Corporate
When a handshake isn't enough: The case for written shareholder agreements
Many Swiss SMEs operate without formal shareholder agreements. We explain why this is risky and what a good SHA should cover: with practical examples.
In our corporate practice, we regularly encounter established Swiss companies: profitable, well-run, with decades of history: that have no written shareholder agreement. The partners trust each other. They've always figured things out. Until they don't.
Why the CO isn't enough#
The Swiss Code of Obligations provides a default framework for share companies (AG) and limited liability companies (GmbH). But these defaults are designed for the general case, not for your specific partnership.
Without a shareholder agreement, the law determines:
- Transfer restrictions: CO defaults are minimal: shares in an AG are freely transferable unless articles say otherwise
- Decision-making: Simple majority rules, with limited minority protections
- Exit scenarios: No obligation to buy out a departing partner
- Deadlock: No mechanism if 50/50 partners disagree
What a good SHA covers#
A well-drafted shareholder agreement addresses six core areas:
1. Transfer restrictions and pre-emption rights#
Who can buy shares? In what order? At what price? A clear pre-emption cascade (Vorkaufsrecht) prevents unwanted third parties from entering the company.
2. Tag-along and drag-along#
Tag-along protects minorities: if the majority sells, minorities can join on the same terms. Drag-along protects majorities: if enough shareholders agree to sell, holdouts must participate. Both are essential for clean exits.
3. Valuation mechanism#
How are shares valued for internal transfers? Common approaches:
- Formula-based: Revenue or EBITDA multiple, updated annually
- Expert valuation: Independent appraiser, defined methodology
- Hybrid: Formula as default, expert as fallback for disputes
4. Deadlock resolution#
For 50/50 partnerships, deadlock is existential. Options include:
- Russian roulette clause: One partner names a price; the other must buy or sell at that price
- Texas shoot-out: Both partners submit sealed bids; highest bidder buys
- Mediation/arbitration escalation: Structured dispute resolution before nuclear options
5. Non-compete and confidentiality#
Shareholders (especially active ones) should be bound by non-compete and confidentiality obligations that survive their departure.
6. Succession and death#
What happens if a shareholder dies or becomes incapacitated? Buy-sell provisions funded by life insurance (Kreuzversicherung) can prevent a spouse or heir from becoming an unwanted business partner.
The cost of not having one#
We've seen disputes that cost more in legal fees than the company was worth. The most common triggers:
- A partner wants to exit but there's no buyout mechanism or agreed valuation
- A deceased partner's heirs demand a board seat
- A minority shareholder blocks a sale because there's no drag-along
All of these are preventable with a properly drafted agreement.
When to do it#
The best time is at formation. The second-best time is now. The worst time is when you already have a dispute: at that point, you're negotiating from positions, not principles.
We typically prepare a shareholder agreement in two to three sessions with all partners. The investment is modest relative to the protection it provides.
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