What is changing in the new corporate law?

The most important changes and everything you need to know about implementation

The revision of the new corporate law has been underway since 2014 and was finally adopted by Parliament in 2020. The revised corporate law contains, in addition to adjustments to the revised accounting law, new provisions on the capital structure of the company (capital band), the possibility of distributing interim dividends, and explicit duties of the board of directors in the event of imminent insolvency, to name just a few of the most important changes. Not only corporations, but also other legal forms, such as limited liability companies, associations, and cooperatives, are affected by the new provisions.

The Capital Band

To make equity capitalization more flexible, companies can now introduce a capital band, which comprises +/- half of the registered share capital. Within the capital band, the board of directors can increase or reduce the share capital for a period of up to five years. The capital band thus replaces the current authorized capital, which only permits increases and for a maximum of two years. Changes within the capital band, i.e., increases or reductions, require amendments to the articles of association, which in turn must be publicly notarized. Companies that make use of the option of a capital band cannot waive limited statutory audit.

Interim Dividends

Dividends can now also be distributed from profits of the current year (so-called “interim dividends”). Such a distribution requires an interim financial statement prepared according to the same principles as the regular annual financial statements. This means the auditor must generally audit the interim financial statement, although an audit can be waived if all shareholders consent to the distribution and the claims of creditors are not jeopardized. In the case of an opting-out, no audit is required either.

Imminent Insolvency

Monitoring the liquidity and financial position of the company is part of the inalienable and non-delegable duty of the board of directors. Until now, however, the board of directors “only” had duties to act in connection with a capital loss of half or over-indebtedness. Now there are additional duties in the event of imminent insolvency. According to the definition, imminent insolvency exists when the debtor will presumably not be able to meet its obligations over an extended period of time. The distinction from a short-term liquidity shortage, which does not constitute insolvency, is likely to be difficult in practice and will pose a particular challenge for both the board of directors and the auditor.

Implementation

Implementation will take place in stages starting January 1, 2021. The main part of the revised corporate law, which also includes the mentioned innovations of capital band, interim dividends, and provisions on imminent insolvency, is expected to come into force in 2023. The corresponding Federal Council decree is still pending.

In summary, it can be noted that the introduction of a capital band in particular requires amendments to the articles of association and should be initiated early.