company is required to grant such access within four months of such request to the extent it is necessary for the shareholders to exercise their rights and to the extent the information requested does not put in jeopardy the business secrets of the company or any other worthy interests of the company. The board of directors is required to inform the shareholders in writing of the reason why the requested access is denied or restricted. The shareholders may then challenge the decision of the board of directors in court within 30 days of being notified of such decision.

In addition, shareholders in privately held companies representing at least 10% of the stated capital or of the voting rights will have the right to ask written questions of, or request information from, the board of directors outside of the shareholders' meeting. The board of directors will have four months to answer the question or provide the requested information, or explain in writing why it refuses to provide the requested information or answer. The shareholders will then have 30 days to challenge such response in court if they are not satisfied with it.

In publicly listed companies, the information that has to be disclosed is much more extensive and includes the following:

• the annual report;
• the semi-annual report;
• the annual compensation report;
• the annual corporate governance report; and
• ad hoc publicity (ie, information that may have an impact on the share price).

Once the modernised Swiss corporate law enters into force on 1 January 2023, electronic shareholders' meetings will be possible and physical meetings in Switzerland will no longer be mandatory, provided the board of directors can ensure that:

• the identity of the participating shareholders can be verified;
• the participating shareholders can participate live and interact with other participants; and
• the results of the votes cannot be falsified.

Unless the articles of association provide for a quorum, there is no quorum requirement under Swiss law; the majority or qualified majority are always counted on the basis of the shares validly represented at the shareholders' meeting.

Currently, the only type of shareholders' resolution possible for a corporation is a resolution passed at a physical general meeting duly summoned; written resolutions are not permitted. Once the modernised Swiss corporate law enters into force on 1 January 2023, electronic and written shareholder resolutions will also be possible, unless a shareholder requires a physical meeting to be held. This will facilitate the corporate housekeeping of wholly owned subsidiaries of international groups (written resolutions are already possible for LLCs).

The Swiss Code of Obligations (CO) provides that the following resolutions belong to the shareholders and may not be delegated to, or exercised by, another corporate body:

• adopting and amending the articles of association;
• any alteration of the share capital (increase, decrease, conditional capital, authorised capital, splitting or reunion of shares, creation of preferred shares);
• electing the members of the board of directors and the auditors;
• approving the annual report and the yearly financial statements;
• approving any distribution of dividends;
• approving the liability discharge of the members of the board of directors;
• dissolution and liquidation of the company;
• merger of the company with, or into, another corporation; and
• conversion of the company into another legal entity.

Once the modernised Swiss corporate law enters into force on 1 January 2023, the following additional resolutions will belong to the shareholders' meeting:

• approving an interim dividend and related interim financial accounts; and
• approving the reimbursement to the shareholders of the capital contribution reserve.

The following additional resolutions apply to publicly listed companies only:

• approving the delisting of the shares of the company;
• electing the chairman of the board of directors;
• electing the members of the remuneration committee;
• electing an independent representative for the shareholders; and
• deciding on the compensation of the board of directors, the management and the advisory board.

Generally, a shareholders' resolution requires an absolute majority of the shares present or represented at the shareholders' meeting. An abstention is counted as a negative vote, unless the articles provide that the required majority is computed based on the votes cast (yes or no). Once the modernised Swiss corporate law enters into force on 1 January 2023, an absolute majority will no longer be required and an abstention will no longer be counted as a negative vote.

As an exception, the following resolutions require a qualified majority of two thirds of the voting rights attributed to the shares present or represented and the absolute majority of the par value of the shares present or represented:

• any amendment to the corporate purposes of the company;
• the creation of shares with voting privileges;
• any restriction to the transferability of shares;
• the creation of conditional or authorised capital;
• any increase of the share capital:
1. through incorporation of reserves;
2. in consideration for asset contributions;
3. for the purpose of acquiring specific assets; or
4. where special benefits are granted;
• any limitation to, or removal of, the shareholders' right of preferred subscription;
• the transfer of the registered seat of the company;
• the dissolution and/or liquidation of the company; and
• the merger of the company.

Once the modernised Swiss corporate law enters into force on 1 January 2023, the following additional resolutions will belong to the shareholders' meeting and will also require the same qualified majority:

• the consolidation of shares (except when unanimous consent is required by law);
• the creation of conditional capital, the institution of a capital fluctuation margin or the constitution of reserve capital;
• the conversion of participation certificates into shares;
• the change in currency of the share capital;
• the grant of a casting vote to the chairman of the board of directors;
• the introduction of a provision in the articles of association allowing for the holding of the shareholders' meeting outside Switzerland;
• the waiver of the appointment of an independent representative in connection with the holding of an electronic shareholders' meeting in privately held companies;
• the approval of the delisting of the shares of the company; and
• the introduction of an arbitration clause in the articles of association.       

