Not-For-Profit - Charities & Non-Profits

The association is the most basic form of legal entity under Swiss law. It allows any group of people to pool their resources together in pursuit of a specific goal. This form of organisation, until now subject to very little supervision, presents a risk of instrumentalisation according to the Financial Action Task Force (FATF), which has recommended the introduction of increased control measures.

As part of the revision of the Money Laundering Act, which entered into force on 1 January 2023, the Swiss legislator decided to amend the law on associations to improve their transparency. Associations benefit from a transition period which lapses on 30 June 2024 to determine whether and to what extent any action must be taken.

The revision of company law, which came into force on 1 January 2023, has also had an impact on the law governing associations by introducing new rules on insolvency and overindebtedness, as well as making the procedures for holding general meetings more flexible.

Association law has been affected by amendments to the Money Laundering Act and the Civil Code, as well as by the revision of the company law in the Code of Obligations. The aim of this article is to provide an overview of the main legislative developments and to highlight their impact on associations.

1. Obligation to register with the Commercial Register

1.1 Which associations are affected by the new regulations?

In accordance with Articles 60 et seq. of the Civil Code (CC), an association acquires a legal personality independently of its registration in the Commercial Register; the registration is of a declaratory nature.

Until recently, only associations with a commercial activity or of a certain size (balance sheet of at least CHF 10 million, turnover of at least CHF 20 million, or 50 full-time employees) were required to register with the Commercial Register. Thus, only a minority of associations were affected.

Since 1 January 2023, the mandatory registration requirement has been extended to all associations which primarily collect or distribute assets abroad, directly or indirectly, that are intended for charitable, religious, cultural, educational or social purposes¹.

This criterion reflects the FATF definition of a non-profit organisation. In its Message concerning the amendment of the Money Laundering Act, the Swiss Federal Council specifies that certain categories of associations, such as sports, leisure, mutual aid or economic (professional, employers' or employees') associations, are not included in this definition. Consequently, these entities appear a priori not to be subject to the new Commercial Register registration obligation. However, the scope of application still needs to be clarified; for example, the situation of a sports association pursuing an educational aim remains unclear.

Collection of funds includes contributions that are primarily intended to support an association, whether solicited or not. However, membership fees, government grants, income from activities, sponsorship and contributions intended to obtain any type of consideration from the association are not considered fundraising. Distribution of funds refers to gratuitous contributions made by the association to help a beneficiary, including donations in kind and services financed by the association's resources.

A collection or distribution is considered as the association's main activity when it concerns a substantial part of the its resources. As far as the international transfer criterion is concerned, it is sufficient for the funds to pass through a foreign country.

Certain associations are targeted because of the risk of money laundering arising from their international activities. However, the law stipulates that this new registration requirement does not apply to associations which, by virtue of the amount, origin, destination or allocation of the funds collected or distributed, do not carry a risk of money laundering or terrorist financing².

1.2 Exemption from the obligation to be registered in the Commercial Register

Certain associations may be exempted from the obligation to register with the Commercial Register under three cumulative conditions³ :

(i) the annual amount of funds raised or distributed has not exceeded CHF 100,000 over the last two financial years;
(ii) the funds are distributed by a financial intermediary within the meaning of the the Money Laundering Act and ;
(iii) the association has a representative domiciled in Switzerland.

Local associations with no commercial activity are therefore exempt.

These conditions for exemption apply only to associations whose main purpose is to collect or distribute funds abroad for charitable, religious, cultural, educational or social purposes⁴. They therefore do not apply to associations operating in a commercial form or subject to financial auditing requirements, which must in any case be registered with the Commercial Register.

1.3 How do I register with the Commercial Register?

Associations subject to compulsory registration must submit an application for registration, together with the original signed supporting documents, to the Commercial Register at their place of domicile⁵.

The required documents include the minutes and articles of association. In practice, associations that have been in existence for many years often no longer have access to the original signed founding documents. In such cases, it is advisable to hold a general meeting to validate the articles of association and the composition of the committee. The minutes of this general meeting can then be submitted to the Commercial Register as part of the registration file.

The registration file may be sent by post or electronically. If sent by post, the application form and accompanying documents must include an original handwritten signature.

Electronic submissions must comply with specific procedures; they must be made via an electronic registered mail platform (PrivaSphere or IncaMail) and must contain a qualified electronic signature in accordance with the Federal Law on Electronic Signatures (ESigA). Thus, a file containing scans of manually signed documents is not valid.

The obligation to register with Commerical Register implies other consequential obligations listed in the following points.

2. Appointment of a representative domiciled in Switzerland

All associations subject to registration in the Commercial Register must appoint a representative domiciled in Switzerland⁶. This obligation to be represented in Switzerland is fulfilled if (i) one person with an individual signature right is domiciled in Switzerland or (ii) two persons with a joint signature right are domiciled in Switzerland. These persons need not be members of the committee.

Associations that are not subject to the obligation to register with the Commercial Register and that do not have a representative domiciled in Switzerland must produce a declaration stating in writing that the association is not required to register⁷. This declaration must be signed by a member of the committee. The Federal Office of the Commercial Register (OFRC) has drawn up a standard form, which has for instance been adopted by the Zurich Commercial Register⁸.

3. Drawing up a list of members

In order to promote transparency, any association required to register with the Commercial Register must also keep a list of its members, including their surname, first name (or company name) and address⁹. This list must be accessible in Switzerland at all times and kept for a period of at least 5 years after a member is deregistered¹⁰.

