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.