At a duly convened shareholders' meeting, shareholders may vote either in person or through a proxy of their choice. Once the modernised Swiss corporate law enters into force on 1 January 2023, proxy voting at the shareholders' meeting will be more restrictive. For publicly listed companies, an institutional proxy granted to a governing officer of the company or to a depositary bank is no longer permitted. If the company allows the shareholders to grant a proxy to an independent representative or (for a privately held company) to a governing officer of the company or a depositary bank, such proxy has to vote in accordance with the specific instructions of the shareholder. In the absence of such instructions, the proxy will abstain and may no longer vote in favour on the recommendations of the board of directors of the company. In private companies, voting is often conducted by a show of hands, while an electronic poll is preferred for publicly held companies.

Shareholders who hold shares representing 10% or more of the stated capital of the company or having an aggregate par value of at least CHF1 million can request the board of directors to summon a shareholders' meeting and/or to add an item to the agenda of the meeting. Once the modernised Swiss corporate law enters into force on 1 January 2023, these rights will be changed as follows.

• The 10% threshold to summon a shareholders’ meeting will be reduced to 5% for publicly listed companies; the threshold for privately held companies will remain unchanged at 10%. It must be noted that certain Swiss publicly listed companies have already adopted articles that provide for a lower threshold than the 10% mandated by law to summon a meeting or to add an item to the agenda.
• The 10% threshold to add an item to the agenda of the shareholders' meeting will be reduced to 0.5% for publicly listed companies and to 5% for privately held companies.

Shareholders can challenge any resolutions passed by the shareholders' meeting that are null and void, at any time.

Resolutions passed by the shareholders' meeting that are voidable may be challenged by any shareholder who has not voted in favour of such resolution within two months from the passing of the resolution. In order to have standing, the shareholder contesting the resolution must still be a shareholder at the time they initiate court proceedings. If the contesting shareholder prevails, the resolution of the shareholders' meeting will be rescinded and such rescission will be binding on the company and all its shareholders.

Under Swiss corporate law, a shareholders' resolution is null and void if:

• it eliminates or restricts the rights of shareholders or directors derived from mandatory provisions of the law, such as the right to attend the shareholders' meeting or the right to vote the shares;
• it places more restrictions on the rights of the shareholders or of the directors to control the company than is permitted by law; or
• it disregards the fundamental structure of the company or violates the provisions protecting the stated capital of the company.

A shareholders' resolution is merely voidable if:

• it eliminates or restricts the rights of a shareholder in violation of the law or the articles of association;
• it eliminates or restricts the rights of a shareholder without proper reason;
• it favours, or discriminates against, a shareholder in a manner that is not justified by the company's purpose (equal treatment of shareholders); or
• it turns the company into a not-for-profit organisation without the unanimous consent of the shareholders.

Please refer to 2.7 Types of Resolutions and Thresholds.       

The members of the board of directors are appointed and revoked by a shareholders' resolution requiring the absolute majority of the shares present or represented at the shareholders' meeting. Individual shareholders do not have any right to participate in the management of the company, nor to be appointed to its board of directors.

An individual shareholder does not have any right to request or obtain the dismissal of any director. The proposal to dismiss a director can be added to the agenda of any shareholders' meeting by shareholders who hold the required minimum shareholding, as explained in 2.10 Shareholders' Rights Relating to the Business of a Meeting.

A shareholder can only challenge resolutions of the board of directors that are null and void, such as:

• any resolution that eliminates or limits the rights of shareholders or directors derived from mandatory provisions of the law, such as the right to attend the shareholders' meeting or the right to vote the shares;
• any resolution that places more restrictions on the rights of the shareholders or of the directors to control the company than is permitted by law; and
• any resolution that disregards the fundamental structure of the company or violates the provisions protecting the stated capital of the company.

Resolutions of the board that are null and void can be challenged in court by any shareholder, regardless of the number of shares they hold.

