Revised Corporate Law to Facilitate Accounts in Non-Swiss Currencies and Interim Dividends

On 19 June 2020, the Swiss Parliament, after a lengthy legislative process, adopted a bill on a comprehensive corporate law reform that, inter alia, permits a share capital denominated in certain non-Swiss currencies and introduces the option for interim dividends and distributions. Both of these aspects are of particular importance for multi-national groups with subsidiaries located in Switzerland. In the following, we take a closer look into each of these two new Swiss corporate law features and address the respective requirements, consequences and potential need for action.

By Patrick Schärli / Patrick Sattler (Reference: CapLaw-2020-57)

1) Share Capital Denominated in a Non-Swiss Currency

a) Legal Regime Currently in Force

Under the corporate law currently in force, the share capital of corporations or the quota capital of limited liability companies1 must be denominated and registered in the Commercial Register in Swiss francs (CHF). Likewise, other capital-related provisions refer to CHF as well. This concerns, for example, the creation of capital reserves, approval of financial statements, resolution on the appropriation of retained earnings (including the amount of any dividends and other distributions), distribution of share premium and insolvency-related aspects such as the determination of a capital loss or over-indebtedness. As a result, even though the Swiss accounting laws already today allow a company to keep records and prepare the accounts in the functional non-Swiss currency, CHF continues to be the relevant currency for all of the above-mentioned corporate law matters. Swiss companies were thus required to have at least a parallel accounting in CHF in addition to their accounts in a non-Swiss functional currency. This inefficiency particular in the context of Swiss subsidiaries of multi-national corporate groups is now addressed in the context of the recent Swiss corporate law reform.

b) Establishing a Company with a Share Capital Denominated in a
Non-Swiss Currency

The revised corporate law follows a liberal and cost-saving approach to resolve the inconsistencies with the current accounting law. In particular, the share capital of corporations or limited liability companies can now be denominated in a non-Swiss currency, provided such non-Swiss currency is also the company’s functional currency (i.e., the one of the company’s primary economic environment) and declared eligible by the Federal Council (article 621 (2) CO2). The relevant currency will also have to be reflected in the company’s articles of incorporation in addition to the total amount of the share capital (article 626 (1) (3) CO). If the articles of incorporation also provide for participation capital (consisting of non-voting shares), such participation capital must be denominated in the same currency as the share capital in order to prevent different parts of the equity capital being denominated in different currencies (article 656a (1) CO).

The minimum amount of the share capital denominated in a non-Swiss currency must be equivalent to at least CHF 100,000 in the case of corporations – or CHF 20,000 in the case of limited liability companies – at the time of the company’s establishment. Thereafter, a company may only reduce its share capital below these thresholds if it simultaneously replaces it by a capital amount equivalent to the respective threshold in CHF at the time of the simultaneous increase (article 653j (3) CO).

The minimum share capital must be distinguished from the minimum capital contribution to be paid in by the shareholder(s). In the case of corporations, such contribution shall amount to at least 20% of the nominal value per share or CHF 50,000 in each case (article 632 CO). With respect to limited liability companies, the minimum share capital needs to be paid in full. Thus, if the share capital of corporations is denominated in a non-Swiss currency, the minimum capital contribution denominated in a non-Swiss currency must be equivalent to at least CHF 50,000 (article 632 (2) CO). In this respect, the revised corporate law also clarifies the possibility already accepted by the Commercial Register to pay in capital contributions not only in the currency of the share capital, but also in other currencies freely convertible into the share capital even if the share capital is denominated in CHF. Considering the clearly diverging wording of article 633 (3) CO, we take the view that such freely convertible currency does not need to be a currency declared eligible by the Federal Council as required for the denomination of the share capital.

Note that the contribution in other currencies freely convertible into the share capital is considered a genuine cash contribution, and not a contribution in kind. In terms of currency conversion, things may become slightly more complicated if the share capital is denominated in the functional non-Swiss currency and the capital contribution is paid in yet another non-Swiss currency. In this case, the founders will eventually have to apply two exchange rates for determining the above thresholds. In addition, it is advisable to inform the bank providing the capital deposits account accordingly so that the bank may include both exchange rates in the confirmation.

