Iran – Obtaining a Foreign Investment License

18 julio 2016

  • Irán
  • Derecho Societario
  • Derecho Laboral

Founders

At least one founder (either individual or legal entity) is necessary to form a corporation. Founders and shareholders are not subject to any nationality or residence requirements. Directors must be shareholders and at least one director must be resident in Switzerland. Another restriction relates to the acquisition by non-resident aliens of shares in a Swiss company whose assets consist mainly of Swiss real estate: these transactions are subject to prior authorization. Prior authorization is further required for non-residents to own and operate a Swiss bank, or to acquire an existing Swiss bank.

Articles of incorporation

Articles of incorporation must have the following minimum content:

  • the company name and address;
  • the business purpose of the company;
  • the amount of share capital and the contributions made thereto;
  • the number, par value and type of shares;
  • the calling of the general meeting of shareholders and the voting rights of the shareholders;
  • the naming of the bodies which take care of the management and the auditing of the company;
  • the form in which the company must publish its notices.

Optional clauses are those which must only be listed if founders intend to adopt additional provisions, such as the directors’ participation in the net profits, the issue of preferred shares, the delegation of directors’ authority, the issue of authorized capital or conditional capital.

Founders report

The founders must provide a written statement giving particulars of the nature and condition of contributions in kind or proposed acquisitions of assets, and the appropriateness of their valuation. A founders’ statement is also required when the capital of a company shall be contributed by conversion of shareholder loans and advances. The auditors have to review the founders report and confirm in writing that it is complete and truthful.

Raising of Funds

After subscription to all shares of capital stock, a minimum of 20% of the par value but not less than CHF 50,000 must be placed in escrow with a bank. The funds may only be released to the management after the company has been registered in the Commercial Register.

Incorporation Meeting

The corporation is formed at the incorporation meeting, which is held in the presence of all the shareholders and a public notary. This latter declares that the capital stock is fully subscribed and that the minimum payments have been made. Thereafter, the shareholders adopt the articles of incorporation and appoint the bodies corporate (board of directors, auditors etc.). Finally, a notarised deed must be drawn up recording the resolutions of the general meeting.

Registration

After incorporation, the company must be registered with the Commercial Register. This registration is published in the Swiss Official Gazette of Commerce. It discloses details such as the purpose of the company, its seat, the names of the shareholders (unless they opted for issuing bearer shares) and the names of the directors. Only at the time of registration the company acquires legal entity status. Shares may not be issued prior to registration.

Upon formation, a one-time federal stamp duty of 3% is due on the capitalisation of the company. This stamp duty is assessed on the price at which the shareholder buys the shares. Any premium above par value is also subject to this duty. Furthermore, there are registration and notary fees and, generally, fees due to agents who act as founders to the new entity.

Corporate Name

The corporation is registered under a firm name, which must be distinguished from those of all other corporations already existing in Switzerland. In principle, the corporation is free to choose any kind of name. The name may not however be misleading or otherwise untruthful. The use of national or territorial designations is not permitted unless specifically authorized by the Federal and Cantonal Registers of Commerce. If a personal name is used, a designation showing the corporate nature must be added.

Share Capital

A public company is required to have a minimum capital of CHF 100,000 divided into shares with a minimum face value of CHF 0,01, while a limited liability company is required to have a minimum capital of CHF 20,000.  In the case of a public company, all shares must be subscribed at the time of formation. Capital contributions may be in cash or in kind. If the contribution is made in kind, the company must have access to such assets immediately after registration in the Commercial Register. The articles must describe the property, its value, the shareholder from whom it is received and the number of shares issued in return. The acceptance by the company of contributions in kind requires the approval of at least two thirds of the shares represented at the incorporation meeting.

The general meeting of shareholders may authorize the board to increase the share capital within a period of 2 years. It is within the competence of the Board to decide if, when, and to what extent, the capital should be increased.

The general meeting may provide in the articles for a conditional capital increase. The purpose of issuing conditional capital is, alternatively, to secure options and conversion rights in connection with warrant issues or convertible bonds, or to create employee shares. The increase of capital takes place at the same time, and to the same extent, as the exercise of the respective rights.

Different Types of Shares

Swiss corporation law distinguishes between the following categories of shares:

  • Bearer shares – Bearer shares may not be issued until the full issue price has been paid in. They are transferable by delivery and the corporation cannot restrict their transfer. Bearer shares are very popular in Switzerland because many owners prefer to protect their identity.
  • Registered shares – Registered shares are subscribed as called by the corporation and do not need to be fully paid in on issue. They are transferable by endorsement or assignment, generally without restriction. The company must keep a share ledger listing the owners’ names and places of residence. The entry must be certified on the share certificate by the Board. The buyer of incorrectly transferred registered shares cannot exercise personal membership rights. The articles may provide for subsequent conversion of registered shares into bearer shares and vice versa.
  • Restricted transferability of registered shares – To prevent unfriendly takeovers, the articles may provide for restrictions on the free transferability of shares. By law those restrictions are however limited.
  • Preferred shares – The general meeting of shareholders is entitled to issue preferred shares or to convert existing common shares into preferred shares. The holders of preferred shares enjoy certain preferences such as cumulative or non-cumulative dividends, priority in the proceeds of liquidation and a preferential right to subscribe to new shares. This preferential treatment must be provided for by the articles or be adopted by the votes of at least two thirds of all shares represented.
  • Voting shares – In general, each share is entitled to one vote. Since shares of differing value may be issued, each vote may not represent the same amount of capital contribution. Voting shares, therefore, provide those shareholders who represent a financial minority with the decision making power within the corporation. The issue of voting shares is permitted in the ratio of 1 : 10 to ordinary shares.
  • Profit sharing certificates – The general meeting of shareholders can issue profit sharing certificates in favour of persons who have an interest in the company through previous capital contributions, shareholdings, creditors’ claims, employees, or similar relationships. Profit sharing certificates may grant rights to a share in profits, a share in the liquidation proceeds or rights to subscribe to new shares. They do not procure any membership rights. By law, profit sharing certificates must not have a par value nor be issued in exchange for contributions characterized as assets.
  • Certificates of participation – The certificate of participation is a non-voting share, with the holder of such certificates having basically the same status as shareholders apart from the right to vote. The participation capital must not exceed double the share capital. Companies have until June 30, 1997 to comply with this requirement unless their participation capital was more than double the share capital on January l, 1985.

There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

ESTABLISHING A DOMINICAN SUBSIDIARY

Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

  1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
  2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
  3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
  4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
  5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
  6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
  7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

The following schedule serves as a guidance of the time required to form a new Dominican Company:

Register of company trade name 5 to 7 days
Drafting incorporation documents plus 2 to 5 days
annexes (Incorporation Meeting, By-laws, Business Register application)
Paying incorporation taxes on capital less than 1/2 day
Incorporation Meeting of shareholders less than 1/2 day
Legalizations by Notary Public less than 1/2 day
Registration in Business Register 2 to 5 days
Registration as Tax Contributor (RNC) 10 to 15 days

The following founding documents are needed to form the company:

  1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
  2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
  3. Attendance List and Minutes of the Incorporation Meeting.
  4. Updated List of Partners/ Shareholders
  5. Report of the Commissary of Contributions, if applicable.
  6. Receipt of payment of the tax on the incorporation of legal entities.
  7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
  8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
  9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

REGISTERING A DOMINICAN BRANCH

Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

  1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
  2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

  • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
  • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
  • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
  • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
  • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

The author of this post is Felipe Castillo.

Companies are the most common vehicles for business and investment activity whether in Cyprus or abroad.

Types of companies

Under the Companies Law. Cap. 113 as amended (the “Companies Law”), there are two types of companies:

  • Companies limited by shares, and
  • Companies limited by guarantee (with share capital or without share capital)

Companies limited by guarantee are often employed for non-profit or charitable purposes whereas companies limited by shares for business purposes.

The latter may be either private companies or public companies. A private limited liability company must have at least one shareholder but no more than fifty whereas a public limited liability company must have a minimum of seven shareholders and there is no ceiling as to maximum number. The shareholders of a company may be either natural persons or legal persons (Cypriot or foreign). Shares cannot be issued to the bearer.

Liability of shareholders

Companies are separate legal entities distinct from their members. They have a separate corporate personality and are responsible for their obligations and debts. The liability of the shareholders in companies limited by shares (private or public), is limited to the nominal value of the shares agreed to be taken up or to an amount above the nominal value if the shareholder specifically agreed to subscribe to the shares at a premium. In the case of companies limited by guarantee, the liability of the shareholders is limited to the amount each shareholder agrees, at subscription, to contribute towards the debts of the company in the event of liquidation.

Share Capital

There is no restriction as regards the minimum or maximum share capital of a private company. But there is a minimum share capital requirement of €25629.02 in the case of public companies. Information as regards the initial authorised and issued share capital of the company is included in the memorandum of association and any subsequent changes must be notified to the Registrar of Companies.

The share capital may be paid in cash or in kind.

 Transfer and allotment

The transfer of shares in a company is not restricted by law. It is however possible and common for restrictions e.g. right of first refusal to be included in the articles of association of the company. In such cases any transfer of shares must be made in compliance with the relevant provisions of the constitutional documents (see below).

On an allotment of new shares of a public company, the company is obliged to offer shares to existing shareholders pursuant to pre-emption rights provided as mandatory rules in the statute. In the case of a private company there is not such statutory duty and therefore it depends on whether pre-emptions rights and relevant obligations on the part of the company have been provided for in the articles of association.

All allotments of new shares and transfers of shares must be notified to the Registrar of Companies.

 The Directors and Secretary

The directors of the company, acting collectively as a board, manage the business of the company and do all decision making to the extent not reserved for the general meeting of the shareholders.

A private company needs to have at least one director whereas a public company must have at least two. There is no statutory restriction as to the maximum number of directors but the articles of association of the company may provide limitations. The directors of the company may be natural or legal persons (Cypriot or foreign). The proceedings of the board of directors and its composition are very important elements for the tax treatment of the company (see below).

All companies are required to have a secretary. The duties of the secretary are mainly of an administrative nature.

 Registered office

The company must have a registered office in Cyprus. All communications and notices may be addressed to the company at the registered office and any document, whether official or otherwise, may be served to the company at its registered office.

 Incorporation documents

The memorandum of association is the document which sets out important information in relation to the company; such information might be relevant for third parties e.g. potential counterparties, creditors etc.. The memorandum of association must state:

  • the name of the company;
  • the place where the registered office is situated;
  • in the case of a public company, the fact that it is such a company;
  • the objects of the company;
  • a statement that the liability of its members is limited and the amount to which such liability applies;
  • the names of the subscribers to the memorandum of association and the number of shares each of them takes up.

Following the registration of the company, the memorandum of association may be amended with the approval of the court.

The articles of association is the document regulating internal matters as regards the operation and management of the company and the rights of the members e.g. the procedures to be followed in general meetings, requirements for the adoption of resolutions, the voting rights of members, the conditions and manner in which shares are to be transferred, rights and duties relating to put or call options, rights and duties relating to tag and drag along rights, the appointment and removal of directors etc. The articles of association may be amended by a relevant decision of the members of the company.

