Ban on transfer of shares in shell companies and restriction of opting out - what you need to consider now

1. Shell companies: New provisions in the CO and the HRegV

The new provisions in the Swiss Code of Obligations (CO) and the Commercial Register Ordinance (HRegV) are based on a case law of the Swiss Federal Supreme Court dating back to 1929, which considers shell trading to be unlawful respectively null and void. Even though the case law has been increasingly criticised in recent legal doctrine, it is now to be codified. The Federal Council and Parliament consider this step to be a necessary measure against "organised corporate funeral".

At the level of the Swiss Code of Obligations, the new provisions on shell companies are concise (Art. 684a revCO):

• The transfer of shares (Aktien or Stammanteile) in a corporation (Aktiengesellschaft) or limited liability company (GmbH) is null and void if such company (i) has no business activities and (ii) no realisable assets anymore and (iii) is overindebted.
• If the commercial register office has reasonable grounds to suspect such a transfer of shares in connection with an application, it will request the company to submit its current (and, if applicable, audited) annual financial statements. If the company does not comply with the request or if the annual financial statements confirm the suspicion, the commercial register office will refuse the registration that is applied for.

At the level of the HRegV, it is then specified that a suspicion of a void transfer of shares in a shell company arises in particular if:

• several registered facts (the purpose, the registered office, the company name or the members of the board of directors) are changed simultaneously or successively;
• the company has the same legal domicile as a company that has already been refused registration on the basis of the new provisions; or
• persons transferring or acquiring shares have already been involved in a transfer that led to such a refusal of registration.

a) The requirements for a void transfer of shares in shell companies in detail

The new statutory provision (art. 684a revCO) sets out three criteria that must be met for a shell company:

• The company no longer has any business activities: The doctrine states that even the management of the company's own assets can constitute a business activity. It is also emphasised that the law requires that there is no longer any business activity.
• The company no longer has any realisable assets: Some scholars argue that even liquid assets (cash) are to be regarded as realisable assets - and therefore a company with exclusively liquid assets is not a shell company. On the other hand, other scholars are more closely orientated towards the above-mentioned case law of the Swiss Federal Supreme Court. They require that the company in question must (also) have assets other than cash and loans to related parties in order not to qualify as a shell company. In addition, it is again emphasised that there must no longer be any realisable assets.
• The company is overindebted: This criterion was added by Parliament and is not found to the same extent in the historical precedents. In particular, this criterion is not part of the previous case law on shell companies.

If these above requirements are met, the law provides for the nullity of the transfer of shares in such a shell company. There are no further requirements for nullity. In particular, no acquisition of control is required. Consequently, it can be assumed that the transfer of a single share in a shell company is already affected by such nullity. The form of transfer (singular or universal succession) is also likely to be irrelevant. Nevertheless, there are certain opinions in legal doctrine according to which transfer by operation of law (e.g. by inheritance) are excluded from the new ban on transfers of shares in shell companies.

b) Codification of the ban transfer of shares in shell companies - indirect legalisation of shelf companies?

In legal doctrine, a distinction is made between shell companies in the narrower sense and so-called shelf companies. In contrast to shell companies, which fully fulfil the above criteria, shelf companies are "shell companies" that were founded "on stock" and "put on the shelf" and have never commenced any actual business activity (apart from managing the paid-up capital). Shelf companies are regularly used in other jurisdictions, for example, for the rapid procurement of a special purpose vehicle (SPV, such as an acquisition company).

Based on the criticism of the case law of the Swiss Federal Supreme Court, it is argued that the strict legal regulation should be limited to shell companies in the narrower sense and that shelf companies are not covered thereby. From the fact that the previous criteria have been included in the law (and that over-indebtedness is now also required), some authors conclude that shelf companies are now legitimised.

The argument is coherent and worth supporting from a practical point of view. However, as long as a clear practice has not yet developed in dealing with the new provisions in the CO and the HRegV, caution is still required when using shelf companies.

c) Enforcement of the ban on transfer in shares in shell companies by the commercial register offices - an ineffective tool?