The company's auditors are appointed and revoked by a shareholders' resolution requiring the absolute majority of the shares present or represented at the shareholders' meeting. An individual shareholder does not have any right to request or obtain the dismissal of the company's auditor. The proposal to dismiss and replace the company's auditors can be added to the agenda of any shareholders' meeting by shareholders who hold the required minimum shareholding, as explained in 2.10 Shareholders' Rights Relating to the Business of a Meeting.

With respect to a Swiss LLC, shareholding is a matter of public record as shareholders are registered with the Commercial Register.

With respect to a privately held Swiss corporation, there is no requirement for the shareholders to publicly disclose their shareholding in such corporation, but supervisory authorities in certain regulated industries (such as banking or securities trading) have to be notified when shareholders acquire or dispose of a certain qualifying shareholding. That said, shareholders are required to disclose the ultimate beneficial owners to the company if their shareholding reaches or exceeds the threshold of 25% of the share capital or voting rights.

With respect to a Swiss corporation listed in Switzerland, a shareholder would be required to disclose its participation when it acquires or disposes of shares resulting in a participation that reaches, exceeds or falls below 3%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50% or 66.66% of the voting rights.

Shareholders of a corporation have the right to grant a security interest over their shares. In a corporation, the grant of such security interest would not be subject to the consent of the company unless the articles provide for transfer restrictions, in which case the consent of the board of directors would be required to ensure that the secured creditor is in a position to fully enforce its pledge. It is usual in secured lending transactions for secured lenders to request that transfer restrictions on shares be removed from the articles as a condition to extend a loan to a shareholder. Shareholders' agreements also frequently restrict the ability of the parties to pledge their shares in the company.

Creating and perfecting a security interest over the shares of a corporation depends on how such shares have been issued. If the shares have been issued as book-entry securities, a written pledge agreement between the pledgor and the pledgee will be required, as well as a control agreement between the pledgor, the pledgee and the bank that maintains the securities account where the pledged shares are deposited. If the shares are certificated, a written pledge agreement and the physical delivery to the pledgee of the share certificates (usually endorsed in blank by the pledgor) will be required. If the shares are uncertificated, only a written pledge agreement is required but, in practice, a secured lender will usually require that uncertificated shares be certificated and delivered to the lender as a condition to extending credit to the shareholder.

In an LLC, the articles can prohibit the grant of a security interest over the shares or submit such grant to the consent of the board of managers of the LLC or of the shareholders' meeting.

The disposal of shares in a corporation depends on whether the shares have been issued as book-entry securities or as certificated or uncertificated shares. If the shares have been issued as book-entry securities, they are transferred from a seller to the acquirer through the banking system by transfer from one securities account to another. If the shares have been issued as uncertificated shares, the transfer thereof is by way of a written assignment executed by the transferor and the transferee. If the shares have been issued as certificated shares, the transfer thereof is by physical delivery to the acquirer of the share certificates duly endorsed by the transferor.

If the articles of the corporation provide for transfer restrictions (or if the shares are not fully paid-up), then the actual transfer of ownership of the shares to the transferee requires the board of directors to approve such transfer. The articles of association would typically provide for specific grounds for the company to refuse the proposed transfer (eg, prohibition of transfer to a competitor). If there is a ground to refuse the transfer, the board of directors can refuse its consent and the contemplated transfer will not proceed. If none of the specific grounds to refuse the transfer exists, then the company can only prevent the transfer by purchasing the shares itself at fair market value.

In a privately held company, the shareholders' agreement would typically cover the modalities of a transfer of shares in detail by providing a right of pre-emption, tag-along and drag-along provisions or other mechanisms to control the shareholding, such as put/call options and exit mechanisms. The articles of association of privately held corporations sometimes provide for a right of pre-emption in favour of the shareholders in the event of transfer. The validity and enforceability of such provisions are, however, disputed and such provision in the articles is therefore not an adequate substitute for a well-drafted pre-emption clause in a shareholders' agreement.

The distribution of dividends requires a shareholders’ resolution. Unless the articles of the company provide otherwise, such resolution requires only an absolute majority of the voting rights present or represented at the meeting. Dividends can only be distributed out of the profits of the company or from reserves accumulated from such purpose.

It is currently not possible for a company to distribute as dividend profit generated in the current financial exercise, as dividends can only be distributed on the basis of an audited balance sheet. However, once the modernised Swiss corporate law enters into force on 1 January 2023, it will be possible for a company to distribute profits generated in the current financial year, provided the company prepares audited interim accounts for such purpose.

