Stumbling blocks in the digitalization of shares: Shareholder's right to a share certificate
The challenge of missing assignment declarations for share transfers in Switzerland
Introduction
Paper shares are associated with considerable risks: They can be lost or destroyed by fire, water or other circumstances. The subsequent invalidation process is expensive, time-consuming and can take up to a year. These challenges place a financial and administrative burden on both companies and shareholders - especially the Board of Directors, which is responsible for clearing the share register. To avoid these problems, more and more stock corporations in Switzerland are opting to dematerialize or digitize their shares.
However, this step also harbors legal pitfalls, because anyone who does not adapt the articles of association correctly risks that the paper share can be reintroduced via a back door and against the will of the AG and the advantages of uncertificated shares are lost again:
This goes back to a Federal Supreme Court ruling from 2021, which has lost none of its relevance and topicality in connection with the dematerialization of shares: A shareholder had successfully sued for the issue of a physical share certificate, even though the shares were actually held digitally in accordance with the articles of association. This decision shows that an inadequate statutory basis can quickly destroy efforts to digitize shares.
In order to protect companies from such challenges, we summarize the Federal Supreme Court ruling and show what requirements should be placed on a legally secure statutory regulation.
Table of contents
- Influence of digitalization on shares
- The Federal Supreme Court ruling of 2021: what was it about?
- Statutory principles and their limits
- Requirements for an effective statutory regulation
- How Konsento supports the legally compliant digitization of shares
- Conclusion
Influence of digitalization on shares
The digitization of shares offers companies numerous advantages:
- Efficient management through digital share registers
- Simplified and legally compliant transfer
- Reduction of administrative expenses
- Loss before destruction of the share certificate, e.g. due to loss, fire or water
Despite these advantages, the legal basis is crucial to avoid uncertainties and potential liability risks. The Federal Court ruling of 2021 makes this impressively clear.
The Federal Supreme Court ruling of 2021: what was it about?
A shareholder had requested that a company issue him with a physical share certificate. The company refused to do so on the grounds that its shares were only recorded digitally in accordance with the articles of association.
The Federal Supreme Court ruled in favor of the shareholder. It clarified that entry in the share register alone is not sufficient to exclude the right to a physical certificate. Without a clear provision in the articles of association, a shareholder can insist on such a certificate.
Statutory principles and their limits
The ruling shows that mere references to digital share registers are not sufficient to prevent an obligation to surrender shares. The articles of association must explicitly regulate whether securitization in the form of physical share certificates is excluded.
If such a provision is missing or remains vague, a shareholder can successfully sue for the surrender of a share certificate - with far-reaching consequences for the dematerialization of the shares.
Requirements for an effective statutory regulation
To ensure that shares only exist in digital form, the articles of association should be precisely formulated. Important points here are:
- Clear definitionThe articles of association should clarify that shares are managed exclusively digitally.
- Exclusion of physical securitizationAn explicit exclusion of the issuance of physical share certificates is required.
- Reference to legal basisThe regulations should be in line with the applicable stock corporation law.
An imprecise or missing clause can result in the dematerialization of the shares remaining ineffective and the shareholders can successfully sue for the surrender of share certificates.
How Konsento supports the legally compliant digitization of shares
Konsento offers comprehensive support to enable companies to digitize shares securely and efficiently:
- Pre-formulated agenda items for general meetingsKonsento provides standardized resolutions to clearly anchor dematerialization in the Articles of Association.
- Uncomplicated and efficient general meetingsWith Konsento, general meetings can be organized, conducted, recorded and notarized quickly and efficiently. Thanks to the intelligent templates for different types of general meetings, you can choose the form that is best suited to the public limited company in question and its shareholder structure.
- Convenient notarizationAmendments to the Articles of Association must be publicly notarized by a notary. With Konsento, however, the notary attends the AGM online, which saves the Board of Directors from having to go to the notary's office.
- End-to-end serviceKonsento provides you with everything you need to amend your articles of association: from planning and organizing the general meeting, including invitations and agenda items, to voting and recording the minutes, to public certification and registration in the commercial register, Konsento takes care of all aspects of your amendment to the articles of association.
- Electronic share register: You can manage your new uncertificated shares correctly, completely and in compliance with the law in Konsento's digital share register and keep track of shareholders and shareholdings at all times.
With the Konsento tools for General Assemblies and electronic share register companies can ensure that their shares remain fully digitized.
Conclusion
The digitalization of shares is an important step towards modern corporate governance, but it also entails legal risks. An unclear or incomplete provision in the articles of association can lead to shareholders being able to insist on physical certificates - which effectively reverses digitization.
To prevent this, companies should adapt their articles of association precisely. Konsento supports public limited companies with pre-formulated amendments to the articles of association and a digital general meeting solution that meets all legal requirements and covers all process steps.
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