Together with the memorandum of association, the articles of association form the constitutional documents of the company and constitute basically an agreement between all and each of the members of the company to abide to their provisions.

 Registration

Establishing a company requires registration with the Registrar of Companies, the governmental office competent for matters relevant to the registration of companies and their ongoing obligations with regard to information that must filed pursuant to the Companies Law. The Registrar of Companies is responsible for keeping a relevant file which is available to the public for inspection.

The initial step in the formation of a company is the approval of the proposed name by the Registrar of Companies. Subsequently, the memorandum of association and articles of association of the company must be filed accompanied by the necessary forms which indicate the registered office, the details of the director(s) and secretary and an affidavit of the lawyer in charge of the registration of the company. Usually it takes approximately seven to fifteen working days for the completion of the registration of a company. A shelf company i.e. a ready-made company may be purchased if there is an immediate need for the use of a company. Following registration of the company, the Registrar of Companies issues a certificate of incorporation which constitutes conclusive evidence that all the requirements of the Companies Law, in respect to registration and matters precedent and incidental thereto, have been complied with.

Financial statements

Financial statements must be prepared annually and be duly audited by qualified accountants practising in Cyprus according to the International Financial Reporting Standards. Annual returns containing information as to any changes to directors, secretary, shareholders, authorised, issued or paid up capital, registered office, mortgages/charges and other related matters must be filed with the Registrar of Companies once per year accompanied by a copy of the financial statements.

Tax aspects

In order be eligible to benefit from the favourable Cyprus tax regime and treaty network in place, a company should be considered as resident in Cyprus for tax purposes.

Under Cyprus tax law, a company is considered as tax resident in Cyprus if its ‘management and control’ is exercised in Cyprus. There is no statutory definition of ‘management and control’. In practice Cyprus tax authorities would look at several conditions to determine whether a company qualifies as a resident in Cyprus for tax purposes:

  • strategic management decisions and preferably day-to-day decisions being taken in Cyprus,
  • the majority of the board members being tax residents in Cyprus and exercising their  office from Cyprus,
  • an actual office being maintained in Cyprus,
  • evidence of commercial documentation being stored in the company’s office,
  • accounting records being prepared and kept in Cyprus,
  • bank accounts being operated from Cyprus even if maintained with foreign banks.

Not all of the above must be established in order for the company to qualify a tax resident in Cyprus; the conditions would be considered in light of the nature and level of activities of the company and the country in which transactions or investments are made. For the purposes of the Cyprus tax authorities satisfaction of the first two conditions would normally be adequate for the company to be considered as tax resident.

Tax resident companies are subject to income tax on their worldwide income at the flat rate of 12.5% subject to tax credit for any tax suffered in a foreign jurisdiction on income which is also subject to tax in Cyprus.

Companies ought to submit tax returns, together with their annual financial statements, to the Tax Department in compliance with the applicable legislation.

Re-domiciliation

It is possible for corporations from other jurisdictions to acquire a ‘domicile’ in Cyprus. Effectively this means that the company may change its governing law without going through the process of liquidation where it was firstly established and then fresh incorporation in Cyprus.

A company registered in another jurisdiction is eligible to apply to the Registrar of Companies to be registered as a continuing company pursuant to the provisions of the Companies Law if: the foreign jurisdiction allows the re-domiciliation, its constitutional documents provide for it and the steps required for the decision for the re-domiciliation have been complied with. Such companies must have their registered office transferred into Cyprus.

It is also possible for local companies to “re-domicile” moving their registered office in other jurisdictions.

In both cases of ‘re-domiciliations’ the permission of the Registrar of Companies is required and it is generally given upon certain conditions being met.

The challenge of an entrepreneur

When thinking on internationalization, an entrepreneur has many options and conditions to consider before making the right decision. Probably he would look for a country or region that offers safety, stability, has less restrictions, hands incentives and a cultural balance.

In South America, there is a country that has been growing steadily for the last 25 years, with  a very interesting investment environment: Peru.

This country has changed its closeness of the past to become an open economy. Before 1990, this country was involved in a decadent economic situation, state control of the economy, appalling levels of inflation, high import tariffs, foreign exchange controls, prohibition of holding foreign currency, huge inequalities between cities and provinces, terrorist violence and high levels of corruption.

Although in 1990 this country looked unsustainable and ready to the final collapse, a new administration set the path to the future. The economy has been dramatically opened, tariffs unilaterally reduced, foreign exchange controls eliminated and the basis for a fair private activity of the economy has been imposed by establishing that the state’s participation in the economy should only have a subsidiary role and not represent unfair competition to the private sector.

A country to be considered as an option

Never in its republican history Peru had a period of growth of 25 years and the path set in 1990 it’s only expected to continue. The general consensus on the need of macroeconomic stability, associated with prudent fiscal policies, has brought Peru to have high international reserves and an important reduction of its external debt.

State companies have left the market in favor of local and international companies trough privatizations and concessions, especially on infrastructure.

Successive Peruvian governments have sustained a State policy of engaging on international trade agreements. To this day, Peru has free trade agreements with the mayor economies of the world, including the USA, the European Union and China, and it’s an active promoter of international economic integration, being one of the late examples “the Pacific Alliance” formed also by Colombia, Chile and Mexico, all of them open economies.

In Peru it is not only possible to hold bank accounts in local currency (Soles), US Dollars and Euros, but also to exchange currency at very competitive rates. Foreign investors or traders are able to transfer funds in and out without any previous State authorization.

The country has changed and this time modernity is also reaching the provinces, poverty has been reduced from more than 50% in the early 90’s to a little less than 20% nowadays, representing a big increase of the middle class. The new Peruvian government that initiated a 5-year mandate on July 2016, has pledged to bring poverty numbers to less than 10%.

Peruvian economy is well diversified. While the mining sector is the heavy weight of the economy, other sectors have been growing at a record pace: fishery, agriculture, agro-industry, construction, tourism, services, etc.

Peru is now committed to become part of the Organization for Economic Co-operation and Development (OECD) that congregates the high income economies of the world.

Yet, the road is still long. High levels of informality on the economy and a big deficit on infrastructure represents not only challenges but opportunities at the same time.

Legal regulations

While, legal regulations in basic areas (like tax, labour, civil law) have been basically the same since the early 90’s, the government of Pedro Pablo Kuczynsky (in office since the end of July 2016) has requested to the Congress the ability to legislate through decrees on 5 fundamental topics: economic reactivation, public safety, anti-corruption, water & sanitation and the re-organization of the state controlled petrol company(Petro-Peru).

The Peruvian Congress (led by the opposition party of Mrs. Fujimori) has granted this authority to the Executive for a 90-days period until the end of December of 2016.

In the weeks to come, we will see the announcement of new Peruvian regulations that are expected to be investors friendly. We will use the implementation of these regulations in order to explain how to do business in Peru, also from the legal point of view.

The author of this article is Frank Boyle.

The GmbH is a capital company under German law. The liability of the shareholders in this kind of corporation is limited to the company’s share capital i.e. the company’s assets alone shall serve to fulfil the company’s obligations vis-à-vis its creditors. Being the GmbH – a limited liability company – a legal person, it holds autonomous rights and obligations; as such it may e.g. acquire ownership and other rights in real property and autonomously sue and be sued in court in connection with its rights and duties.

The corporate bodies of the GmbH required by compulsory provisions of the Limited Liability Company Act (GmbHG) are the entirety of the shareholders, who regularly adopt resolutions at the shareholder meeting (Gesellschafterversammlung), and the managing director(s) (Geschäftsführer). The establishment of a supervisory board (Aufsichtsrat) is, with some specific exceptions, optional.

Shareholders’ rights and duties

The rights and duties of shareholders may be quite different in origin and nature. Shareholder rights and duties may exist by force of law or may be created by, or based upon, the articles of association (Satzung). Said rights and duties may attach to all shares as such or belong to, or be imposed upon, a shareholder personally (personal shareholder rights and duties). Shareholder rights and duties may be available to, or be imposed upon, all shareholders equally or upon one or several shareholders particularly. In principle such rights and duties pass to any transferee of the share, whether such a transfer is by assignment, inheritance, or otherwise, and cannot be assigned or otherwise transferred separately from the share itself.

Both rights and duties attaching to shares, that are not created by law, and personal shareholder rights and duties can only be granted or imposed by the articles of association or by shareholder resolutions passed on the basis of the articles of association. These rights and duties must be distinguished from the ones provided within agreements between the shareholders, which are made “outside the articles of association”. Such latter agreements can only create contractual rights and duties among the parties thereto. If a share is transferred, the transferee can only exercise the contractual rights of the transferor, provided those rights were specifically assigned to him by contract; said transferee is accordingly bound by his transferor’s contractual duties only if he has agreed to take them over.

Shareholder rights can be divided into administrative and property rights. Administrative rights include the right (i) to request the calling of the shareholders’ meeting (ii) to participate in the shareholder meeting (iii) to vote and (iv) to be provided with information about the corporate activities. The right to information basically entails that the managing directors must provide every shareholder with information about the affairs of the company upon their simple request and allow them to inspect the books and records of the company. Property rights include the entitlement to a quota of the annual profits, the right to dispose of the share and the entitlement to a share of the liquidation proceeds.

The most important shareholder duties are the duty to render contributions, the fiduciary duty and the duty to ensure that the share capital, once provided, is preserved. Shareholder rights and duties can be expanded, restricted or excluded in the articles of association, as long as this is not in conflict with mandatory law provisions.

Finally, once the company gets into economic trouble, a shareholder is obliged to either (i) inject new equity to the company, (ii) liquidate the company or (iii) cause the management to commence insolvency proceedings.

Liability

The GmbH is a legal entity separate from its shareholders. Therefore, the shareholders are in principle not liable for debts of the GmbH. There are only a few scenarios of shareholder liability in literature and court practice:

  • Shareholders may be liable for debts or losses of the company – on a contractual basis – if they undertake a contractual obligation towards the company’s creditors or the company (e.g. by means of a guarantee or a comfort letter).
  • A shareholder may be personally liable to the company for payments received from the company to the extent such payments cause the equity of the company to fall short compared to the registered share capital.
  • Shareholders may be held liable by the company if, disregarding the purpose of the company’s assets to serve as collateral for its creditors, they intentionally abuse their control to remove assets or business opportunities from the company, rendering it unable to satisfy its debts.
  • Additionally, a shareholder may become personally liable towards the company’s creditors if the assets are not clearly allocated to the shareholders or the company in the books of the company (intermingling of assets) and such allocation is not inferable from other circumstances, e.g. the physical separation.

 Shareholders’ meeting

The shareholders’ meeting is the company’s ultimate decision-making authority. Shareholders usually exercise their rights in the shareholders’ meeting. Shareholder resolutions may also be taken without a physical meeting. In particular, a meeting is not necessary if all the shareholders confirm in text form that they agree with the resolution to be passed or to cast their votes in writing.

