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New life for GmbH

A new GmbH Law is expected to come into force mid-2007. A variety of mandatory revisions must be implemented into a Swiss GmbH's articles over a two-year transition period. This compulsory overhaul might also lead to a general review of a GmbH's articles in light of various new corporate law planning opportunities. Some might even consider transforming existing Swiss share corporations (AG) into GmbH to benefit from certain corporate structures.

In the past, a Swiss GmbH's stated capital was limited to SFr2 million ($1.6 million). This limitation will be abolished. Until now, the Swiss GmbH has been the preferred corporate vehicle for smaller businesses, but it could also used when running large joint ventures or foreign-controlled subsidiaries. Numerous shareholders' obligations (such as additional paid-in share capital, rights of first refusal or transfer restrictions much stricter than the ones applicable to AGs, or non-compete covenants) can be incorporated into a GmbH's articles. With an AG, these obligations are subject to a separate shareholder's agreement and are not enforceable against the AG.

The new GmbH law also abolishes a variety of burdensome corporate law formalities, including the requirement to have all transfers in GmbH shares notarized, which resulted in most cases in a revision of the articles. In the past, these share transfers also required qualified majorities, which in many situations led to the non-transferability of a GmbH's shares.

In line with EU laws, a Swiss GmbH can now also be set up by just one founder, which would be the sole shareholder throughout the life of a GmbH. The new law no longer contains a joint and several liability for GmbH shareholders, who were in the past required to compensate for unpaid share capital or for non-permitted share capital withdrawals by one or more co-shareholders.

The articles of a Swiss GmbH may also include a broad range of management decisions subject to approval by shareholders' meeting, such as investment or divestiture decisions, granting credit facilities, or beginning or settling legal proceedings. In an AG, these management decisions are part of the board's organizational regulations, sometimes with limited enforceability.

The distribution of profits can be left entirely for the shareholders to decide. It can be allocated irrespective of a shareholders' capital contribution or made in accordance with other parameters set out in the company's articles.

GmbHs that reach a certain size (for example, revenues of more than SFr20 million, with balance sheet assets of more than Sfr10 million) must have an auditor. GmbHs that do not reach those ceilings must still be subject to auditor review.

By Thomas Rihm

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