If the share capital is denominated in a non-Swiss currency and/or shareholder contributions are paid in a currency other than that of the share capital, the actual daily exchange rate(s) must be included in the public deed regarding the incorporation of the relevant company (article 629 (3) CO). Considering this provision and the corresponding legislative materials, the date of establishment on which the equivalence to CHF is fixed corresponds to the date of the public deed (i.e., the date of the constitutive meeting held by the founders). Thereafter, currency fluctuations eventually leading to a shortfall in the minimum share capital or minimum capital contributions by the time of the effectiveness of the incorporation (which is the publication in the Swiss Official Gazette of Commerce) should not affect the valid incorporation. It should be noted, however, that currency fluctuations might still occur between the date the capital contribution is deposited with a bank (article 633 CO) and the date of the public deed. Thus, the shareholder contribution should include an appropriate financial cushion to weather any currency fluctuations during that period.

Once fixed in the public deed, the competent Commercial Register lacks the authority to examine the capital coverage or the correctness of the exchange rate applied at the time of entry in the Commercial Register. It only has to verify whether the public deed includes the exchange rate and the minimum capital threshold is met by applying the exchange rate stated in the public deed. The legislative materials suggest, however, that the competent Commercial Register has to intervene as a backstop if an obviously incorrect exchange rate was applied.

c) Currency Change for Already Established Companies

The revised corporate law also allows already established companies to change the denomination into the functional non-Swiss currency. In order to do so, the shareholder meeting must approve the change with a qualified quorum of at least two-thirds of the votes represented and the majority of the aggregate nominal value of the shares represented (article 704 (1) (9) CO). The change in currency will have to take effect as of the beginning of a financial year. Following approval by the shareholders, the board of directors shall amend the articles of incorporation, determine that the above-mentioned requirements are fulfilled (i.e., that it is the functional and eligible currency and that the capital requirements are met) and state the exchange rate applied (article 621 (3) CO). The respective resolutions of both the shareholder meeting and the board of directors require notarization by a notary public. Again, we take the view that the date of the public deed marks the time after which currency fluctuations eventually leading to a shortfall in the minimum share capital or minimum capital contributions should not affect the validity of the relevant resolutions. In instances other than those described above (i.e., the company’s establishment, capital reduction or change of currency) and given the lack of specific rules requiring ongoing compliance with minimum capital levels, we take the view that a company is not required to increase its share capital up to the minimum threshold solely because intermediate currency fluctuations lead
to a shortfall.

d) Consequences of a Share Capital Denominated in a Non-Swiss Currency

There are several consequences if a company chooses to have a share capital denominated in an eligible non-Swiss currency. First, the company will have to keep records and prepare the accounts in the non-Swiss currency as otherwise the difficulties and expenses would remain. Thus, it is not permissible, for example, to have a share capital in USD but to keep accounts and render accounts in CHF. Second, the company may determine all capital-related aspects in the chosen non-Swiss currency. This results in basically full coherence between corporate law and accounting law. Third, although taxes continue to be levied in CHF, the companies may simply apply the rule of three: the taxable net profit and equity must be converted into CHF by applying the average exchange rate (sale) of the tax period.

If a company identifies potential efficiency gains of having a share capital denominated in an eligible non-Swiss currency – which might be the case for subsidiaries of multi-national groups located in Switzerland – the board of directors or the shareholder(s) may propose to the shareholder meeting to change the currency in accordance with the statutory provisions and articles of incorporation. The board of directors should be aware, however, that if a shareholder meeting resolves to change the currency, any previous resolution on the so-called “capital band” – an authorization of the board of directors for a maximum of five years to increase and reduce the share capital within an upper and lower limit – is nullified (article 653v (1) CO). The board of directors will have to amend the articles of incorporation accordingly and cancel the capital band. Hence, any such proposal to the shareholder meeting should include provisions on how to deal with any previously existing capital authorizations in order to avoid any unpleasant surprises.

2) Interim Dividends

a) Legal Regime Currently in Force

The corporate law currently in force does not contain any specific provisions on interim dividends, i.e., dividends distributed during a financial year out of the earnings of the current year and not based on financial statements of a closed financial year. Therefore, the question as to whether interim dividends are permitted, and if so, in which form, has been controversially debated, with the majority taking the view that genuine interim dividends are not permitted under the corporate law currently in force. This despite businesses clearly expressing the need to allow interim dividends, in particular for the purpose of intra-group redistribution of liquidity and companies whose (non-Swiss) shareholders are used to quarterly dividends.

