Switzerland: All About The Swiss Commercial Registry
Due Diligence In Dealing With Swiss Companies: Ask For The Right Documents!

Article by Eric W. Fiechter and André Gruber of Secretan Troyanov

Foreign counterparts dealing with Swiss companies often request various corporate documents to ascertain that the Swiss company not only may enter into the type of operation that is envisaged, but also that the officers signing on behalf of the company are allowed to do so (Board resolutions, By-laws, Statutes of Incorporation, etc.).

This is however neither sufficient nor adequate to ascertain that the Swiss company will indeed be validly bound.

The Commercial Registry ("Registre du Commerce" in French, "Handelsregister" in German), provides most of the information a party can and should request from its Swiss counterpart upon signing an important contract with a new business partner. This is a State operated public information tool.

The information provided by the Commercial Registry is particularly reliable and it protects the bona fide counterparts in a way which has no legal equivalent in the USA nor in the UK. The fact that there is no equivalent there to the Swiss Commercial Registry is one of the reasons why its valuable features are often overlooked by attorneys when they draft international contracts involving a Swiss based commercial entity.

This document offers a description of the Swiss Commercial Registry, explaining its concept and organisation, as well as the type of information entered into it and some of the legal effects of entering information into the Registry.

We hope that this will assist foreign counterparts of Swiss companies in dealing more safely and efficiently with Swiss legal entities.

1. Concept and Organisation of the Commercial Registry

a. Concept

The Swiss Commercial Registry is an official public information tool maintained by Federal and State (Cantonal) Agencies. It contains clear and easily accessible information on different types of "business ventures", on their liability systems and on their ruling bodies and authorized representatives.

Articles 927 to 943 of the Swiss Code of Obligations (CO/OR) (as well as the Ordinance concerning the Commercial Registry (hereafter "ORC") regulate this domain.(http ://www.admin.ch/ch/f/rs/c220.html)

Art. 930 CO specifies that "the Commer-cial Registry, including application file and supporting documents, shall be open to the public".

Furthermore, art. 931 §1 CO provides that "the full contents of entries in the Commercial Registry shall be published without delay in the Swiss Official Gazette of Commerce unless the law or ordinance only provides for partial publication or publication in an abridged form".

b. Functions

The main functions of the Commercial Registry are the following:

• Provide public access to key information regarding commercial entities to protect bona fide third parties and
• Give effect to certain decisions. For example a limited liability Company starts to exist as a legal entity only upon its registration into the registry.

c. Organisation

Switzerland’s Commercial Registry is organized on a decentralized basis: The Cantons (States) are responsible for maintaining the Commercial Registries, with the Federal government exercising oversight over them (articles 119 and 4 ORC).

Pursuant to art. 927 CO, a Commercial Registry is kept in each Canton. Furthermore, the Cantons must designate the authorities who are to keep the Commercial Registry, and a cantonal supervisory authority. Art. 928 CO states that the Registrars of the Commercial Registry and the immediately superior supervisory authorities are personally liable for all damages caused by their own fault or the fault of employees appointed by them, e.g. for not recording or recording erroneously information communicated to them.

The Commercial Registry ensures that the information is published as follows:

• The entries and changes in the Commercial Registry are published in the Swiss Official Gazette of Commerce and on the Internet (http://zefix.admin.ch/shab),
• The possibility to obtain up-to-date certified true extracts of the Commercial Registry for any given legal entity entered into the Registry, and
• The Federal Office of Justice maintains Zefix (Central Business Names Index on the Internet) (www.zefix.ch) for the purpose of accessing the companies decentrally recorded in the cantonal databases. Cantonal Register also offer Internet based access to their key records often against a modest charge (e.g. today the Registry of Geneva is accessible to a large extent online at www.geneve.ch/rc.).

2. Entries into the Registry

The subject matter of entries will depend on the type of legal entity concerned ("Société Anonyme", "Société à Responsabilité Limitée", Swiss Branch of an offshore company, Foundation, Association e.g. Non Governmental Organi-zation – NGO).

This Memorandum will however focus on the Corporation (Aktiengesellschaft (AG) – Société anonyme (SA) – Società anonima (SA), a company with a predetermined capital that is divided into bearer or registered shares, because it is the most widely used corporate form in Switzerland and because the same principles apply often to the other entities.