Usually, the articles of association determine the powers of the shareholders’ meeting and the rules of procedure to be applied in its context. To the extent that the articles of association do not contain specific provisions regarding the procedures to be applied within the shareholders’ meeting, §§ 46-51 GmbHG apply as the relevant model framework.

The shareholders’ meeting is exclusively entitled to:

  • amend the articles of association,
  • call in additional contributions of the shareholders,
  • liquidate the company and  appoint and dismiss the liquidators,
  • resolve upon measures pursuant to the Transformation Act (Umwandlungsgesetz – UmwG) such as mergers, spin-offs and changes of the company’s legal form.

Except as otherwise provided in the articles of association, the shareholders resolve upon:

  • the formal approval of individual and consolidated annual financial statements and the distribution of profits,
  • the repayment of additional contributions,
  • the division, consolidation and redemption of shares,
  • the appointment and dismissal of managing directors, as well as their discharge,
  • the execution and termination of service agreements with managing directors,
  • the assertion of damage claims to which the company is entitled against managing directors or shareholders, as well as the representation of the company in litigation proceedings against managing directors or shareholders,
  • the rules of procedure for the management,
  • the appointment of a Prokurist (person vested with the general power of representation) and of persons vested with the commercial power of attorney for the entire business establishment (Handlungsvollmacht).

The above mentioned tasks can be however transferred by the shareholders’ meeting to the supervisory board, if any, by adopting a relevant resolution.

In addition, the shareholders’ meeting has the right to issue instructions to the managing directors and to appoint or dismiss members of an optional supervisory board.

A shareholders’ resolution is deemed to be passed, when more than a half of the given votes are favourable. In exceptional cases a majority of ¾ will be necessary, e.g. with regard to amendments of the articles of association, the dissolution of the company, resolutions on mergers, spin-offs and other measures under the Transformation Act (UmwG), execution of domination agreements and of profit and loss transfer agreements.

Managing director

The company must have one or more managing directors (Geschäftsführer). The GmbH is not legally required to have more than one managing director except in particular cases (e.g. in case indicated by the Co-Determination Act. Both shareholders and non-shareholders (however only natural persons, no legal persons) may be appointed managing directors. In the articles of association the shareholders can set requirements regarding the qualification for the position of managing director.

If the GmbH has only one managing director, he represents the company severally. If several managing directors have been appointed, they must represent the company jointly. However, if the company has more than one managing director, the shareholders can also grant the power of representation to the individual managing director derogating the statutory rule of joint representation, by a corresponding clause of the articles of association. In other words any modification of the statutory powers of representation must be based upon a provision in the articles of association. That provision must either itself define directly the extended power of representation in favour of an individual managing director, or permit the shareholders to extend the power of representation of the managing directors by passing a relevant shareholder resolution.

In detail, the shareholders may grant each managing director, or one or several managing directors, the right

  • to represent the company acting alone,
  • to represent the company acting jointly with one or several other managing directors, or
  • to represent the company acting jointly with one or several managing directors or Prokurist.

The managing directors have authority to represent and act on behalf of the company in all legal transactions in and out of court.

A limitation of the authority of managing directors to represent the GmbH – even within the articles of association or resolved by shareholder resolution – will have no effect with respect to third parties. Should the articles of association e.g. set forth that the managing directors are not entitled to execute agreements with a value exceeding 5,000 € and the managing directors enter into an agreement with a 10,000 € value, such latter agreement shall be nonetheless valid vis à vis the contractual counterparty.

The limitation of the power to represent the company, however, operates in individual cases where the third party interacting with the managing director is not entitled to rely on the unlimited power of the managing director. This occurs in particular where a managing director abuses his powers to represent the company and the third party knows or deliberately ignores the abuse.

The power to represent the company is further limited by the prohibition of self-dealing and multiple representations. A managing director is in general not allowed to enter into legal transactions on behalf of the company with himself as counterparty (so called self-dealing) or as the representative of the company and of a third party (multiple representations). However, he can be exempted from such prohibitions. Such exemption may be granted in the articles of association or, if the articles of association allow it, by the shareholder meeting.

In the context of the internal relations between the company and the managing directors, the managing directors must observe the restrictions contained in the articles of association, the instructions set within shareholders’ resolutions or in the management contracts of the managing directors. The shareholders can issue instructions ad hoc or in a general way by establishing rules of procedure for the management (e.g. make certain kind of transactions subject to the consent of the shareholders’ meeting). In case the managing directors do not comply with such instructions, they are obliged to compensate the company for any damages incurred as a consequence thereof.

The shareholders may entrust specific fields of responsibility – i.e. administration, accounting, finance, employment and social matters, production, distribution, sales or marketing – to one or more managing directors. The shareholders may also introduce a hierarchic structure under which one managing director is granted an overall responsibility for any fields, while other managing directors are required to report to him with respect to matters regarding the specific field for which they are responsible. However, no managing director can be completely released from the joint overall responsibility for the well-being of the company. Thus, any managing director in charge of a special area of responsibility must report to the other managing directors whatever matters arise in his particular area if said issues may have an effect on the whole company; moreover any managing director may decide upon matters falling under the area of responsibility of another managing director if he believes that the overall well-being of the company may be affected by decisions taken with respect to those matters. In any case, such internal allocation of specific fields of responsibility does not lead to a limitation of the power of the managing directors to represent the GmbH and has no effect with respect to third parties.

Supervisory board

The creation of a supervisory board (Aufsichtsrat) is either optional or mandatory. It is mandatory if it is required by the One-Third Participation Act (Drittelbeteiligungsgesetz, in case of more than 500 employees), the Coal, Iron and Steel Co-Determination Act (Montanmitbestimmungsgesetz, in case of more than 1,000 employees), the Co-Determination Act (Mitbestimmungsgesetz, in case of more than 2,000 employees) or the Capital Investment Act (Kapitalanlagegesetzbuch, in case the company’s purpose is the management of investment funds).

In companies with up to 500 employees, no supervisory board needs to be established. However, the articles of association can provide for the formation of a supervisory board. In this event, the articles of association can even set forth rules for the supervisory board, including the board’s composition, competencies and mode of procedure. The scope of the competencies can be limited to monitoring and advisory responsibilities or even comprise decision-making and representation of the company vis-à-vis the managing directors.

Recently People’s Republic of China central government has unveiled and adopted a wide range of initiative to reduce the regulatory burden on daily business operations and provide greater autonomy in investment decision-making.

The reforms aim to give both domestic and foreign investors more autonomy and should make investments in the private sector much easier by reducing bureaucracy and increasing transparency. Investors will have more flexibility to determine the form, amount and timing of their business contributions. In addition, a system of publicly-available, electronic information (including annual filings and a corporate blacklist) will replace the old annual inspection system. Thanks to these reforms China’s requirements will become one step closer to international standards.

In this post I will analyze which are the enterprises affected by the reform; the Negative-list – setting out the industries that still need the approval to be established – and the new application process for company establishment.

Foreign invested enterprises

Generally speaking, foreign invested enterprises are the vehicle through which foreign investors may establish a presence to do business in China, choosing among one of the several different statutory forms recognized by the existing regulatory regime (such as: Wholly Foreign Owned Enterprise – WFOE; Equity Joint Venture – EJV; Contractual Joint Venture – CJV; Foreign Invested Company Limited by Shares; Foreign Invested Partnership Enterprise; or Holding companies). These entities are regulated under stricter laws than domestic companies, and are also subject to the same generally-applicable regulations.

The establishment of FIEs in Mainland China up is currently subject to a rather lengthy and bureaucratic examination and approval process by different Authorities. The same stringent requirements and burdensome procedure apply also to any major change related to FIEs structure, such as: increase or decrease of total investment/registered capital; change of business scope; shares or equity transfer; merger, division or dissolution; etc.

Nowadays, the set-up procedure of a WFOE undergoes through the following steps, having an average time frame of at least 3-4 months for the whole process:

Pre-issuance Business License

  • Collection of the basic information from Investor’s side (7 working days)
  • Company name pre-approval (5-7 working days)
  • Lease agreement (it depends on Investor/Landlord)
  • Legalized documents prepare by the Investor for the incorporation (few weeks)
  • Certificate of Approval issued by MOFCOM (4 weeks)
  • Business license issued by AIC (at least 10 working days)

Post-issuance Business License

  • Carve company chops (1-2 working days)
  • Foreign exchange registration certificate (around 10 working days)
  • Open a CNY bank account (depends on the bank)
  • Open a Foreign capital account (at least one week)
  • Capital injection, in compliance with company Article of Association
  • Capital verification report (it depends on accounting firm)
  • Foreign trade operator filing before MOFCOM (at least 5 working days)
  • Basic Customs Registration Certificate – if any (at least 5 working days)
  • Advance Customs Registration (at least 30 working days)
  • SAFE Preliminary Foreign Trader filing (2-3 working days)
  • VAT general taxpayer application (1-2 working days)
  • VAT general taxpayer invoice quota (30-60 working days)

On September 3rd 2016, the China National People Congress (NPC) Standing Committee adopted a resolution introducing several amendments related to the establishment of foreign-invested enterprises (FIEs) in China, which has taken effect starting from October 1st 2016. The resolution is going to produce its effect for some of the FIEs statutory forms only (WFOE, EJV, CJV).

These amendments repeal the current examination and approval regime to set-up legal entities, shifting to a different system where a FIE may be established following a streamline procedure of filing requirements before the competent authority, as long as the industry in which it engages is not subject to any national market access restrictions.

Negative List

Within October 2016 a Negative List will be issued, setting out the industries in which FIE establishment must still be examined and approved under the existing laws and regulations: a complicated and time consuming process, involving verification, approval and registration with several Authorities. The current list includes:

  • Agriculture and fishery (crop seed, animal husbandry, etc.)
  • Infrastructure (airports, railroads, postal service, telecom and internet, etc.)
  • Wholesale and retail (newspaper and magazine, tobacco, lottery, etc.)
  • Finance (investment in banks or other financial companies, etc.)
  • Professional services (accounting, legal advisors, market research, etc.)
  • Education (establishment of schools, management of educational institution, etc.)
  • Healthcare (EJV or CJV are required to set-up medical institution, etc.)

The publication of this list is a fundamental step, in order to better understand how the new regime will operate, as it will determine which sectors and matters are covered by the new filing requirements and, on the other hand, which items continue to undergo through a pre-approval process (basically all the sectors indicated in the Negative List).

The Negative List approach towards foreign investment was originally introduced by the Shanghai Free Trade Zone and subsequently extended to other Free Trade Zones in Mainland China (FTZs): according to the Negative List foreign investors were granted “national treatment” and were allowed to invest in several different business activities, with the exception of those listed in the Negative List form.

Essentially established as testing ground for new reforms, the FTZs were also established to drive regional growth by encouraging selected industries to cluster in specific geographical areas and, at the same time, served as a mean to promote experimental economic reforms and facilitate foreign direct investments.

New application process

In order to simplify bureaucracy cutting down time and costs, FTZs introduced a new application process for company establishment, the so called “one stop application procedure”. The applicant (foreign investor) may submit an online application through the relevant FTZs website, and then the business will be checked in order to verify whether it falls into the Negative List or not.