4. Obligation to keep accounts

As a result of the obligation to register with the Commercial Register, associations are required to keep accounts and submit financial statements in accordance with commercial accounting rules, as are companies¹¹. For other associations, simple accounting of income, expenses, assets and liabilities is sufficient.

5. Insolvency and over-indebtedness

Article 69d CC refers to the provisions of company law on imminent insolvency and overindebtedness for associations subject to compulsory registration in the Commercial Register.

These include the duty to act promptly in the event of imminent insolvency¹², the new rules and exceptions to the judge notification requirement in the event of overindebtedness¹³, the abolition of deferment of bankruptcy in favour of provisional debt-restructuring¹⁴ and the rules on the revaluation of immovable property and participation¹⁵.

These new rules considerably strengthen the committee's responsibility towards creditors. The committee is required to monitor the association's solvency and to act swiftly in the event of a risk of insolvency, including by considering reorganisation measures.

In the event of overindebtedness, the committee is obliged to notify the court unless (i) sufficient subordination of a claims, also covers interest, are provided or (ii) as long as there is reasonable prospect that the overindebtedness can be remedied within a reasonable period, but no later than 90 days after submission of the audited interim accounts, and that the claims of the creditors are not more jeopardised.

6. Penalties for non-compliance

The following measures must be taken to achieve compliance by 30 June 2024:

Check whether the association is concerned by the compulsory registration in the Commercial Register and if so ;
Apply for registration in the Commercial Register ;
Appoint a representative in Switzerland ;
Draw up a list of members.

At first, associations that have not applied for registration by 30 June 2024 will be instructed to apply for registration. If no response is received by then, the Commercial Register will start the registration process directly. However, the Commercial Register is not obliged to actively seek out associations subject to the registration obligation. It is therefore the responsibility of the associations to apply for registration in due time.

Intentional failure to comply with the obligation to register an association constitutes a criminal offence punishable by a custodial sentence of up to three years or a fine¹⁶. The purpose of this provision is to preserve the accuracy of the information registered in the Commercial Register and public confidence by punishing, in particular, the concealment of information that must be registered. It covers situations where the perpetrator makes an incomplete entry as well as those where he fails to request a mandatory entry.

The entry into force of the new law on associations is accompanied by criminal measures designed to punish with a fine any person who fails to comply with the obligations to keep a list of members and to appoint a representative in Switzerland¹⁷. In the event of organisational defects (i.e. in particular the absence of a representative domiciled in Switzerland or the absence of a list of members), a member or creditor may request the court to order that the necessary measures to remedy the situation be taken¹⁸.

7. Excursus: Making general meetings more flexible

In the digital age, the new law on public limited companies, which applies by analogy, makes meeting procedures more flexible for all associations. General meetings can now be held in person (at a single location or at several locations, in Switzerland or abroad), virtually or in a hybrid format.

Meetings held abroad: General meetings may be held abroad in accordance with the provisions of the articles of association, provided that the committee designates an independent representative in the notice convening the meeting. The requirement for an independent representative may be waived if all members agree¹⁹.

Virtual general meetings: Virtual general meetings are permitted if the articles of association so permit and if an independent representative is appointed in the notice convening the meeting. The requirement to appoint an independent representative may be waived in the articles of association²⁰.

Use of electronic means:Electronic means may now be used. Whether the general meeting is held virtually or electronically, measures must be put in place to guarantee the identification of participants, the immediate retransmission of debates, active participation in discussions and protection against the manipulation of votes²¹. If technical problems prevent the meeting from being properly conducted, it must be postponed .

8. Conclusion

In a nutshell, the recent legislative revisions demonstrate the Swiss legislator's clear intention to increase the transparency of associations. The new law makes significant changes in this direction, requiring associations to comply with the new regulations and to draw up complete registration files for submission to the Commercial Register by 30 June 2024.

However, there may still be some uncertainty as to the exact scope of associations subject to the obligation to register with the Commercial Register. This is particularly the case for associations operating in multiple fields (for example, in both education and sport), their hybrid activities being in a legislative grey area without it being clear whether or not the new obligations should be applied to them. This question remains open and will need to be clarified. In any event, associations should remain vigilant and regularly assess whether they are subject to the obligation to register with the Commercial Register (particularly if one of the conditions for exemption is no longer met).

Footnotes

1. Art. 61 para. 2 ch. 3 Civil Code (CC)

2. Art. 61 para. 2ter CC

3. Art. 90 para. 2 Ordinance on the Commercial Register (ORC)

4. Art. 90 para. 1 lit. c ORC

5. Art. 929 Code of Obligations (CO); Art. 16, 17, 18, 20, 21, 90a and 92 ORC

6. Art. 69 para. 2 CC

7. Art. 90a para. 4 ORC

8. Link: Formular Erklärung Vereinsnatur (zh.ch)

9. Art. 61a para. 1 CC

10. Art. 61a para. 2 and 3 CC

11. Art. 957 para. 2 no. 2 CO a contrario

12. Art. 725 CO

13. Art. 725b CO

14. Art. 725, para. 2 in fine, CO

15. Art. 725c CO

16. Art. 153 Swiss Criminal Code

17. Art. 327b Swiss Criminal Code

18. Art. 69c CC

19. Art. 701b CO

20. Art. 701d CO

21. Art. 701e CO

22. Art. 701f CO

Originally Published 13 December 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Switzerland: Not-For-Profit