Impact of the revised share corpora-tion law on Swiss Verein structure

25 November 2024

According to different public sources, the number of Vereine (associations) in Switzerland exceeds 100'000. The Federal Office for Statistics assessed that about 55% of Swiss residents aged16 and above participate actively or passively in a Verein, mostly for recreational purposes. The Verein is used for a wide variety of reasons, mostly because it gives a broad scope of organizational set-up possibilities. However, the Swiss Verein is also regularly used in an international context, serving as a governance structure for a group of (professional services) companies, in professional sports or music or as umbrella organization for non-profit organizations.

A Verein can come in a variety of sizes and with many different governance forms and is therefore well suited to serve the needs of small local groups and of very large (international) organizations.

The basic rules for the Verein are found in articles 60 et seq. of the Swiss Civil Code ("CC"). However, the Swiss legislator has extended the applicability of provisions primarily applicable to share corporations also to the Verein (and foundations) in the last few decades. One example being the thresholds for a mandatory audit.

By now, the revised Swiss corporate law is almost two years old. In recent years, many books, articles and commentaries were written on this major revision for Swiss companies and much experience was gathered over that time regarding the practical application of the new rules. However, the main focus were the legal entities regulated in the Swiss Code of Obligations ("CO"). Yet, also the Verein can and partially must use the revised corporate law as a cheat sheet for its own corporate and financial governance. Especially the broad new rules on virtual, hybrid and written form for the conduct of a general meeting provide a good toolbox for a Verein's corporate governance, as well as a legal basis to lean on. In addition, the financial oversight obligations (e.g., Art. 725 seqq. CO) apply to the Verein by reference, thereby sharpening and expanding the oversight obligations of the board ("Vorstand" in case of a Verein). In either case, it makes sense for a Verein to look more closely into the revised CO and its potential impact on the Verein.

Corporate governance in a Verein

When it comes to the conduct of a general meeting, the revised CO now includes rules on

• Hybrid shareholders' meetings;
• Fully virtual shareholders' meetings;
• Shareholders' meetings outside of Switzerland;
• Written resolutions instead of physical meetings; and
• Declaration statements for resolutions by the Vorstand and general meeting (of members in case of a Verein).

Already prior to the revision, declaration statements issued by the Vorstand on either member resolutions or Vorstand resolutions were already widely used and many commercial registers applied a liberal practice in accepting such statements.

For other forms of conducting a meeting, it is recommended to review how the relevant provisions of the CO are applied, especially in regard to technically induced disruptions in the middle of the meeting and the exercise of member rights in a member meeting. Art. 701e CO defines the minimal technical requirements for the conduct of a virtual meeting (identity of members is clear, votes are directly displayed during the meeting, each member can raise an item during the meeting and participate in the discussion and the voting result cannot be falsified).

Therefore, if the Vorstand wishes to hold a general member meeting either in a hybrid format or electronic only, it is the Vorstand's obligation to select an electronic participation tool which allows the Vorstand to identify each of its members beyond doubt. The tool must be able to (i) accept votes, (ii) provide the possibility to all members to comment during the general meeting and (iii) refrain from falsifying any votes and results in the system. Further, should electronic only meetings be introduced in a Verein, the Vorstand must be clear that only if the electronic participation tool works without flaws, the decisions taken in such meeting will be valid. If the electronic participation tool should fail, only resolutions taken until such failure had occurred are considered valid. All other resolutions will need to be retaken. These formal implementation and validity rules also apply to a hybrid meeting with a physical meeting place and electronic participation possibilities.

While there is no mandatory application of these rules (Art. 701 to 701f CO) to a Verein, it is helpful to use these rules as a framework for the validity of a virtual meeting of members. Further, unless an explicit reference is included in the articles of association of the Verein, only a physical meeting is a valid general meeting of members. For a Verein that wishes to include additional means to convene a general meeting, but has not yet the necessary basis in its articles of association, it can be helpful to review the articles of association of companies which decided to adjust their articles under the revised CO before updating its own articles of association.

Take home message: If a Verein wishes to gain more flexibility for its corporate governance, it is reasonable to update the articles of association to include more options for the conduct of a members' meeting.

Financial governance in a Verein

While any reference to the new corporate governance rules as outlined above are on a voluntary basis, for the Verein's financial governance stricter rules apply. Art. 69a and 69b explicitly reference the application of the CO's rules on corporate bookkeeping and audit. Therefore, while the Verein may be flexible in the set-up of its Vorstand and general meetings, the basic rules on bookkeeping and mandatory audit cannot be circumvented.

In this regard, it is especially important for a Verein to also review the rules on financial governance as outlined in Art. 725 seqq. CO with regard to illiquidity, capital loss (which is less relevant for a Verein that does not have a basic company capital) and overindebtedness. This means, the Vorstand is legally bound, as part of its non-transferable rights and obligations, to have a close eye on the Verein's financial stability. Further, it is required to take prompt and proactive actions to stabilize the Verein's financials if certain thresholds are reached.

The Vorstand will especially be required to organize financing in dire situations or take restructuring measures to avoid overindebtedness. To fulfil these obligations, the Vorstand needs to diligently and regularly assess the Verein's balance sheet and open liabilities.

Take home message: A Vorstand is required to review the Verein's financials and to actively take measures in case of financial distress. A close review of the financials is helpful to detect a financial distress situation sufficiently early.

Authors: Pauline Pfirter, David Jenny