Minority shareholders of AGs and minority members of GmbHs benefit in Swiss law from a set of legal mechanisms to protect their interests against majority decisions. These protections, provided for by arts. 697 to 736 CO for the AG and arts. 802 to 821 CO for the GmbH, aim to guarantee the fair and transparent exercise of power within the company. PBM Avocats defends the interests of minority shareholders in Geneva and Lausanne, whether in the context of amicable negotiations or court proceedings.
The Inalienable Individual Rights of Shareholders
Certain fundamental rights of shareholders cannot be removed either by the articles or by a GM decision (art. 706b CO). These absolute rights include:
- Right to vote: each share confers at least one voting right (art. 692 CO)
- Right to dividends: participation in distributed profits pro rata to shares held
- Preferential subscription right upon capital increases (art. 652b CO)
- Right to a share of liquidation proceeds pro rata to shares upon dissolution
- Right to information and inspection of books (art. 697 CO)
- Right to participate in the GM and to speak at it
- Right to bring an annulment action against unlawful GM decisions (art. 706 CO)
Collective Rights of Minorities (Legal Thresholds)
Beyond individual rights, the law grants shareholders who collectively represent certain capital thresholds specific rights:
| Right | Required Threshold | Legal Basis |
|---|---|---|
| Convening an extraordinary GM | 10% of share capital | Art. 699 para. 3 CO |
| Addition of items to the agenda | 10% of capital or CHF 1 million in nominal value | Art. 699b CO |
| Request for special audit at GM | Any shareholder (individual right) | Art. 697a CO |
| Judicial request for special audit | 10% of capital or CHF 2 million in nominal value | Art. 697b CO |
| Liability action against the board | 10% of share capital (derivative action) | Art. 756 CO |
| Judicial dissolution for good cause | 10% of share capital | Art. 736 no. 4 CO |
The Action for Annulment of GM Decisions (Art. 706 CO)
The annulment action is the main judicial remedy for shareholders against unlawful GM decisions. It may be brought by any shareholder, regardless of shareholding, within 2 months of the decision (art. 706a CO). The grounds for annulment are:
- Violation of the law (including rules on convening, voting and quorum)
- Violation of the articles
- Violation of morality
- Arbitrary decision or contrary to the corporate interest
- Infringement of the inalienable rights of individual shareholders
The 2-month period is a forfeiture period, not susceptible to interruption. Exceeding it deprives the shareholder of their right to act, even if the decision is seriously unlawful. Certain particularly serious decisions (violation of absolute rights) are null and void by operation of law and are subject to no time limit (art. 706b CO).
Minority Protection in M&A Transactions
Mergers and acquisitions are particularly liable to prejudice minority shareholders. The FMAA provides specific protections:
- Right to a fair exchange ratio report: the merger plan must include an explanatory report on the exchange ratio (art. 11 FMAA)
- Right of inspection: the merger plan must be accessible to members for 30 days (art. 16 FMAA)
- Action to verify the exchange ratio: shareholders may contest the fairness of the exchange ratio before the court (art. 105 FMAA)
- Exit right: in the event of absorption merger, minority shareholders may request the buyout of their shares at their market value (art. 105 para. 2 FMAA)
The Role of the Shareholders' Agreement
The shareholders' agreement is an essential contractual instrument for strengthening minority protection beyond the legal protections. It may provide for veto rights over strategic decisions, nomination rights on the board of directors, exit mechanisms guaranteeing a minimum price (put option), tag-along clauses guaranteeing the same terms as the majority shareholder in the event of a transfer. Negotiating these mechanisms upon entry into the capital is crucial, as they are difficult to obtain after the fact.
Frequently Asked Questions on Minority Shareholder Protection
Can a minority shareholder block decisions of the general meeting?
In principle no for ordinary decisions (simple majority). However, for important decisions subject to the qualified double majority of art. 704 CO (amendment of purpose, authorised capital increase, exclusion of preferential subscription rights, etc.), a shareholder holding more than one third of the votes represented or more than half the nominal value of the shares may block the decision. The articles may provide for even higher thresholds, thus strengthening the blocking power of minorities. A <a href='/convention-actionnaires-suisse/'>shareholders' agreement</a> may also provide for more extensive veto rights.
What is the action for annulment of a general meeting decision?
Art. 706 CO allows every shareholder, board members and the auditing body to request judicial annulment of a GM decision that violates the law or the articles. The action must be brought within 2 months of the decision (art. 706a CO). The court may annul the decision if it is contrary to the law, the articles or morality, or if it violates the inalienable rights of shareholders. Annulment has erga omnes effect: it is enforceable against all, including third parties who may have acquired rights on the basis of the annulled decision.
What is a special audit (art. 697a CO) and in what cases is it useful?
The special audit is a control mechanism allowing shareholders to have facts relating to the founding or management of the company verified by an independent expert. It is useful when minority shareholders suspect irregularities in management, transactions with related parties on unfair terms, or a violation of their rights. The request is first submitted to the GM (simple majority). If the GM refuses, shareholders representing at least 10% of the capital or CHF 2 million in nominal value may apply to the court (art. 697b CO). Costs are in principle borne by the company.
Can a minority shareholder obtain the dissolution of the company?
Yes, in exceptional cases. Art. 736 no. 4 CO allows shareholders representing at least 10% of the share capital to request the court to dissolve the AG for good cause. Good cause includes in particular a persistent deadlock in the corporate bodies, clear abuse of majority power, or serious and repeated violations of minority rights. However, the court may order less radical measures instead of dissolution, such as exclusion of a shareholder, buyout of their shares, or appointment of a judicial administrator. Judicial dissolution is a measure of last resort.
Do minority protection rules also apply in GmbHs?
Yes, equivalent mechanisms exist in GmbHs. Art. 808c CO allows an action for annulment of shareholders' meeting decisions. Art. 821 CO allows members representing at least 10% of the share capital to request judicial dissolution for good cause. Members also have enhanced information rights compared to shareholders of an AG: each member may consult the books and files of the GmbH (art. 802 CO), a more extensive right than the inspection right in an AG. The <a href='/convention-actionnaires-suisse/'>members' agreement</a> is also an important tool for strengthening these protections.