Unless a shareholder is also a creditor of the company, they have very limited rights in the event of the company becoming insolvent. Shareholders are entitled to their pro rata share of liquidation proceeds but, being junior to all the company's creditors, such share usually amounts to nothing in an insolvency scenario. Derivative actions initiated by shareholders against the directors of the company for breach of fiduciary duties owed to the corporation before an insolvency will be placed under the control of the bankruptcy estate.

Under Swiss corporate law, shareholders have no cause of action directly against the company itself but only causes of action against the company's corporate bodies (members of the board of directors, senior officers and auditors).

Shareholders can challenge any resolutions passed by the shareholders' meeting that are null and void, at any time.

Resolutions passed by the shareholders' meeting that are voidable may be challenged by any shareholder who has not voted in favour of such resolution within two months from the passing of the resolution. In order to have standing, the shareholder contesting the resolution must still be a shareholder at the time they initiate court proceedings. If the contesting shareholder prevails, the resolution of the shareholders' meeting will be rescinded and such rescission will be binding on the company and all its shareholders.

Under Swiss corporate law, a shareholders' resolution is null and void if:

• it eliminates or restricts the rights of shareholders or directors derived from mandatory provisions of the law, such as the right to attend the shareholders' meeting or the right to vote the shares;
• it places more restrictions on the rights of the shareholders or of the directors to control the company than is permitted by law; or
• it disregards the fundamental structure of the company or violates the provisions protecting the stated capital of the company.

A shareholders' resolution is merely voidable if:

• it eliminates or restricts the rights of a shareholder in violation of the law or the articles of association;
• it eliminates or restricts the rights of a shareholder without proper reason;
• it favours, or discriminates against, a shareholder in a manner that is not justified by the company's purpose (equal treatment of shareholders); or
• it turns the company into a not-for-profit organisation without the unanimous consent of the shareholders.

The directors of the company are liable to the company and the shareholders for any losses or damages resulting from a breach of their fiduciary duties. If such breach only results in a damage or loss to the company, then a shareholder can only bring a legal action for the indemnification of the company (derivative action). If a shareholder incurred a direct loss or damage as opposed to indirect damage (resulting from the loss or damage suffered by the company) as a result of the breach of the director's fiduciary duties, then such shareholder can bring a legal action against the breaching director and seek direct indemnification of their damage. The claimant will have to prove:

• the breach of the director's fiduciary duties;
• the damage suffered by the company or the shareholder;
• the natural and equitable causation between the breach of fiduciary duties and the damage; and
• that the breach is the result of a wilful action or negligence of the director.

If the breach of fiduciary duties has been established, this last condition will almost always be satisfied, barring extraordinary circumstances.

Any auditor that breaches its fiduciary duties in connection with the yearly audit of the company's financial statement or group consolidated financial statements, the incorporation of the company or any subsequent share capital increase or reduction (where the auditor may have a role to play, depending on the circumstances) may be held liable for the damage caused to the company, wilfully or by negligence.

Both the company and any shareholder (regardless of the percentage of shareholding) have standing to sue the auditor to indemnify the company for the damages incurred. If the claimant prevails, damages will be awarded to the company even if the claim was brought by a shareholder.

There is no legislative act specifically dedicated to, or regulating, shareholder activism in Switzerland. The main regulatory and legislative provisions that are relevant to shareholders' activism are as follows.

• For privately held corporations or LLCs, the primary source of law and regulation relevant to shareholders' rights is the CO.
• For publicly held corporations, the primary sources are:
1. the CO (Articles 620 and following);
2. the Swiss Financial Market Infrastructure Act (FMIA) and its two implementing ordinances – the Swiss Financial Market Infrastructure Ordinance (FMIO), issued by the Federal Council, and the Swiss Financial Market Infrastructure, issued by the Swiss Financial Market Supervisory Authority (FMIO-FINMA);
3. the Ordinance Against Excessive Compensation in Listed Companies (OAEC), issued by the Swiss Federal Council, which will eventually be incorporated into the CO once the modernised Swiss corporate law enters into force on 1 January 2023;
4. the Swiss Merger Act, as it provides certain derivative actions to shareholders in merger situations; and
5. the Listing Rules issued by the Swiss Stock Exchange (SIX) (including associated regulations such as the rules on ad hoc publicity or the reporting of management transactions).

The key aims of activist shareholders in Switzerland are no different from the aims of activist shareholders in other countries:

• to improve governance and accountability of the board;
• to unlock inefficiencies;
• to promote value creation; or
• to advocate for social and environmental causes.