Legal practice developed certain mechanisms that try to mimic “genuine” interim dividends. First, a company could decide at a later date to use free reserves and/or retained earnings created in previous, closed financial years (so-called extraordinary dividends). Second, a company could distribute “dividends on account” (i.e., an advance payment of future dividends). Legally speaking, such a dividend is a loan that is offset against the dividend paid out at a later stage. Third, a company could reduce its capital in a staggered way. However, all of these mechanisms are subject to various legal problems and, thus, do not fully correspond with the concept of a genuine
interim dividend.

b) Permissibility of Interim Dividends under the Revised Corporate Law

Under the revised corporate law, interim dividends are now expressly permitted, provided interim financial statements have been prepared. It is not necessary to include specific provisions on interim dividends in the articles of incorporation. The interim financial statements provide the board of directors with the necessary information including current and reliable figures on the course of business, so that the board of directors is in a position to decide whether to propose to the shareholder meeting a distribution of an interim dividend in line with its duty of care (article 717 CO). The shareholder meeting approves the interim financial statements, if necessary, and resolves on the distribution of interim dividends (article 698 (2) (5) CO). For the sake of clarity, the revised corporate law does not prevent the annual shareholder meeting to resolve on dividend distributions based on already approved financial statements (extraordinary dividends). As explained above, such distributions are not genuine interim dividends, but rather staggered distributions from the balance sheet profit of previous
financial years.

The interim financial statements need to be audited for reasons of creditor protection, unless the company lawfully waived the requirement for a limited audit (opting out) or if all shareholders approve the distribution of the dividend despite no audit having been conducted and the creditors’ claims are not jeopardized by such dividend (article 675a CO). The second exemption (i.e., if all shareholders approve the distribution) should simplify intra-group distributions by a wholly-owned Swiss subsidiary, though it remains to be seen how legal doctrine and requirements will develop with respect to the criteria of “no jeopardy to creditors’ claims”. In this respect, the revised corporate law does not provide any further guidance as to when creditors’ claims should be regarded as jeopardized. In practice, the board of directors will have to determine whether the creditors’ claims are not jeopardized in compliance with its duty of care and subject to any potentially discharging approval by the shareholder meeting.

In sum, the revised corporate law mainly facilitates interim dividends to be distributed intra-group by subsidiaries subject to audit obligations, which do not have free capital reserves or retained earnings from previous financial years (which could be distributed via extraordinary dividends), but generated additional profits outside the ordinary course of business, so that the auditor can efficiently examine the respective proposal of the board of directors.

If interim financial statements need to be prepared, simplifications or shortenings are permitted if they do not impair the presentation of the course of business (article 960f (2) CO). As a minimum, the heading and subtotals of the last financial statements need to be disclosed. Furthermore, the notes must contain the purpose of the interim financial statements, the simplifications and shortenings (including any changes to the accounting principles), and other factors that had a material effect on the economic situation of the company during the reporting period, especially with regard to seasonality.

For all other aspects, the provisions on “regular” dividends apply (article 675a (3) CO). In particular, if a company fails to provide the shareholder meeting with an audit report, any resolutions of the shareholder meeting on the distribution of interim dividends are void (article 731 (3) CO). If a shareholder nevertheless receives dividends based on an underlying resolution that is void, the shareholder will be subject to a refund obligation (article 678 (1) CO).

3) Entry into Force / Transitional Period

The Federal Council will decide when the revised corporate law becomes effective. Entry into effect by 1 January 2022 appears probable, but an earlier date is not excluded. The transitional rules include an adjustment period of two years to make the necessary amendments to the articles of incorporation and regulations.

Patrick Schärli (
Patrick Sattler (

1  Unless stated otherwise, the explanations concerning corporations analogously apply to limited liability companies (cf. article 773 (2) CO). Also, as used herein, the term “share capital” addresses both the share capital of a corporation as well as the quota capital of a limited liability company.

2 Unless stated otherwise, the articles refer to the revised legal text of the Code of Obligations (CO) as adopted by the Swiss Parliament.