The importance of reporting beneficial owners of shares: An overview for board members - Part 1: Obligations within the AG
In today's corporate landscape, boards of directors of stock corporations are increasingly confronted with complex regulatory requirements. One of these requirements relates to obligations in connection with beneficial owners of shares. These obligations have a dual impact on boards of directors: on the one hand, they relate to the responsibilities for implementation within the stock corporation itself. On the other hand, the stock corporation's business relationships with banks also give rise to disclosure and notification obligations, which the authorised representatives - in SMEs therefore primarily the members of the board of directors - must fulfil conscientiously and correctly.
In a series of blogs, we shed light on the obligations in connection with beneficial ownership of shares that apply within the company limited by shares and vis-à-vis banks. We also venture an outlook on possible future developments in the transparency of legal entities and beneficial ownership.
As the first part of this series, this blog post is intended to provide an overview of the duties within the stock corporation. '
Part of the regulatory framework for combating money laundering
The rules presented here for reporting and documenting beneficial ownership within the company limited by shares are enshrined in the Swiss Code of Obligations and form part of the legal instruments for combating money laundering. The clarifications and documentation based on these rules form the basis for further declarations to banks and other financial intermediaries, which we will discuss in the next blog post in this series.
Reporting of the beneficial owner when acquiring shares
As soon as a shareholder acquires shares in a non-listed company alone or in concert with third parties and reaches or exceeds the threshold of 25% of the share capital or voting rights, an important reporting obligation comes into effect: within one month, the shareholder must notify the company of the first name, surname and address of the natural person for whom they are ultimately acting - the so-called beneficial owner.
If the shareholder is a legal entity or partnership, any natural person who controls the shareholder must be reported as the beneficial owner. As this rule is much more complex than might be assumed at first glance, we will dedicate a separate blog post to it.
The shareholder must notify the company within three months of any change in the first name, surname or address of the beneficial owner.
The threshold value of 25%
At first glance, a threshold of 25% seems very high and hardly achievable, especially for stock corporations with more than a handful of shareholders. However, it must be taken into account that a "joint agreement" already exists if founders or entrepreneurs pursue the same business objectives, shareholders have entered into a shareholders' agreement or are grouped together in an investor syndicate. As a consequence, this means that shareholders may have to report divergent beneficial owners even if they hold significantly less than 25% of the shareholding or voting rights in the company.
Exemptions from the reporting obligation
However, there are exceptions to this reporting obligation. If the shares are structured as intermediated securities and are deposited with a custodian in Switzerland or entered in the main register, there is no need for notification. In this case, the beneficial ownership of the shares is determined directly by the bank that holds the custody account in which the shares in question are booked.
List of beneficial owners
The company is obliged to keep a register of the beneficial owners reported to it. This register must contain the first name, surname and address of the persons concerned and must be kept in addition to the share register. It is essential that this register is properly maintained, as the corresponding documents on which a notification is based must be kept for ten years even after the person has been removed from the register. In addition, the register must be maintained in such a way that it can be accessed at any time in Switzerland.
Consequences of non-compliance with reporting obligations - for the shareholder
Violation of the reporting obligations has serious consequences and, in particular, has a direct impact on the shareholder's rights: as long as a shareholder does not fulfil their reporting obligations, the membership rights associated with the shares are suspended. This means that the shareholder cannot exercise his voting rights at the Annual General Meeting as long as he has not notified the company of the beneficial ownership of his shares.
Property rights are also affected: These can also only be asserted once the shareholder has fulfilled their reporting obligations. If the shareholder does not fulfil his obligation to notify within one month of acquiring the shares, his property rights, namely his dividend entitlements, are forfeited. However, if the shareholder notifies the beneficial owner at a later date, he can assert the property rights arising from this point in time.
Shareholders who wilfully fail to comply with their reporting obligations and deliberately provide false information will be fined a maximum of CHF 10,000.
Consequences of non-compliance - for the company and the Board of Directors
The Board of Directors is responsible for ensuring that no shareholders exercise their rights in breach of the reporting obligations.
Improper maintenance of the share register or the list of registered beneficial owners constitutes an organisational deficiency in the company. If such a deficiency exists, any shareholder, creditor or the commercial registrar may apply to the court for the necessary corrective measures to be ordered. Deliberate misconduct in the keeping of the share register or the register of beneficial owners, as well as the violation of the associated obligations under company law, can be penalised with a fine of up to CHF 10,000. In this context, responsibility for breaches of duty by a legal entity is attributed to the members of the Board of Directors as responsible natural persons.
Conclusion
It is essential for boards of directors to be aware of the reporting obligations in connection with beneficial owners and to ensure that these are properly implemented within the company. In particular, the board of directors must ensure that the register of beneficial ownership consolidates all shareholders who are grouped together, for example via a shareholders' agreement or an investor pool, while keeping an eye on the 25% threshold. This register must include not only the dissenting beneficial owners reported by the shareholders, but all shareholders. We will explain why this is the case in the next blog post in this series.
In the case of shareholders who obviously cannot be beneficial owners themselves (e.g. stock corporations or other legal entities), the details of the beneficial owners other than themselves must be recorded in the register.
Failure to comply with these obligations can not only lead to legal consequences, but also jeopardise trust in the integrity of the company. By proactively monitoring and complying with legal requirements, boards of directors can help to ensure the long-term stability and success of their company.
Support in the correct fulfilment of obligations in connection with economic entitlement
Konsento enables stock corporations of all sizes to manage their share register in a legally compliant manner and involve shareholders directly in the collection and updating of master data. This also includes a simple and comprehensible declaration of beneficial ownership. Konsento also supports stock corporations in identifying and correcting outstanding or obviously incorrect declarations and in consolidating threshold values.Contact us for a free, no-obligation consultation on the implementation of beneficial ownership obligations.
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