Initial Steps for Activist Shareholders

Activist shareholders typically pursue a strategy of incremental steps, steadily building pressure until the desired results are achieved. Because the more aggressive steps available to an activist shareholder require very significant resources to yield results, it is rare for activist shareholders resort to such steps ab initio, unless the circumstances leave them no other choice (eg, in a takeover situation or merger/divestment announcement).

The first step for activist shareholders normally is to acquire shares in the targeted company, as it gives them the right to be invited to, and participate in, its shareholders' meeting. Unless they acquire more than 3% of the share capital of the targeted company, they would not have to publicly disclose their share ownership.

Activist shareholders would then typically engage in a private dialogue with the targeted company to advocate their views and encourage the targeted company to act accordingly. This dialogue is permitted by Swiss law (conversely, there is no obligation to engage in such dialogue) but, in so doing, the target company has to be careful not to breach the principle of equal treatment of shareholders and its duties regarding the non-disclosure of insider information.

Further Methods in a Campaign

If this private dialogue with the targeted company is not productive, activist shareholders may ramp up their efforts by acquiring more shares to reach the 3% threshold at which their shareholding will become public, or to reach a threshold where they can make a proposal to the agenda of the shareholders' meeting. As this legal threshold will be reduced from 10% to 0.5% once the revised Swiss corporate law enters into force on 1 January 2023, an increase in shareholder activism is expected, even though certain Swiss listed companies have already reduced this threshold in their articles of association.

Bringing the activist shareholders' campaign to the attention of the other shareholders of the targeted company is not always an easy feat as the share register of the targeted company is not a public document and mandatory public disclosure is only required from shareholders who reach or exceed 3%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50% and 66.66%. Consequently, the use of traditional media, social media and dedicated websites is a necessity to reach out to the other shareholders, and obviously requires a significant investment in order to be effective.

Reaching out to shareholders ahead of the meeting is key for a successful campaign. As most shareholders will be represented by proxy, and proxy holders are bound by the instructions received, the result of the shareholders' vote is usually preordained and the intervention of an activist shareholder during the meeting will only have a very limited impact when most shareholders vote by proxy.

At the shareholders' meeting, activist shareholders can ask questions of the board of directors and the auditors, as explained in 2.4 Information and Documents Relating to the Meeting regarding access to documents and information.

The most aggressive steps that activist shareholders can take are to challenge the resolutions of the shareholders' meeting in court or to sue the directors for breach of their fiduciary duties (see 7.1 Remedies Against the Company and 7.2 Remedies Against the Directors on these two options). Obviously, these are measures of last resort, given the time, effort and financial investments required for litigation.

There are no particular industries/sectors in Switzerland that have been especially targeted by activist shareholders.

Activist shareholders appear to respond to perceived red flags, regardless of sectors, industries or company size, such as:

• poor financial performance or stock trading at a discount to peer companies;
• operational struggles affecting the competitive position of the company relative to its peers (eg, weak pipeline products, underperforming divisions or subsidiaries);
• lack of innovation or difficulties in integrating recent acquisitions;
• a large reserve of cash, low dividend policy, no share buy-back strategy; or
• a long-tenured board or a board with too many members, lacking diversity or with too few independent members.

The more prominent activist shareholders in Switzerland are typically hedge funds such as Third Point or Cevian Capital. The Ethos Foundation (a Swiss foundation governing more than 200 private and public pension funds) plays a significant role in Switzerland to promote socially responsible investment and best practices in corporate governance.

There are no statistics available regarding the success rate of shareholder activist campaigns in Switzerland, but there is no denying that such campaigns have an impact on the governance and strategies of the targeted companies.

As no listed company likes to be put under pressure by activist shareholders, the best strategy is to anticipate, by assessing whether the company presents obvious red flags that may attract activist shareholders, by adopting measures to counteract/minimise such red flags, and by having a strategy in place for when the activist shareholders come knocking on the door.

Certain structural measures can be contemplated to make activist campaigns more difficult, such as a quorum requirement, qualified majority and voting rights limitations, but such measures come with a price: if investors view these as an effort to entrench the management or the board and insulate them from accountability, this may have a negative effect on the share price compared to peers and consequently encourage rather than discourage shareholder activism.

When facing an active campaign, the responses of the targeted companies include announcing the following:

• changes in their corporate governance, including board and management compensation and incentives;
• changes in their corporate or commercial strategy (divestiture of non-core business, refocus on core activities); and
• a share buy-back programme or improved dividend policy.