In case the requested business does not fall under the Negative list, all the application materials can be submitted and handled through one Authority (AIC – Administration for Industry and Commerce) within the Zone. All the relevant license and certificates (included but not limited to the business license, enterprise code certificate and tax registration certificate) will be issued altogether by AIC. In this way, the applicant can obtain all the relevant documents for company establishment in one place, contrasting with the outside Zone process where applicants must move between different authorities for the issuance of the different varieties of documents.

Thanks to the adopted amendments under the latest resolution (September 3rd 2016), this pilot scheme will apply also nationwide. The simplified filing requirement process will replaces the burdensome examination and approval procedure for the formation and change of key elements of FIEs, starting from October 1st 2016.

In the next post I will examine the main essential features of the new filing regime and the future perspectives following the reform.

Under the freedom of trade and industry, every person in Switzerland (including foreigners, provided that they have a regular work and residence permit) may exercise any industrial or commercial activity, without any special official authorisation.

Swiss civil law distinguishes between partnerships (sole proprietorship, limited partnership, general partnership) and legal entities (public company and limited liability companies). A foreign investor can chose the most appropriate type of company, according to her or his activities and strategic objectives. She or he may also establish a branch in Switzerland, as well as establish a joint venture or a strategic alliance. An interesting possibility for venture capital is also the new limited partnership for collective investments and capital.

The time required for setting up a company is different, but it usually does not take more than three weeks and the procedure can often be performed via the Internet.

Sole Proprietor

This type of business is carried out by a sole proprietor and has to be registered in the commercial register if it produces at least CHF 100,000 gross income per year. It is not a legal entity (i.e. the proprietor is personally liable for his/her business without any limitation) and the proprietor is subject to taxation. This form of business organisation is commonly used for smaller enterprises.

Simple Partnership (Einfache Gesellschaft)

An ordinary partnership is based on a contract of association between two or more partners and is a very loose formation without being a legal entity. Each partner is individually subject to taxation rather than the partnership itself. For business debts, each partner is personally liable with his/her own private assets. An ordinary partnership cannot be entered into the commercial register. This form of business organisation is often used for activities of short duration or for specific projects only (consortia or joint ventures).

Main use: joint ventures; consortiums in the construction or banking industry; shareholders under a shareholders’ agreement; founders of a company until the company has been duly established.

General partnership (Kollektivgesellschaft KG)

To form a general partnership, two or more individuals enter into a contract of association in order to operate an enterprise based on commercial principles. A general partnership has a trade name and must be registered in the commercial register.

Although it can acquire rights, incur liabilities, take legal action and be sued, the general partnership is not in itself a legal entity. Liability for debts is not limited to the capital of the partnership but is extended to the private assets of the partners in the form of joint and several liabilities.  Only individuals can set up this form of business organisation and liability is limited to the capital of the company. Especially used for small family businesses or businesses run by a few trusted partners (might achieve better credit-worthiness than legal persons due to partners’ liability).

Limited partnership (Kommanditgesellschaft)

A limited partnership has two kinds of partners. One must be liable for the business without any limitation, while others are only liable to the extent of their capital contribution. Only individuals can be partners with unlimited liability, whereas partners with limited liability may also be legal entities, such as corporations. Since the limited partnership is derived from the general partnership, other characteristics (such as rights and duties) are the same as described in the section above.

Unlimited partners with unlimited liability (at least one) and limited partners with limited liability up to the fixed amount as registered in the commercial register (at least one).

Unlimited partners must be individuals, limited partners may be individuals, legal entities or general or limited partnerships Also similar use as with general partnerships, used in situations where not all partners are willing or able to be actively involved in business or for small businesses in the form of general partnerships looking for private investors.

Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)

A limited liability company is a legal entity with fixed capital. The minimum capital is CHF 20,000 and this has to be fully paid in cash or in-kind. For the formation of a limited liability company, at least one founder is required. Each partner (individual or company) participates with a capital contribution (minimum CHF 100 per share) and must have a name and domicile registered in the commercial register. The management and representation of the company may be transferred to people who are not partners, but at least one of the managing officers must be domiciled in Switzerland. All partners and managers may be non-Swiss citizens.

The legal form of a limited liability company is especially intended for small and medium sized companies and so requires an equity capital of only CHF 20.000 for its formation.

As is the case with joint stock companies, the limited liability company has sole liability for its debts; recourse against the equity holders is not possible. Unlike a joint stock company, however, the articles of incorporation can impose obligations requiring the equity holders to pay in additional ancillary obligations. If the limited liability company is unable to continue to function without an injection of capital or new equity capital is required for specific activities, the equity holders are obliged, if such an obligation was agreed upon, to provide the new capital (to a maximum of twice the value of the existing capital). Typical examples of ancillary obligations set out in the articles of incorporation are the obligation to supply or purchase goods and the obligation to perform certain services for the benefit of the company.

In the absence of any rules to the contrary, the general management of a limited liability company is delegated to all of its members. By contrast, shareholders of a joint stock company are not automatically empowered to act in the name of the company and require separate authorization to function as a member of the board of directors or a duly authorized signatory.

The law allows comprehensive restrictions on the transferability of quota shares. Unlike a restriction on transferability contained in a shareholders’ agreement, a restriction on transferability provided for in the articles of incorporation of a limited liability company is also binding on the company and can therefore be more easily enforced. In addition, the articles of incorporation of a limited liability company can impose a non-competition clause on to its members.

In a limited liability company resolutions of both the general meeting and of the general management can be adopted by written consent.

Only individuals may be elected as members of the board of directors. The board of directors has to include at least one member resident in Switzerland.  Shareholders are entitled and obliged to manage the company without being appointed (principle of self-management). The articles of association may provide that the managers are appointed and dismissed from office at the shareholders’ meeting.

The board of directors/management of limited liability companies has the same non-delegable and inalienable duties as the directors/management of a corporation except for the appointment and dismissal of management.

The principle of non-delegable duties of the management may be overridden as the articles of association may provide for a mandatory or optional presentation of certain decisions for the approval of the shareholders’ meeting.

A shareholder may for valid reasons bring an action in court for permission to withdraw from the company. The articles of association may also grant shareholders a right to withdraw and may make this dependent upon certain conditions.  The law provides for a mandatory right of expulsion by way of the company bringing an action in court. The articles of association may go further and permit the shareholders’ meeting to expel shareholders for valid reasons.  The special squeeze-out provisions of the Merger Act also apply to limited liability companies.

Public Company (Aktiengesellschaft, AG)

The most common form of a company in Switzerland is the public company. The minimum capital is CHF 100,000 and at the time of incorporation the founders must pay at least the 20% of the nominal value of the capital (with a minimum of CHF 50,000). The capital of the company is represented by shares. Each share must have a minimum nominal value of CHF 0.01.

Shares can be either registered or bearer. Whereas the former have the name of the shareholder, the latter protect the confidentiality of the investor and can be freely transferred. In order to issue bearer shares all minimum capital must be paid.

Capital contribution can also be in kind. In this case, the following items can be contributed:

  • Goods;
  • Equipment and machinery;
  • Assets;
  • Real estate;
  • Participations and interest in other companies;
  • Patents and trademarks.

The public company is a very flexible form of business organisation and it is often chosen by foreign investors because of the ease in which shares can be transferred.  For the formation of a public company at least one founder is required, which can be either an individual or a company. The management and representation of the company may be carried out by people who are not shareholders, but at least one of the managing officers must be domiciled in Switzerland. Shareholders and managers may be non-Swiss citizens.

I. Introduction

The 1919 American legal case of Dodge v. Ford Motor Company provides a lens through which an analysis of disputes between majority and minority shareholders can start to be conceived. After allowing the Dodge Brothers, already a supplier to Ford, to become minority shareholders within the company, majority shareholder and executive Henry Ford unilaterally decided to terminate special dividends for shareholders in order to maintain further investment in new plants. This measure served as a way to sustain the production of cars at lower prices, a feature of the car manufacturer that Ford saw as tantamount to the public good and, perhaps less ostensibly, represented the preservation of a business model seen by Ford as essential to the Ford Motor Company’s long-term success. The development spurred the Dodge brothers to bring civil action against the Ford Motor Company, citing it as an injustice that deprived them of deserved dividends. In 1919, the Supreme Court of Michigan, ruled in favor of the Dodge brothers and stated that the action of Ford was not justified under the rule of “shareholder primacy,” thereby awarding the Dodge Brothers of the dividends to which they were entitled. The Supreme Court simultaneously decided, however, that the case also shaped the “business judgement rule,” which reserves the right of final judgment to the executive or relevant directors.■ This example testifies to the unmediated conflict between the interests majority and minority shareholders that exists at the heart of a limited company and corporations: namely, the majority’s stronghold over the corporation’s operations and its preference to reinvest the corporation’s profits in the business itself, which fundamentally runs counter to the common desire of minority shareholders to obtain the maximum return on their capital. Further, the outcome in Dodge v. Ford illuminates how, in the case that the majority seeks to abuse its power and circumvent the minority, it is often necessary that the minority exercise its ability to react. ■ The minority shareholder’s “right to control,” which includes the right to be informed and the right to inspect certain documents of the corporation, along with the right to exit, typically serve as the chief devices at its disposal. This derives from the fact that such rights are, in the common practice of law, considered sovereign and do not fall under the majority shareholder’s umbrella right to exercise propriety and “good faith.” In simpler terms, this means that the minority shareholder possesses the principle rights to veto and to exit.