As already mentioned, notice of the registration is published in the Swiss Official Gazette of Commerce. The information so published includes:

• the date of the founders’ meeting
• the corporate name and domicile of the corporation
• a summary of the purpose and duration of the corporation
• the amount of the share capital and the amount paid in
• the contributions in kind or other property received in payment of shares
• the type and par value of the shares as well as transfer restrictions, if any
• special rights granted to the incorporators, if any
• the manner in which the company is represented
• names, residence and citizenship of the directors and officers of the corporation
• name and domicile of the auditors
• the manner in which official announcements are to be made by the corporation.

Two of the above points require a more detailed description of the Swiss legal scope of said points to be correctly understood by foreigners: i) the corporate purpose and ii) the representation of the corporation (signatory powers):

1. Concerning the corporate purpose, Swiss corporation law does not have a theory similar to the "ultra vires" doctrine: under Swiss law, a corporation may effect not only business transactions that are expressly covered by the business purpose clause, but also any transaction that may arise within corporation’s business purpose. This is why the purpose clause contained in the Swiss corporation’s articles of incorporation is usually summarized when entered into the Commercial Registry to outline only the very general activity of the corporation.

Concerning the meaning of "legal acts that may arise within the Company’s purpose", Swiss legal authors and case law interpret this article broadly. The so-called "legal acts" are not only those that are useful to the Corporation or the normal course of business. They also encompass all exceptional business that may help in achieving the corporate purpose, i.e. all acts that the corporate purpose does not clearly exclude. (https://swisslex.westlaw.com/search/Document.asp?DocService=DocLink&D=111xIIx284_290z&AnchorTarget=111-II-288ATF 111 II 288; https://swisslex.westlaw.com/search/Document.asp?DocService=DocLink&D=96xIIx439_445z&AnchorTarget=96-II-444ATF 96 II 444; Meier-Hayoz and Forstmoser, Grundriss des schweiz. Gesellschaftsrechts, 6th éd., pp. 288 and following; von Greyerz, SPR VIII/2, p. 210).

One limit the Swiss Federal Supreme Court (hereinafter "FSC") has set is that the sale of the entirety of the business with all of its assets exceeds the broad definition of the corporate purpose as it would be the equivalent of putting the company into liquidation (ATF 116 II 320), which is a decision reserved to the shareholders.

2. Concerning the representation issue, articles 718 CO and following specify the different rules and principles applicable to the question.

   Art. 718 CO specifies that "the board of directors represents the Company towards third parties. Unless the articles of incorporation or the organizational regulation provides otherwise, each member has the power to represent the Company individually. The board of directors may delegate the power of representation to one or several members (managing directors) or third parties (managers). At least one member of the board of directors must be empowered to represent the Company".

   Furthermore, art. 718a CO completes these principles by specifying that "persons empowered to represent the Company may, in the name of the Company, perform all legal acts that may arise within the Company’s purpose.

• Collective signatory powers or limitations deriving from the legal title given to the signatory; (specific rules are stipulated in the Code of Obligations concerning the proxy holders and other commercial mandate holders).
• Geographical limitations i.e. powers limited to the principal establishment or to a branch.

  Other restrictions are internal restrictions, not binding bona fide third parties, unless such restrictions have been communicated to the third parties. This is for instance the case when banks circulate signature lists to their correspondents.

  A typical and valid kind of restriction is the requirement of dual signatures, sometimes excluding dual signatures between some of the authorized signatories (e.g. exclusion of signatures by two proxy holders together).

b. Obligation to register

Art. 720 CO provides that "the board of directors must apply for entry in the Commercial Registry of the persons empowered to represent the Company by submitting a notarised copy of the Resolution entrusting these persons with said power". This applies not only to signatories, but also to signatories with restricted powers called proxy holders (art. 458 CO). Commercial mandate holders (art. 462 CO) may, but do not need to be registered, since their powers as described in the Code are more limited.

The combination of these rules leads to the general principle that the persons entered into the Commercial Registry are entitled to represent the Corporation and in the absence of restrictions the signatory power is not limited. If it is limited, the Register will mention it.

