Revision Of The Law Of The Limited Liability Company

Author:Ms Isabel von Fliedner
Profession:Isabel von Fliedner, Avocate
 
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On the 16th December 2005, the Swiss Parliament adopted the new law of the limited liability company (LLC), which came into force during the second half of the year 2007. Companies founded under the aegis of the former text had to adapt to the new legislation.

Summary

The revision aimed to give to the LLC the attributes of a real equity company but still with some personal elements.

The current regulations allow the foundation of an LLC by a sole individual. The equity upper limit, previously set at 2 million Swiss Francs (CHF), has been abolished because it pointlessly used to slow down the growth of a company that needed substantial equity. The minimum required amount of the equity remains set at 20'000 CHF. The latter must always be paid up in full. In return, the joint and several liabilityof the general partners up to the whole equity has been paid up in full has been abolished.

Unlike the previous law which held that a partner can only own one "quota"1 (aCO 774 II), the new one allows a distribution of the financial contribution from each partner in several quotas.

The present law improves the minority partners' protection, particularly the right to information and access to documents, and the preferential allotment of a new quota in case of an increase in capital. It settles the option to exit and the exclusion of a partner, two features of the LLC (especially as regards the indemnity of the partner that leaves the company).

Taking into consideration the needs of the small enterprises, it is in general not provided for that the LLC must have its accounts checked by an auditor. Only companies fulfilling some particular conditions are forced to do it. This obligation may also be stipulated in the Memorandum and Articles of Association.

1. General provisions

1.1.Context

The LLC was introduced in the Swiss Code of Obligations2 in 1936. Until the coming into force of the revised joint-stock company law, the LLC hadn't truly become established in Switzerland. Between 1992 and 2001, the number of LLC didn't stop increasing, rising from 2'964 in 1992 to 52'395 by the end of October 2001.

This "craze" for the LLC mainly originated in the new requirements imposed on the joint-stock companies since the revision in 1991: the increase of the equity's lower limit from 50'000 to 100'000 CHF as well as the implementation of the compulsory auditing of yearly accounts by an independent auditor led the small enterprises to move over to the LLC more and more regularly. It is worth mentioning that the joint-stock company has been chosen too mechanically for a long time by little businesses, taking no notice of the option of the LLC.

Let's recall the drawbacks of the former LLC:

The joint and several liabilityfor the company's debts up to the equity entered in the Register of Commerce weighing on every partner (aCO 802). Under certain circumstances, this liability could widely exceed the face value of a quota subscribed by a partner. The legal text did not specifically provide for the foundation of a LLC by a sole individual. The assignment of a quota made difficulties because the latter and the agreement related to it were valid only if drawn up by a notary (aCO 791 IV). The amount of each partner's quota had to appear in the Memorandum and Articles of Association (aCO 776, cipher 3). As every partner was able to own one quota only (aCO 774 II), the quota's face value had to be modified every time another partner increased his participation. This change involved an amendment of the articles of association, which of course required a notarized deed as well (aCO 784 par. 1). The minority partners' protection showed some shortcomings, especially for those who did not manage the company. Their right to information and supervision were insufficient (aCO 819). The regulations concerning the option to exit and the partner's exclusion were incomplete, regarding the indemnity for instance (aCO 822). A partner's bankruptcy could result in the LLC's dissolution (aCO 793 and 794). Even if the managing partner didn't run the company for himself and on his own account, he was ex lege subject to bankruptcy proceedings (LP 39 paragraph 1, cipher 5 LP). This is not compatible with the principle of the separation of the spheres of liability applying to equity companies. The powers distribution between the managing partners on the one hand, and the partners' meeting, on the other hand, was not precisely defined (aCO 810). Unless provided otherwise by the articles of association, all partners had to and were allowed to manage and represent the company only...

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