II. Pre-existing Realities of Minority Shareholder Participation

Beyond a situation in which majority and minority shareholders have an already established relationship within a corporation or enter into special arrangements before acquiring or selling an equity interest, this article seeks to approach first the circumstances under which such a relationship lacks clear definition, for example in a succession mortis causa i.e. where the shares are owned by the heirs of a common relative and new minorities are thereby created. This happening typically occurs in family owned corporations in which the rights reserved to the minority shareholders are, therefore, even more crucial. Further, it should be noted that in the absence of applicable provisions within the corporate charter (also known as articles of incorporation), the corporation’s bylaws, and shareholder agreements governing the majority – minority shareholder relationship, the rights protected under the Italian Civil Code (“Codice Civile,” abbreviated as “c.c.”) solely take jurisdiction. On the surface, this would seem to preclude any advantage on the part of the majority shareholder and constitute a neutral majority – minority shareholder relationship. It should be noted that the present examination solely regards the so-called “Società per azioni” (abbreviated “S.p.A.”) “chiuse,” to which the English term “closely held corporations” in the U.S.A. stands as an equivalent. The main feature of a S.p.A “chiusa” is that it does not possess recourse to the risk capital market. ■ Further, unlike “Società a responsabilità limitata” (abbreviated “S.r.l.”) akin to a limited liability company in the U.S.A., shareholders in S.p.A.s do not possess the right of direct supervision over operations of the company. In S.p.A.s, in fact, supervision over operations is reserved to the Board of Statutory Auditors, which oversees that the directors of the corporation act in uniformity and in respect of the law, the charter and the bylaws, thus safeguarding, inter alia, the interest of the minority shareholders. In any case, however, the law stipulates that certain rights on the part of the minority in a S.p.A. are first and foremost reserved, namely the right to inspect some corporate records and the general right to information. These rights are, above all, limited to particular cases such that the shareholders cannot intervene in the corporation’s management, which is exclusively reserved to its administrators. It is important to note that the right of inspection, as protected under Article 2422 c.c., recognizes the shareholder’s right to verify the book of shareholders, which contains the information of all shareholders, in addition to the minutes of shareholders’ meetings.  Such verification can be carried out also by means of an agent and copy of said records can be obtained at his or her expense. This right, however, is limited exclusively to the aforementioned records without offering the possibility to examine the other corporate records indicated under Article 2421 c.c., which include the minutes of the Board of Directors, the Board of Statutory Auditors, etc. Such further records can only be inspected by the directors, the statutory auditors, and other subjects whose duty lies in the control of the corporation, thereby not possessing any limitation in the right of general access to them. This reality derives from the fact that such examination constitutes the necessary instrument by which they can exercise their supervision powers over the company’s administration, organization, and proper accounting in respect to the law, the articles of incorporation, the corporation’s bylaws, the principles of sound management, the administrative system, the accounting system, and the organizing structure of the corporation. That being said, the single shareholder does possess the following channels through which he or she can exercise control over operations within a privately held S.p.A. which the legislature explicitly places at his or her disposal:

(i)                 To file a petition within the Board of Statutory Auditors, denouncing in any shape or form deemed appropriate by the shareholder a behavior on the part of the directors considered outside of compliance related to not adequately addressing proper organizational, administrative, and accounting duties under Article 2408 c.c.. The said denounce must obligatorily be taken into account and relayed to the management by the Board of Statutory Auditors who, if the petition is filed by a proportion of one – twentieth of the equity (i.e. 5%) must, in a prompt fashion, investigate this claim and inform the shareholders’ meeting of the results of the subsequent investigation in the conclusions of its report in the course of the annual shareholder’s meeting. Statutory Auditors have the duty to convene a general shareholders’ meeting in the following cases (a) omission or unjustified delay of such action on the part of directors (b) the recognition of reproachable practices on the part of the directors whose seriousness and urgency recommends that a meeting should be convened as covered under the second section of Article 2406 c.c. (it should be noted that this latter described ability and duty is not necessarily limited to the petition of the shareholders, but instead to the aforementioned practices considered to be of serious weight that must be correspondingly addressed in an urgent manner).

(ii)               Shareholders further reserve the right to report to the Court in case of grounded suspicions that the Board of Directors and the Board of Statutory Auditors are in violation of their fiduciary duties and have committed serious mismanagement that could be the precursor to substantial damages for the corporation or for one or more controlled companies by such a S.p.A. In this case, shareholders who together constitute one-tenth (i.e. 10%) of equity interest have the ability to call for the procession of an investigation, while the cost of such investigation should be borne by the acting parties and as ordered by the Court. If such an investigation finds such a violation to be the case, the delivering of and appropriate decision follows. In the case that the responsible Board members or auditors resign, however, and/or are replaced with a new slate of duly proven professionals, the investigation can be avoided and suspended to a later determined date at the discretion of the Court. These professionals, however, have the obligation to address and eliminate in haste the practices of relevant mismanagement found in violation following the exclusion of their predecessors. The Court reserves the further right to convene a general shareholders’ meeting in the case that it believes the measures that have been undertaken failed to properly address the wrongdoing within the organization in an appropriate manner. In the most serious of cases, the Court can remove the directors and the statutory auditors, appointing a judicial administrator with envisioned powers for a duration deemed necessary.  This individual, as appointed by the Court, therefore, has legal standing and is entitled to exercise the so called “azione di responsabilità” (the “liability action”) namely an action against the directors for their liability for breach of fiduciary duties, as stipulated in the last provision in Article 2393 c.c.

(iii)             Shareholders also reserve the right to exercise the liability action in case of breach of fiduciary duties, namely the breach of the duty of loyalty and the duty of care and in case of mismanagement, on the part of the directors or the Statutory Board of Auditors, as provided in Article 2393 bis c.c.. This action requires the shareholders together composing at least one – fifth (i.e. 20%) of shared capital ownership;  it should be noted that the bylaws might otherwise stipulate a greater threshold than one – fifth, but such can never exceed one-third ownership (i.e. approximately 33%). Article 2393 further specifies that the exercising of the liability action shall not be carried out if shareholders constituting one- fifth (i.e. 20%) of total capital vote to the contrary.  If, however, shareholders constituting one – fifth of ownership approve such a measure, Italian law dictates that the incumbent directors are automatically removed. 

(iv)             The right is reserved to challenge and vacate shareholders’ meeting resolutions (including that relative to the approval of the financial statement as protected under Article 2434 bis c.c.) which are considered contrary to the law or the corporation’s bylaws as by Article 2377 c.c. In order to exercise this right, there must be a number of shareholders comprising one – twentieth (i.e. 5%) of shared capital.  Further, acting upon this right can be accompanied by the commensurate action of the shareholders aimed at recovering the damages produced through the resolution undertaken.  (v) As by Article 2429 c.c., the right to examine, during office hours, the companies’ project of financial statement in addition to the report of the directors, the report of the Board of Auditors, the report of the supervising auditing firm, on top of a summary of the data essential to the last financial statement of associated companies, in the fifteen day period preceding the general shareholders’ meeting scheduled for the approval of the corporate financial statement. 

(v)               The right to participate in the deliberations of the shareholders’ meeting and exercise the right of “veto” in the so called case of an extraordinary Shareholders’ Meeting, on second call, involving “modifications of the bylaws, corporation’s name, substitution of its liquidators, and other matters expressly attributed to the extraordinary meeting by law,” as stipulated in Article 2365 c.c. in the case that there exist shareholders who hold a quorum of one – third (i.e. approximately 33%) of the shared capital only in the second meeting.

(vi)             The right to call a summons for a general meeting convened without any delay, under Article 2367 c.c., which can be exercised by any quorum of shareholders constituting one – tenth (i.e. 10%) of shared capital. 

(vii)           The right to call for the postponement of the meeting if not sufficiently informed prior, in the case that shareholders holding a third (i.e. approximately 33%) of shared capital vote for such a measure, pursuant to Article 2374 c.c. 

■ An analysis of the aforementioned critical percentage thresholds necessary for such shareholders’ participation within a closely held S.p.A, in fact, demonstrates that the relevant legal infrastructure provides a meagre pathway to minority representation. Beyond the 5% provision in Article 2377 c.c., which concerns the extenuating circumstance of challenging decisions made by the Board, minority shareholders remain relatively powerless in a private, closely held limited company and without the possibility to challenge decisions made by the majority shareholders (S.p.A. chiusa). Therefore, in order for a minority to be considered “qualified” and have its voice heard within the corporate governance of a closely held Italian corporation, it is necessary for it to hold a) the 5% shareholder ownership, which allows it to petition for the investigation of the Board of Directors or the Board of Statutory Auditors for behavior considered out of compliance (as by Article 2408 c.c.), and to vacate the decisions made in shareholders’ meetings (as by Article 2377 c.c.). b) the 10% quorum for a petition to the Court of the above cited serious wrongdoings on the part of the Board of Statutory Auditors and the Board of Directors, as by Article 2409 c.c., and to convene without hesitation the shareholder’s meeting, as by Article 2367 c.c.; c) the 20% threshold in total shared capital to bring about action of liability against the Board of Directors or the Board of Statutory Auditors, as by Article 2393 bis. c.c., or to oppose the resolution as by Article 2393 c.c. d) the 33% (+1%) quorum for the exercising of a veto in an extraordinary shareholders’ meetings on second call and for the request for the postponement of the shareholders’ meeting as by Article 2374 c.c.

■ Exit (withdrawal). The right to exit is the right of the minority to exit from the group of shareholders. The natural modality of exit is the sale of equity. Standing as the principal alternative to selling shares, in case of external events that place a significant change on the conditions of risk, the shareholder who cannot control such changes within the corporate scheme can employ the prospect of divesting, in full or in part, by means of this right of withdrawal. It is necessary for the shareholder to cite the exact cause, which prompts his or her exercising shareholder’s right to exit by means of withdrawal: namely, on one hand, such that the majority is able, in an informed manner, to influence managerial decisions regarding the corporation’s vitality and, on the other hand, the minority, in the case of feeling as a “prisoner” to the corporation, has a mechanism at its disposal to, in plain terms, get out. The withdrawal becomes, therefore, a powerful instrument of influence to be executed on the majority by the minority shareholder in addition to serving as a bargaining chip, which changes the premise of negotiation initially established by the shareholders, with the induction of specific motives of withdrawal.  The right of withdrawal is disciplined by Article 2438 c.c. withdrawal and is exercisable in the case verified by the following circumstances: a) modification of the corporate purpose that influences in a significant manner the activity of the corporation; b) the transformation of the corporation; c) the transferring of corporate headquarters abroad; d) the revocation of its state of liquidation; e) the elimination of one or more of the causes for withdrawal stipulated within the bylaws; f) the modification of the bylaws that has bearing on the value of the equity interest of the shareholder in the case of his or her exit; g) modifications of the bylaws concerning the rights of voting and administration; h) postponement of its terms; i) introduction or removal of obligations or legal limitation regarding the circulation of shares; l) if the corporation is acknowledged for an indeterminate period of time, the shareholder can exercise withdrawal with a notice of 180 days in advance; m) in the case that the corporation is subject to direction and coordination in the sense of Article 2497 c.c. Relative to the circumstances above cited, it is of fundamental importance to remember how some of these cases, most precisely those indicated by letters a) through g), are causes of withdrawal considered mandatory, that is to say, which are not susceptible to modification even in the case of voluntary compliance on the part of the relevant shareholders, while those indicated by letters h) and i) are subject to change and might be derogated in the case of the approval of the shareholders. The first part of Article 2437 c.c., second section, in fact, explicated, “unless the bylaws stipulate differently,” these causes, referring to those belonging to the first group (a through g), are recognized implicitly as much as independently sustained. One might therefore, configure a partition of the causes for exit into three categories: those legally mandatory, those legally non-binding and subject to change, and those stipulated in the corporate bylaws. For the exercising of the right of withdrawal, it is necessary to respect the modalities foreseen in Article 2437 bis c.c.; further, it should be noted that the exercising of this right involves the liquidation of the equity interest according to the relevant criteria of determination disclosed in Article 2437 part 3 c.c.

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    • Irán
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    Founders

    At least one founder (either individual or legal entity) is necessary to form a corporation. Founders and shareholders are not subject to any nationality or residence requirements. Directors must be shareholders and at least one director must be resident in Switzerland. Another restriction relates to the acquisition by non-resident aliens of shares in a Swiss company whose assets consist mainly of Swiss real estate: these transactions are subject to prior authorization. Prior authorization is further required for non-residents to own and operate a Swiss bank, or to acquire an existing Swiss bank.