As can be seen from the description of the new regulations, the legislator and regulator are hoping for control by the commercial register offices. In our opinion, however, this mechanism is largely unsuitable. We will discuss why we have come to this conclusion and other complex issues raised by the new legal provisions in a separate publication.

2. Possibility of an opting out - now only prospective starting from the coming financial year

In addition to codifying the ban on transfer of shares in shell companies, the possibility of opting out (i.e., to waive the limited audit) is now restricted (Art. 727a para 2 revCO): Such a waiver of the limited audit is only possible as from the next financial year (and no longer retroactively as from the current financial year). It is also required that the waiver be submitted for registration before the start of the coming financial year (registration can occur after the start of the relevant financial year). In a first step, only the remark that an opting out has been resolved is registered. After the annual shareholders' meeting has been held, at which the audited annual financial statements for the past financial year are approved, a second commercial register application is required to arrange for the cancellation of the previous auditors. In other words: If a company wishes to waive the limited audit as from the 2026 financial year, this waiver must be submitted by 31 December 2025. The auditors can then only be deregistered in 2026 after the annual general meeting for the 2025 financial year has been held.

To register the waiver, a declaration must be submitted stating that (i) the company does not fulfil the requirements for an ordinary audit, (ii) the company does not have more than ten full-time employees on an annual average and (iii) all shareholders waive the right to a limited audit. The statutory provisions expressly mention that the annual financial statements for the last financial year must be submitted to the commercial register office. In the HRegV, the supporting documents to be submitted are also listed more clearly than before, namely in addition to the most recent annual financial statements:

• the minutes concerning the approval of the annual financial statements;
• where applicable, the related audit report; and
• the waiver by all shareholders or the relevant minutes of the shareholders' meeting.

From the fact that the submission of the most recent annual financial statements is already required at the statutory level, one could be inclined to infer that opting out is now possible at the earliest after the end of one financial year after incorporation. In our opinion, however, this provision (which was only included during the parliamentary deliberations) is only relevant with regard to opting out in the case of an existing company, but should not exclude an opting out upon a company's incorporation. The Federal Council's explanatory notes as well as the HRegV and the Swiss federal commercial register office's practice statement also clearly state that opting out should still be possible when a company is incorporated.

Finally, the revision extends the possibility for commercial register offices to request a renewal of the waiver: While the HRegV previously only mentioned this possibility ("may request a renewal of the declaration"), the commercial register offices are now required to make such a request if:

• it appears that the conditions for opting out are no longer met; or
• the cantonal tax authorities notify the commercial register office that the company in question has not submitted annual financial statements (the tax authorities are now obliged to do so).

If the company does not comply with the request of the commercial register office, the matter is referred to the court.

We find it questionable that the failure to submit the annual financial statements to the tax authorities is equated with the appearance that the requirements for opting out are no longer met. The annual financial statements are not a prerequisite for an opting out, but merely a document that must be enclosed with the corresponding declaration when applying for the registration of an opting out.

3. Individual searches for persons via the internet

To date, it has been possible to search for legal entities via the "zefix" platform. It is now planned to also enable searches for individuals who are registered in the ‘central database of persons’, which contains the persons entered in the commercial register (e.g., as members of the board of directors or authorised signatories). The AHV number of the relevant persons will not be visible. This number is used as an identification number in the database but is not publicly accessible. Accordingly, it cannot be used as a search criterion.

The person search will make it possible to find out in which legal entity and with which function a particular person was or is registered. The search results will cover entries in all Cantonal registers and not be limited to just one particular Canton.

In line with the general intention behind the Federal Act on Combating Abusive Bankruptcy, the legislator hopes that this new tool will have a deterrent effect on persons who deliberately and repeatedly bring about bankruptcy proceedings. From our point of view, however, the main advantage is likely to be the ability to conduct general searches to uncover personal links between different legal entities, for example in the early stages of contract negotiations. For these purposes, the option of conducting a person search does indeed bring practical advantages.