Please note however that even barring an inscription in the Commercial Registry, a company may be found to be bound by the signature of a person having no such power, if it is proven that the company knew of the fact that this person was signing on the company’s behalf and if the company did not react to this fact or tolerated it (the so-called "external apparent proxy" theory). The general "good faith" principle may also be invoked by a company to try to avoid the obligation created by a person authorized to bind the Company according to the Commercial Registry, but who used such power to sign a document which would obviously not have been signed by a person acting in good faith for its employer. This is however not quite the same as the "ultra vires" theory. It relates to the question as to whether the third party is a bona fide third party.

c. Up-dating information

In order to provide accurate and updated information, art. 937 CO specifies that "any amendments of facts entered into the Commercial Registry shall also be entered into the Registry." This provisions constitutes a clear duty to inform the Commercial Registry without delay of changes in the facts that are entered into the Commercial Registry.

Violation of this duty is sanctioned by penal provisions. Art. 153 of the Swiss Criminal Code provides that "whoever caused an authority in charge of the Commercial Register to enter a fact contrary the truth or did not declare a fact that should have been entered will be punished by imprisonment or fine".

We are however not aware of cases where this provision was applied and in practice, Swiss companies are sometimes slow in up-dating their records because the risk that someone will try to use powers, which have already been revoked, is often perceived as minimal.

d. Verification of Entries by the Public Officer in charge of the Registry (Registrar)

Barring certain exceptions concerning the legality of an inscription and the evident material errors contained in the request for entry, the general principle is that the Registrar does not check the material reality of the entries, which remains the responsibility of the person or entity which provides the information.

3. Effect of the Entries

a. Public effect of the Registry

In dealings with a corporation, a bona fide third party is entitled to rely on correct entries in the commercial register. This means that business partners or counterparts of Swiss companies can rely on the fact that an official, up-dated excerpt of the Commercial Registry contains all the necessary, but also sufficient information, concerning the said company regarding the power to bind the Company for a given transaction.

The effect of an entry will therefore firstly be the fact that it becomes publicly and unconditionally available (the request to enter an information as well as the supporting documents as Statutes, By-Laws, etc.).

Secondly, the entries benefit from the general presumption of art. 9 of the Swiss Civil Code stating that "entries made in public registers and duly authenticated documents or extracts are sufficient evidence of the facts which they state, provided that their inaccuracy is not proved".

The combination of these formal public effects leads to the so-called Public faith, or material public effect.

b. Public Faith

The public faith principle leads to the two following sub-effects:

• The entry is presumed complete, and

• The entry is presumed correct.

The presumption of completeness protects the corporation (art. 933 §1 CO: "the objection that a third party has not known of an entry which has become effective vis-à-vis third persons is precluded"). The presumption of completeness protects also third parties (art. 933 §2 CO: "If a fact, the entry of which is required, is not entered, it cannot be used against a third person unless it has been proven that the fact was known to him").

Finally concerning the effective date of entries, art. 932 §2 CO provides that "with respect to third parties, an entry in the Commercial Registry is only effective on the next working day following the printed issue date of the Swiss Official Gazette of Commerce in which the entry is published".

Based on this article the Swiss Federal Supreme Court found that the resignation or dismissal of a director or officer of a corporation (with regard in particular to their power to represent the corporation) was opposable to a bona fide third party only starting on this date (BGE 104 Ib 321). Provided that the third party is bona fide, this means that a company is legally bound even by a dismissed representative until said power is formally cancelled with the Commercial Registry.

4. Private registers

A certain number of private databases incorporate the information collected from the publication in the Swiss Official Gazette of Commerce (for example: www.teledata.ch). These databases do not benefit from the public faith effect, i.e. they have not the same legal value as the official Commercial Registry Extracts, but sometimes they provide other value added services, and they are frequently used for informal purposes.

5. Conclusion

Foreign counterparts of Swiss companies can rely on the fact that an official, up-dated excerpt of the Commercial Registry contains all the necessary, but also sufficient information, concerning the said company regarding the power to bind the Company for a given transaction.

This information is provided as background information only. We will be glad however to search the Commercial Registry and comment a specific Commercial Registry Extract upon request.

This article has been prepared by Secretan Troyanov for informational purposes only and is not legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship. Readers of this article should not act upon this information without seeking professional legal advice applicable to their specific circumstances.