    Articles of incorporation

    Articles of incorporation must have the following minimum content:

    • the company name and address;
    • the business purpose of the company;
    • the amount of share capital and the contributions made thereto;
    • the number, par value and type of shares;
    • the calling of the general meeting of shareholders and the voting rights of the shareholders;
    • the naming of the bodies which take care of the management and the auditing of the company;
    • the form in which the company must publish its notices.

    Optional clauses are those which must only be listed if founders intend to adopt additional provisions, such as the directors’ participation in the net profits, the issue of preferred shares, the delegation of directors’ authority, the issue of authorized capital or conditional capital.

    Founders report

    The founders must provide a written statement giving particulars of the nature and condition of contributions in kind or proposed acquisitions of assets, and the appropriateness of their valuation. A founders’ statement is also required when the capital of a company shall be contributed by conversion of shareholder loans and advances. The auditors have to review the founders report and confirm in writing that it is complete and truthful.

    Raising of Funds

    After subscription to all shares of capital stock, a minimum of 20% of the par value but not less than CHF 50,000 must be placed in escrow with a bank. The funds may only be released to the management after the company has been registered in the Commercial Register.

    Incorporation Meeting

    The corporation is formed at the incorporation meeting, which is held in the presence of all the shareholders and a public notary. This latter declares that the capital stock is fully subscribed and that the minimum payments have been made. Thereafter, the shareholders adopt the articles of incorporation and appoint the bodies corporate (board of directors, auditors etc.). Finally, a notarised deed must be drawn up recording the resolutions of the general meeting.

    Registration

    After incorporation, the company must be registered with the Commercial Register. This registration is published in the Swiss Official Gazette of Commerce. It discloses details such as the purpose of the company, its seat, the names of the shareholders (unless they opted for issuing bearer shares) and the names of the directors. Only at the time of registration the company acquires legal entity status. Shares may not be issued prior to registration.

    Upon formation, a one-time federal stamp duty of 3% is due on the capitalisation of the company. This stamp duty is assessed on the price at which the shareholder buys the shares. Any premium above par value is also subject to this duty. Furthermore, there are registration and notary fees and, generally, fees due to agents who act as founders to the new entity.

    Corporate Name

    The corporation is registered under a firm name, which must be distinguished from those of all other corporations already existing in Switzerland. In principle, the corporation is free to choose any kind of name. The name may not however be misleading or otherwise untruthful. The use of national or territorial designations is not permitted unless specifically authorized by the Federal and Cantonal Registers of Commerce. If a personal name is used, a designation showing the corporate nature must be added.

    Share Capital

    A public company is required to have a minimum capital of CHF 100,000 divided into shares with a minimum face value of CHF 0,01, while a limited liability company is required to have a minimum capital of CHF 20,000.  In the case of a public company, all shares must be subscribed at the time of formation. Capital contributions may be in cash or in kind. If the contribution is made in kind, the company must have access to such assets immediately after registration in the Commercial Register. The articles must describe the property, its value, the shareholder from whom it is received and the number of shares issued in return. The acceptance by the company of contributions in kind requires the approval of at least two thirds of the shares represented at the incorporation meeting.

    The general meeting of shareholders may authorize the board to increase the share capital within a period of 2 years. It is within the competence of the Board to decide if, when, and to what extent, the capital should be increased.

    The general meeting may provide in the articles for a conditional capital increase. The purpose of issuing conditional capital is, alternatively, to secure options and conversion rights in connection with warrant issues or convertible bonds, or to create employee shares. The increase of capital takes place at the same time, and to the same extent, as the exercise of the respective rights.

    Different Types of Shares

    Swiss corporation law distinguishes between the following categories of shares:

    • Bearer shares – Bearer shares may not be issued until the full issue price has been paid in. They are transferable by delivery and the corporation cannot restrict their transfer. Bearer shares are very popular in Switzerland because many owners prefer to protect their identity.
    • Registered shares – Registered shares are subscribed as called by the corporation and do not need to be fully paid in on issue. They are transferable by endorsement or assignment, generally without restriction. The company must keep a share ledger listing the owners’ names and places of residence. The entry must be certified on the share certificate by the Board. The buyer of incorrectly transferred registered shares cannot exercise personal membership rights. The articles may provide for subsequent conversion of registered shares into bearer shares and vice versa.
    • Restricted transferability of registered shares – To prevent unfriendly takeovers, the articles may provide for restrictions on the free transferability of shares. By law those restrictions are however limited.
    • Preferred shares – The general meeting of shareholders is entitled to issue preferred shares or to convert existing common shares into preferred shares. The holders of preferred shares enjoy certain preferences such as cumulative or non-cumulative dividends, priority in the proceeds of liquidation and a preferential right to subscribe to new shares. This preferential treatment must be provided for by the articles or be adopted by the votes of at least two thirds of all shares represented.
    • Voting shares – In general, each share is entitled to one vote. Since shares of differing value may be issued, each vote may not represent the same amount of capital contribution. Voting shares, therefore, provide those shareholders who represent a financial minority with the decision making power within the corporation. The issue of voting shares is permitted in the ratio of 1 : 10 to ordinary shares.
    • Profit sharing certificates – The general meeting of shareholders can issue profit sharing certificates in favour of persons who have an interest in the company through previous capital contributions, shareholdings, creditors’ claims, employees, or similar relationships. Profit sharing certificates may grant rights to a share in profits, a share in the liquidation proceeds or rights to subscribe to new shares. They do not procure any membership rights. By law, profit sharing certificates must not have a par value nor be issued in exchange for contributions characterized as assets.
    • Certificates of participation – The certificate of participation is a non-voting share, with the holder of such certificates having basically the same status as shareholders apart from the right to vote. The participation capital must not exceed double the share capital. Companies have until June 30, 1997 to comply with this requirement unless their participation capital was more than double the share capital on January l, 1985.

    There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

    Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

    ESTABLISHING A DOMINICAN SUBSIDIARY

    Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

    S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

    SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

    SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

    SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

    The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

    1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
    2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
    3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
    4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
    5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
    6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
    7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

    The following schedule serves as a guidance of the time required to form a new Dominican Company:

    Register of company trade name 5 to 7 days
    Drafting incorporation documents plus 2 to 5 days
    annexes (Incorporation Meeting, By-laws, Business Register application)
    Paying incorporation taxes on capital less than 1/2 day
    Incorporation Meeting of shareholders less than 1/2 day
    Legalizations by Notary Public less than 1/2 day
    Registration in Business Register 2 to 5 days
    Registration as Tax Contributor (RNC) 10 to 15 days

    The following founding documents are needed to form the company:

    1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
    2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
    3. Attendance List and Minutes of the Incorporation Meeting.
    4. Updated List of Partners/ Shareholders
    5. Report of the Commissary of Contributions, if applicable.
    6. Receipt of payment of the tax on the incorporation of legal entities.
    7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
    8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
    9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

    REGISTERING A DOMINICAN BRANCH

    Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

    In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

    The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

    Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

    To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

    Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

    1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
    2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

    USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

    A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

    Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

    Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

    Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

    • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
    • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
    • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
    • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
    • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

    Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

    Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

    The author of this post is Felipe Castillo.

    Companies are the most common vehicles for business and investment activity whether in Cyprus or abroad.

    Types of companies

    Under the Companies Law. Cap. 113 as amended (the “Companies Law”), there are two types of companies:

    • Companies limited by shares, and
    • Companies limited by guarantee (with share capital or without share capital)

    Companies limited by guarantee are often employed for non-profit or charitable purposes whereas companies limited by shares for business purposes.

    The latter may be either private companies or public companies. A private limited liability company must have at least one shareholder but no more than fifty whereas a public limited liability company must have a minimum of seven shareholders and there is no ceiling as to maximum number. The shareholders of a company may be either natural persons or legal persons (Cypriot or foreign). Shares cannot be issued to the bearer.

    Liability of shareholders

    Companies are separate legal entities distinct from their members. They have a separate corporate personality and are responsible for their obligations and debts. The liability of the shareholders in companies limited by shares (private or public), is limited to the nominal value of the shares agreed to be taken up or to an amount above the nominal value if the shareholder specifically agreed to subscribe to the shares at a premium. In the case of companies limited by guarantee, the liability of the shareholders is limited to the amount each shareholder agrees, at subscription, to contribute towards the debts of the company in the event of liquidation.

    Share Capital

    There is no restriction as regards the minimum or maximum share capital of a private company. But there is a minimum share capital requirement of €25629.02 in the case of public companies. Information as regards the initial authorised and issued share capital of the company is included in the memorandum of association and any subsequent changes must be notified to the Registrar of Companies.

    The share capital may be paid in cash or in kind.

     Transfer and allotment

    The transfer of shares in a company is not restricted by law. It is however possible and common for restrictions e.g. right of first refusal to be included in the articles of association of the company. In such cases any transfer of shares must be made in compliance with the relevant provisions of the constitutional documents (see below).

    On an allotment of new shares of a public company, the company is obliged to offer shares to existing shareholders pursuant to pre-emption rights provided as mandatory rules in the statute. In the case of a private company there is not such statutory duty and therefore it depends on whether pre-emptions rights and relevant obligations on the part of the company have been provided for in the articles of association.

    All allotments of new shares and transfers of shares must be notified to the Registrar of Companies.

     The Directors and Secretary

    The directors of the company, acting collectively as a board, manage the business of the company and do all decision making to the extent not reserved for the general meeting of the shareholders.

    A private company needs to have at least one director whereas a public company must have at least two. There is no statutory restriction as to the maximum number of directors but the articles of association of the company may provide limitations. The directors of the company may be natural or legal persons (Cypriot or foreign). The proceedings of the board of directors and its composition are very important elements for the tax treatment of the company (see below).

    All companies are required to have a secretary. The duties of the secretary are mainly of an administrative nature.

     Registered office

    The company must have a registered office in Cyprus. All communications and notices may be addressed to the company at the registered office and any document, whether official or otherwise, may be served to the company at its registered office.

     Incorporation documents

    The memorandum of association is the document which sets out important information in relation to the company; such information might be relevant for third parties e.g. potential counterparties, creditors etc.. The memorandum of association must state:

    • the name of the company;
    • the place where the registered office is situated;
    • in the case of a public company, the fact that it is such a company;
    • the objects of the company;
    • a statement that the liability of its members is limited and the amount to which such liability applies;
    • the names of the subscribers to the memorandum of association and the number of shares each of them takes up.

    Following the registration of the company, the memorandum of association may be amended with the approval of the court.

    The articles of association is the document regulating internal matters as regards the operation and management of the company and the rights of the members e.g. the procedures to be followed in general meetings, requirements for the adoption of resolutions, the voting rights of members, the conditions and manner in which shares are to be transferred, rights and duties relating to put or call options, rights and duties relating to tag and drag along rights, the appointment and removal of directors etc. The articles of association may be amended by a relevant decision of the members of the company.

    Together with the memorandum of association, the articles of association form the constitutional documents of the company and constitute basically an agreement between all and each of the members of the company to abide to their provisions.

