Switzerland Update: New Corporate Law: Share capital in foreign currency

The new company law, which comes into force on 1 January 2023, brings many changes.

Minimum capital

The share capital of a Swiss stock corporation (Ltd) must amount to at least CHF 100,000, of which at least half must be paid-up in cash, by contribution in kind or by offsetting at the time of incorporation. This must be notarised. For a limited liability company (LLC), at least CHF 20,000 must be raised; partial liberation is not permitted. These basic rules do not change under the revised company law.

Accounting in foreign functional currency

Under the current law the share capital must be strictly denominated in Swiss francs and also entered accordingly in the articles of association and in the commercial register. However, the bookkeeping and accounting of a Swiss company can already be done in a foreign currency if it is the so-called functional currency essential for the company’s business activity and this is freely convertible against the Swiss franc (art. 957a para. 4, 958d para. 3 of the Swiss Code of Obligations (CO)).

In contrast, it has so far been mandatory for the share capital related aspects of a Swiss company (e.g. including the reserves and the board of directors’ proposal for the appropriation of profits to the general meeting) to be reported in Swiss francs. The exchange rates used are to be disclosed in the notes to the annual financial statements and explained where applicable.

In practice, this can result in conversion differences on the one hand, for example if acquisition or production costs are based on historical exchange rates that have changed significantly over time. In extreme cases, an annual profit calculated in functional foreign currency can turn into an annual loss in Swiss francs due to the conversion and the renewed application of the principle of prudence.

Further delicate issues of application may arise. For example, the board of directors must, as a precautionary measure, take appropriate reorganisation measures or, if necessary, notify the bankruptcy judge even if over-indebtedness results either only in Swiss francs or only in the foreign currency, but not in the respective other currency. Furthermore, in practice, an audit confirmation pursuant to art. 6 of the Merger Act is also considered necessary if an intended merger results in a capital loss or over-indebtedness only in one of the applicable currencies.

Share capital in functional foreign currency

With the revision of company law, it will be permissible from 1 January 2023 to also state the share capital of a Swiss corporation in a foreign functional currency (art. 621 revOR). If the company makes use of this option, the bookkeeping and accounting must be done in the same currency.

These new rules thus eliminate the currently existing inconsistency between accounting, financial reporting and tax law on the one hand and the provisions of company law on the currency of the share capital on the other. This revision met with broad approval during the consultation process.

The amount of the share capital and the currency in which it is denominated shall be determined in the articles of association. If the share capital is denominated in a foreign currency, the contributions made at the time of the formation of the company must be equivalent to at least CHF 50,000 in the case of a Ltd (or CHF 20,000 for an LLC). If the share capital is set in a foreign currency or if contributions are made in a currency other than that of the share capital, the exchange rates applied must be stated in the public deed.

Permitted foreign currencies

In Annex 3 to the revised Commercial Register Ordinance, the Federal Council has specified the following foreign currencies as permissible from 1 January 2023: British Pound (GBP), Euro (EUR), U.S. Dollar (USD) and Japanese Yen (JPY).

Nothing will change as a result of the revision of the company law with regard to the existing tried and tested practice of the commercial register authorities that shareholders may make their contributions in a (foreign) currency that is freely convertible to the Swiss franc (in future generally to the currency in which the share capital is denominated): This practice will now be codified in the new law.

Furthermore, payments with crypto “currencies” such as Bitcoin (BTC, BCH, BCC, BTG, etc.) or Ether (ETH) in particular are still not to be considered as cash redemptions, but as contributions in kind, with separate specific rules.

Change of currency of the share capital

The general meeting may resolve to change the currency in which the share capital is denominated at the beginning of a financial year. This change may be made either prospectively with effect as of the beginning of the next financial year or retrospectively as of the beginning of the current financial year. In either case, the board of directors shall amend the articles of association. In doing so, it must establish that the above-mentioned requirements for stating the share capital in the relevant currency are fulfilled and record the exchange rate applied. The resolutions of the general meeting and the board of directors must be publicly certified. An audit report is not required.

A currency change (with effect from 1 January 2023 at the earliest) can therefore also be decided in the current year 2022. The corresponding amendment to the articles of association must be conditional on the entry into force of the new law. However, if the articles of association are (unconditionally) amended again before 1 January 2023, the conditional amendment to the articles of association on the currency change would have to be resolved again.

It should always be noted that the change of currency must not lead to a hidden capital increase or decrease (special regulations would have to be observed for this in each case).

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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