How to appoint and remove officers in a Swiss subsidiary

The stock corporation (AG) and the limited liability company (GmbH) are the two most common legal forms of companies in Switzerland. The following explanations are therefore limited to these two corporate forms. The provisions on the GmbH are to a large extent modeled on those of the AG or refer directly to stock corporation law. In some cases, however, there are differences, also with regard to terminology.

Company limited by shares (AG/SA)

In the case of an AG, management and representation of the company are the responsibility of the members of the board of directors. Unless the articles of association or the organizational regulations provide otherwise, the power of representation is vested in each member of the board of directors individually. However, the board of directors may also delegate the management (or individual tasks) and the representation, respectively, to one or more members of the board of directors (delegates) or third parties (directors) in accordance with the corresponding organizational regulations. If the board of directors of a company limited by shares consists of several persons, one member must be appointed chairman (the election and dismissal of the chairman may also be delegated to the general meeting of shareholders in the articles of association). The law assigns certain non-transferable duties to the board of directors; consequently, these duties cannot be delegated. The law does not specify the number of members of the board of directors. It must therefore be determined, in particular with a view to the size of the respective company, how many members of the board of directors and/or managing directors are expedient in the respective case (in principle, there are between three and seven members on the board of directors). The organization of a company limited by shares is thus largely flexible.

Limited liability company (GmbH/Sàrl/LLC)

In the case of a GmbH, all shareholders exercise the management jointly. However, the articles of association can also provide for the transfer of management to individual shareholders or to third parties (directors), respectively. As regards the representation of the limited liability company, each shareholder has the right to individually represent the company.

The following conditions apply to both types of company:

• managing directors and members of the board of directors can only be natural persons capable of acting. In addition, they must be independent of the auditors;
• at least one managing director must also have the power of representation of the company. The powers of a representative can also be restricted as desired by special agreements (e.g., a restriction to a main or branch office or a restriction by collective signature);
• the AG and the GmbH must be able to be represented by at least one person who is resident in Switzerland. It is common practice, especially in larger companies, that a collective signature by two is required. In this case, the two authorized representatives must be resident in Switzerland. However, it is not required that this person has a function as managing director; in addition, an authorization to represent the company without a specific function is possible;
• neither in the case of the AG nor in the case of the GmbH do the managing directors have to be shareholders or partners. Consequently, the transfer of management to directors is permissible for both types of company;
• at the statutory level, further requirements for the managing directors can be anchored, although the protection of personality and the principle of equal treatment must be observed.

The legal relationship between the managing director and the company can be structured in different ways. It is a sui generis relationship, whereby, on the one hand, the provisions of company law, resolutions and the articles of association are of relevance, and on the other hand, the contract regulating the relationship with the legal representative is to be consulted. The latter is either a simple agency contract (mandate) or an employment contract. Depending on how the legal relationship is qualified, either the rules of the simple agency contract or those of employment law apply. The qualification has a significant impact on the dismissal of the respective managing director.

For outside directors, whose role is limited to participation in the decision-making process, contract law is generally applicable. For delegates and senior executives, i.e. material bodies, who not only participate in the decision-making process but also in its implementation, labor law is in principle applicable due to the subordination relationship with the company.

The contract underlying the basic relationship with the company regulates the respective conditions under which the managing director performs his functions (duties, remuneration, limitations of powers).

In the appointment process, a distinction is made between companies in which the shareholders act as managing directors by virtue of their membership (self-management) and those in which the management must be elected (third-party management):

• AG: the management and the persons authorized to represent the company are appointed by resolution of the entire board of directors (third-party board);
• GmbH: since the management is shared by all shareholders (unless otherwise stipulated in the articles of association), there is no need to appoint or elect a managing director (self-organization). Moreover, in this case there is no need for a fixed term of office.

If the management is to be transferred to individual shareholders or to third parties, the managing directors must be elected by the shareholders' meeting, whereby the term of office must be regulated in the articles of association or in the corresponding resolution. The third-party body can thus be provided for in the articles of association. If more than one person holds the position of managing director, the shareholders' meeting must mandatorily appoint one managing director as chairman.

• AG: the law does not comment on the resignation of a member of the board of directors or a director. Since the legal relationship between the member of the board of directors and the company is usually not structured as an employment relationship, but rather as a mandate/simple agency contract, the mandate relationship can be revoked by either party at any time. A member of the board of directors may therefore resign at any time. Restrictions regarding the right of resignation in the articles of association are not permitted.
• GmbH: a managing director elected by the shareholders' meeting may resign at any time. Resignation as a non-elected managing director is only possible with the consent of the other shareholders. If they do not agree, the company shares must be sold or the managing director must sue for resignation or for dissolution of the company.

If, in addition, the relationship between the managing director and the company qualifies as an employment relationship – such additional qualification is to be carefully considered in each individual case – and is, as a consequence, regulated by employment law, the notice periods stipulated in the employment contract or, subsidiarily, the statutory notice periods, must be observed.

• AG: a dismissal of a member of the board of directors is possible at any time and without preconditions by the general meeting or the entire board of directors. The board of directors is responsible for the dismissal of managing directors. The right of dismissal cannot be excluded by the articles of association or be subject to time limits. Moreover, it may not be materially limited by making the dismissal dependent on an important reason. A general meeting of shareholders or a meeting of the board of directors must be convened and the dismissal of the board member or managing director concerned must be included in the agenda when the meeting is convened. The legally valid dismissal must be decided by the board of directors or the general meeting by a simple majority.
• GmbH: shareholders who are authorized to manage the company by virtue of their position cannot, in principle, be dismissed. In these cases, it is necessary to include in the articles of association the provision that new managing directors are elected by the general meeting of shareholders. Managing directors elected by the shareholders' meeting may also be dismissed by the shareholders' meeting at any time. For this purpose, a shareholders' meeting must be convened and, unless otherwise provided, an absolute majority of votes is required for dismissal. Likewise, each individual shareholder can demand dismissal or restriction of management or representation in court for good cause (e.g., in the event of incapacity or serious breach of duty). Such reasons can also be included in the articles of association by way of example.

In case of dismissal, it should also be noted that if an employment relationship between the managing director and the company is assumed, the terms of termination under the respective employment contract and the statutory provisions, respectively, are applicable.

The following statements apply to both, the AG and the GmbH.

One limitation of the removal of an appointed person at any time without preconditions is that the removal at an untimely moment may trigger claims for damages. Untimely dismissal occurs when the party being dismissed demands dissolution without cause, i.e. without objective reasons, and the other party suffers particular disadvantages as a result. However, the claim for damages only exists if the party concerned has not itself given cause for the dismissal (e.g., through breach of contractual obligations).

The resignation of a managing director may also give rise to claims for damages on the part of the company under the same conditions.

If the legal relationship between the managing director and the company qualifies as an employment relationship, termination without notice is only permissible if there is good cause. Such cause is restrictively assumed only if the continuation of the employment relationship is – in good faith – no longer reasonable for the terminating party. If no such reason exists, the company must compensate the person terminated without notice for what he/she would have earned if the ordinary notice period had been observed. However, if good cause is assumed, the company may be entitled to damages from the terminated party.

If the manner of dismissal constitutes an inadmissible violation of personality rights (e.g., violation of honor), amends may be owed in addition to damages.