     Registration

    Establishing a company requires registration with the Registrar of Companies, the governmental office competent for matters relevant to the registration of companies and their ongoing obligations with regard to information that must filed pursuant to the Companies Law. The Registrar of Companies is responsible for keeping a relevant file which is available to the public for inspection.

    The initial step in the formation of a company is the approval of the proposed name by the Registrar of Companies. Subsequently, the memorandum of association and articles of association of the company must be filed accompanied by the necessary forms which indicate the registered office, the details of the director(s) and secretary and an affidavit of the lawyer in charge of the registration of the company. Usually it takes approximately seven to fifteen working days for the completion of the registration of a company. A shelf company i.e. a ready-made company may be purchased if there is an immediate need for the use of a company. Following registration of the company, the Registrar of Companies issues a certificate of incorporation which constitutes conclusive evidence that all the requirements of the Companies Law, in respect to registration and matters precedent and incidental thereto, have been complied with.

    Financial statements

    Financial statements must be prepared annually and be duly audited by qualified accountants practising in Cyprus according to the International Financial Reporting Standards. Annual returns containing information as to any changes to directors, secretary, shareholders, authorised, issued or paid up capital, registered office, mortgages/charges and other related matters must be filed with the Registrar of Companies once per year accompanied by a copy of the financial statements.

    Tax aspects

    In order be eligible to benefit from the favourable Cyprus tax regime and treaty network in place, a company should be considered as resident in Cyprus for tax purposes.

    Under Cyprus tax law, a company is considered as tax resident in Cyprus if its ‘management and control’ is exercised in Cyprus. There is no statutory definition of ‘management and control’. In practice Cyprus tax authorities would look at several conditions to determine whether a company qualifies as a resident in Cyprus for tax purposes:

    • strategic management decisions and preferably day-to-day decisions being taken in Cyprus,
    • the majority of the board members being tax residents in Cyprus and exercising their  office from Cyprus,
    • an actual office being maintained in Cyprus,
    • evidence of commercial documentation being stored in the company’s office,
    • accounting records being prepared and kept in Cyprus,
    • bank accounts being operated from Cyprus even if maintained with foreign banks.

    Not all of the above must be established in order for the company to qualify a tax resident in Cyprus; the conditions would be considered in light of the nature and level of activities of the company and the country in which transactions or investments are made. For the purposes of the Cyprus tax authorities satisfaction of the first two conditions would normally be adequate for the company to be considered as tax resident.

    Tax resident companies are subject to income tax on their worldwide income at the flat rate of 12.5% subject to tax credit for any tax suffered in a foreign jurisdiction on income which is also subject to tax in Cyprus.

    Companies ought to submit tax returns, together with their annual financial statements, to the Tax Department in compliance with the applicable legislation.

    Re-domiciliation

    It is possible for corporations from other jurisdictions to acquire a ‘domicile’ in Cyprus. Effectively this means that the company may change its governing law without going through the process of liquidation where it was firstly established and then fresh incorporation in Cyprus.

    A company registered in another jurisdiction is eligible to apply to the Registrar of Companies to be registered as a continuing company pursuant to the provisions of the Companies Law if: the foreign jurisdiction allows the re-domiciliation, its constitutional documents provide for it and the steps required for the decision for the re-domiciliation have been complied with. Such companies must have their registered office transferred into Cyprus.

    It is also possible for local companies to “re-domicile” moving their registered office in other jurisdictions.

    In both cases of ‘re-domiciliations’ the permission of the Registrar of Companies is required and it is generally given upon certain conditions being met.

    The challenge of an entrepreneur

    When thinking on internationalization, an entrepreneur has many options and conditions to consider before making the right decision. Probably he would look for a country or region that offers safety, stability, has less restrictions, hands incentives and a cultural balance.

    In South America, there is a country that has been growing steadily for the last 25 years, with  a very interesting investment environment: Peru.

    This country has changed its closeness of the past to become an open economy. Before 1990, this country was involved in a decadent economic situation, state control of the economy, appalling levels of inflation, high import tariffs, foreign exchange controls, prohibition of holding foreign currency, huge inequalities between cities and provinces, terrorist violence and high levels of corruption.

    Although in 1990 this country looked unsustainable and ready to the final collapse, a new administration set the path to the future. The economy has been dramatically opened, tariffs unilaterally reduced, foreign exchange controls eliminated and the basis for a fair private activity of the economy has been imposed by establishing that the state’s participation in the economy should only have a subsidiary role and not represent unfair competition to the private sector.

    A country to be considered as an option

    Never in its republican history Peru had a period of growth of 25 years and the path set in 1990 it’s only expected to continue. The general consensus on the need of macroeconomic stability, associated with prudent fiscal policies, has brought Peru to have high international reserves and an important reduction of its external debt.

    State companies have left the market in favor of local and international companies trough privatizations and concessions, especially on infrastructure.

    Successive Peruvian governments have sustained a State policy of engaging on international trade agreements. To this day, Peru has free trade agreements with the mayor economies of the world, including the USA, the European Union and China, and it’s an active promoter of international economic integration, being one of the late examples “the Pacific Alliance” formed also by Colombia, Chile and Mexico, all of them open economies.

    In Peru it is not only possible to hold bank accounts in local currency (Soles), US Dollars and Euros, but also to exchange currency at very competitive rates. Foreign investors or traders are able to transfer funds in and out without any previous State authorization.

    The country has changed and this time modernity is also reaching the provinces, poverty has been reduced from more than 50% in the early 90’s to a little less than 20% nowadays, representing a big increase of the middle class. The new Peruvian government that initiated a 5-year mandate on July 2016, has pledged to bring poverty numbers to less than 10%.

    Peruvian economy is well diversified. While the mining sector is the heavy weight of the economy, other sectors have been growing at a record pace: fishery, agriculture, agro-industry, construction, tourism, services, etc.

    Peru is now committed to become part of the Organization for Economic Co-operation and Development (OECD) that congregates the high income economies of the world.

    Yet, the road is still long. High levels of informality on the economy and a big deficit on infrastructure represents not only challenges but opportunities at the same time.

    Legal regulations

    While, legal regulations in basic areas (like tax, labour, civil law) have been basically the same since the early 90’s, the government of Pedro Pablo Kuczynsky (in office since the end of July 2016) has requested to the Congress the ability to legislate through decrees on 5 fundamental topics: economic reactivation, public safety, anti-corruption, water & sanitation and the re-organization of the state controlled petrol company(Petro-Peru).

    The Peruvian Congress (led by the opposition party of Mrs. Fujimori) has granted this authority to the Executive for a 90-days period until the end of December of 2016.

    In the weeks to come, we will see the announcement of new Peruvian regulations that are expected to be investors friendly. We will use the implementation of these regulations in order to explain how to do business in Peru, also from the legal point of view.

    The author of this article is Frank Boyle.

    The GmbH is a capital company under German law. The liability of the shareholders in this kind of corporation is limited to the company’s share capital i.e. the company’s assets alone shall serve to fulfil the company’s obligations vis-à-vis its creditors. Being the GmbH – a limited liability company – a legal person, it holds autonomous rights and obligations; as such it may e.g. acquire ownership and other rights in real property and autonomously sue and be sued in court in connection with its rights and duties.

    The corporate bodies of the GmbH required by compulsory provisions of the Limited Liability Company Act (GmbHG) are the entirety of the shareholders, who regularly adopt resolutions at the shareholder meeting (Gesellschafterversammlung), and the managing director(s) (Geschäftsführer). The establishment of a supervisory board (Aufsichtsrat) is, with some specific exceptions, optional.

    Shareholders’ rights and duties

    The rights and duties of shareholders may be quite different in origin and nature. Shareholder rights and duties may exist by force of law or may be created by, or based upon, the articles of association (Satzung). Said rights and duties may attach to all shares as such or belong to, or be imposed upon, a shareholder personally (personal shareholder rights and duties). Shareholder rights and duties may be available to, or be imposed upon, all shareholders equally or upon one or several shareholders particularly. In principle such rights and duties pass to any transferee of the share, whether such a transfer is by assignment, inheritance, or otherwise, and cannot be assigned or otherwise transferred separately from the share itself.

    Both rights and duties attaching to shares, that are not created by law, and personal shareholder rights and duties can only be granted or imposed by the articles of association or by shareholder resolutions passed on the basis of the articles of association. These rights and duties must be distinguished from the ones provided within agreements between the shareholders, which are made “outside the articles of association”. Such latter agreements can only create contractual rights and duties among the parties thereto. If a share is transferred, the transferee can only exercise the contractual rights of the transferor, provided those rights were specifically assigned to him by contract; said transferee is accordingly bound by his transferor’s contractual duties only if he has agreed to take them over.

    Shareholder rights can be divided into administrative and property rights. Administrative rights include the right (i) to request the calling of the shareholders’ meeting (ii) to participate in the shareholder meeting (iii) to vote and (iv) to be provided with information about the corporate activities. The right to information basically entails that the managing directors must provide every shareholder with information about the affairs of the company upon their simple request and allow them to inspect the books and records of the company. Property rights include the entitlement to a quota of the annual profits, the right to dispose of the share and the entitlement to a share of the liquidation proceeds.

    The most important shareholder duties are the duty to render contributions, the fiduciary duty and the duty to ensure that the share capital, once provided, is preserved. Shareholder rights and duties can be expanded, restricted or excluded in the articles of association, as long as this is not in conflict with mandatory law provisions.

    Finally, once the company gets into economic trouble, a shareholder is obliged to either (i) inject new equity to the company, (ii) liquidate the company or (iii) cause the management to commence insolvency proceedings.

    Liability

    The GmbH is a legal entity separate from its shareholders. Therefore, the shareholders are in principle not liable for debts of the GmbH. There are only a few scenarios of shareholder liability in literature and court practice:

    • Shareholders may be liable for debts or losses of the company – on a contractual basis – if they undertake a contractual obligation towards the company’s creditors or the company (e.g. by means of a guarantee or a comfort letter).
    • A shareholder may be personally liable to the company for payments received from the company to the extent such payments cause the equity of the company to fall short compared to the registered share capital.
    • Shareholders may be held liable by the company if, disregarding the purpose of the company’s assets to serve as collateral for its creditors, they intentionally abuse their control to remove assets or business opportunities from the company, rendering it unable to satisfy its debts.
    • Additionally, a shareholder may become personally liable towards the company’s creditors if the assets are not clearly allocated to the shareholders or the company in the books of the company (intermingling of assets) and such allocation is not inferable from other circumstances, e.g. the physical separation.

     Shareholders’ meeting

    The shareholders’ meeting is the company’s ultimate decision-making authority. Shareholders usually exercise their rights in the shareholders’ meeting. Shareholder resolutions may also be taken without a physical meeting. In particular, a meeting is not necessary if all the shareholders confirm in text form that they agree with the resolution to be passed or to cast their votes in writing.

    Usually, the articles of association determine the powers of the shareholders’ meeting and the rules of procedure to be applied in its context. To the extent that the articles of association do not contain specific provisions regarding the procedures to be applied within the shareholders’ meeting, §§ 46-51 GmbHG apply as the relevant model framework.

    The shareholders’ meeting is exclusively entitled to:

    • amend the articles of association,
    • call in additional contributions of the shareholders,
    • liquidate the company and  appoint and dismiss the liquidators,
    • resolve upon measures pursuant to the Transformation Act (Umwandlungsgesetz – UmwG) such as mergers, spin-offs and changes of the company’s legal form.

    Except as otherwise provided in the articles of association, the shareholders resolve upon:

    • the formal approval of individual and consolidated annual financial statements and the distribution of profits,
    • the repayment of additional contributions,
    • the division, consolidation and redemption of shares,
    • the appointment and dismissal of managing directors, as well as their discharge,
    • the execution and termination of service agreements with managing directors,
    • the assertion of damage claims to which the company is entitled against managing directors or shareholders, as well as the representation of the company in litigation proceedings against managing directors or shareholders,
    • the rules of procedure for the management,
    • the appointment of a Prokurist (person vested with the general power of representation) and of persons vested with the commercial power of attorney for the entire business establishment (Handlungsvollmacht).

    The above mentioned tasks can be however transferred by the shareholders’ meeting to the supervisory board, if any, by adopting a relevant resolution.

    In addition, the shareholders’ meeting has the right to issue instructions to the managing directors and to appoint or dismiss members of an optional supervisory board.

    A shareholders’ resolution is deemed to be passed, when more than a half of the given votes are favourable. In exceptional cases a majority of ¾ will be necessary, e.g. with regard to amendments of the articles of association, the dissolution of the company, resolutions on mergers, spin-offs and other measures under the Transformation Act (UmwG), execution of domination agreements and of profit and loss transfer agreements.

    Managing director

    The company must have one or more managing directors (Geschäftsführer). The GmbH is not legally required to have more than one managing director except in particular cases (e.g. in case indicated by the Co-Determination Act. Both shareholders and non-shareholders (however only natural persons, no legal persons) may be appointed managing directors. In the articles of association the shareholders can set requirements regarding the qualification for the position of managing director.

    If the GmbH has only one managing director, he represents the company severally. If several managing directors have been appointed, they must represent the company jointly. However, if the company has more than one managing director, the shareholders can also grant the power of representation to the individual managing director derogating the statutory rule of joint representation, by a corresponding clause of the articles of association. In other words any modification of the statutory powers of representation must be based upon a provision in the articles of association. That provision must either itself define directly the extended power of representation in favour of an individual managing director, or permit the shareholders to extend the power of representation of the managing directors by passing a relevant shareholder resolution.

    In detail, the shareholders may grant each managing director, or one or several managing directors, the right

    • to represent the company acting alone,
    • to represent the company acting jointly with one or several other managing directors, or
    • to represent the company acting jointly with one or several managing directors or Prokurist.

    The managing directors have authority to represent and act on behalf of the company in all legal transactions in and out of court.

    A limitation of the authority of managing directors to represent the GmbH – even within the articles of association or resolved by shareholder resolution – will have no effect with respect to third parties. Should the articles of association e.g. set forth that the managing directors are not entitled to execute agreements with a value exceeding 5,000 € and the managing directors enter into an agreement with a 10,000 € value, such latter agreement shall be nonetheless valid vis à vis the contractual counterparty.

    The limitation of the power to represent the company, however, operates in individual cases where the third party interacting with the managing director is not entitled to rely on the unlimited power of the managing director. This occurs in particular where a managing director abuses his powers to represent the company and the third party knows or deliberately ignores the abuse.

    The power to represent the company is further limited by the prohibition of self-dealing and multiple representations. A managing director is in general not allowed to enter into legal transactions on behalf of the company with himself as counterparty (so called self-dealing) or as the representative of the company and of a third party (multiple representations). However, he can be exempted from such prohibitions. Such exemption may be granted in the articles of association or, if the articles of association allow it, by the shareholder meeting.

    In the context of the internal relations between the company and the managing directors, the managing directors must observe the restrictions contained in the articles of association, the instructions set within shareholders’ resolutions or in the management contracts of the managing directors. The shareholders can issue instructions ad hoc or in a general way by establishing rules of procedure for the management (e.g. make certain kind of transactions subject to the consent of the shareholders’ meeting). In case the managing directors do not comply with such instructions, they are obliged to compensate the company for any damages incurred as a consequence thereof.

    The shareholders may entrust specific fields of responsibility – i.e. administration, accounting, finance, employment and social matters, production, distribution, sales or marketing – to one or more managing directors. The shareholders may also introduce a hierarchic structure under which one managing director is granted an overall responsibility for any fields, while other managing directors are required to report to him with respect to matters regarding the specific field for which they are responsible. However, no managing director can be completely released from the joint overall responsibility for the well-being of the company. Thus, any managing director in charge of a special area of responsibility must report to the other managing directors whatever matters arise in his particular area if said issues may have an effect on the whole company; moreover any managing director may decide upon matters falling under the area of responsibility of another managing director if he believes that the overall well-being of the company may be affected by decisions taken with respect to those matters. In any case, such internal allocation of specific fields of responsibility does not lead to a limitation of the power of the managing directors to represent the GmbH and has no effect with respect to third parties.

    Supervisory board

    The creation of a supervisory board (Aufsichtsrat) is either optional or mandatory. It is mandatory if it is required by the One-Third Participation Act (Drittelbeteiligungsgesetz, in case of more than 500 employees), the Coal, Iron and Steel Co-Determination Act (Montanmitbestimmungsgesetz, in case of more than 1,000 employees), the Co-Determination Act (Mitbestimmungsgesetz, in case of more than 2,000 employees) or the Capital Investment Act (Kapitalanlagegesetzbuch, in case the company’s purpose is the management of investment funds).

    In companies with up to 500 employees, no supervisory board needs to be established. However, the articles of association can provide for the formation of a supervisory board. In this event, the articles of association can even set forth rules for the supervisory board, including the board’s composition, competencies and mode of procedure. The scope of the competencies can be limited to monitoring and advisory responsibilities or even comprise decision-making and representation of the company vis-à-vis the managing directors.

    Recently People’s Republic of China central government has unveiled and adopted a wide range of initiative to reduce the regulatory burden on daily business operations and provide greater autonomy in investment decision-making.

    The reforms aim to give both domestic and foreign investors more autonomy and should make investments in the private sector much easier by reducing bureaucracy and increasing transparency. Investors will have more flexibility to determine the form, amount and timing of their business contributions. In addition, a system of publicly-available, electronic information (including annual filings and a corporate blacklist) will replace the old annual inspection system. Thanks to these reforms China’s requirements will become one step closer to international standards.

    In this post I will analyze which are the enterprises affected by the reform; the Negative-list – setting out the industries that still need the approval to be established – and the new application process for company establishment.

    Foreign invested enterprises

    Generally speaking, foreign invested enterprises are the vehicle through which foreign investors may establish a presence to do business in China, choosing among one of the several different statutory forms recognized by the existing regulatory regime (such as: Wholly Foreign Owned Enterprise – WFOE; Equity Joint Venture – EJV; Contractual Joint Venture – CJV; Foreign Invested Company Limited by Shares; Foreign Invested Partnership Enterprise; or Holding companies). These entities are regulated under stricter laws than domestic companies, and are also subject to the same generally-applicable regulations.

    The establishment of FIEs in Mainland China up is currently subject to a rather lengthy and bureaucratic examination and approval process by different Authorities. The same stringent requirements and burdensome procedure apply also to any major change related to FIEs structure, such as: increase or decrease of total investment/registered capital; change of business scope; shares or equity transfer; merger, division or dissolution; etc.

    Nowadays, the set-up procedure of a WFOE undergoes through the following steps, having an average time frame of at least 3-4 months for the whole process:

    Pre-issuance Business License

    • Collection of the basic information from Investor’s side (7 working days)
    • Company name pre-approval (5-7 working days)
    • Lease agreement (it depends on Investor/Landlord)
    • Legalized documents prepare by the Investor for the incorporation (few weeks)
    • Certificate of Approval issued by MOFCOM (4 weeks)
    • Business license issued by AIC (at least 10 working days)

    Post-issuance Business License

    • Carve company chops (1-2 working days)
    • Foreign exchange registration certificate (around 10 working days)
    • Open a CNY bank account (depends on the bank)
    • Open a Foreign capital account (at least one week)
    • Capital injection, in compliance with company Article of Association
    • Capital verification report (it depends on accounting firm)
    • Foreign trade operator filing before MOFCOM (at least 5 working days)
    • Basic Customs Registration Certificate – if any (at least 5 working days)
    • Advance Customs Registration (at least 30 working days)
    • SAFE Preliminary Foreign Trader filing (2-3 working days)
    • VAT general taxpayer application (1-2 working days)
    • VAT general taxpayer invoice quota (30-60 working days)

    On September 3rd 2016, the China National People Congress (NPC) Standing Committee adopted a resolution introducing several amendments related to the establishment of foreign-invested enterprises (FIEs) in China, which has taken effect starting from October 1st 2016. The resolution is going to produce its effect for some of the FIEs statutory forms only (WFOE, EJV, CJV).

    These amendments repeal the current examination and approval regime to set-up legal entities, shifting to a different system where a FIE may be established following a streamline procedure of filing requirements before the competent authority, as long as the industry in which it engages is not subject to any national market access restrictions.

    Negative List

    Within October 2016 a Negative List will be issued, setting out the industries in which FIE establishment must still be examined and approved under the existing laws and regulations: a complicated and time consuming process, involving verification, approval and registration with several Authorities. The current list includes:

    • Agriculture and fishery (crop seed, animal husbandry, etc.)
    • Infrastructure (airports, railroads, postal service, telecom and internet, etc.)
    • Wholesale and retail (newspaper and magazine, tobacco, lottery, etc.)
    • Finance (investment in banks or other financial companies, etc.)
    • Professional services (accounting, legal advisors, market research, etc.)
    • Education (establishment of schools, management of educational institution, etc.)
    • Healthcare (EJV or CJV are required to set-up medical institution, etc.)

    The publication of this list is a fundamental step, in order to better understand how the new regime will operate, as it will determine which sectors and matters are covered by the new filing requirements and, on the other hand, which items continue to undergo through a pre-approval process (basically all the sectors indicated in the Negative List).

    The Negative List approach towards foreign investment was originally introduced by the Shanghai Free Trade Zone and subsequently extended to other Free Trade Zones in Mainland China (FTZs): according to the Negative List foreign investors were granted “national treatment” and were allowed to invest in several different business activities, with the exception of those listed in the Negative List form.

    Essentially established as testing ground for new reforms, the FTZs were also established to drive regional growth by encouraging selected industries to cluster in specific geographical areas and, at the same time, served as a mean to promote experimental economic reforms and facilitate foreign direct investments.

    New application process

    In order to simplify bureaucracy cutting down time and costs, FTZs introduced a new application process for company establishment, the so called “one stop application procedure”. The applicant (foreign investor) may submit an online application through the relevant FTZs website, and then the business will be checked in order to verify whether it falls into the Negative List or not.

    In case the requested business does not fall under the Negative list, all the application materials can be submitted and handled through one Authority (AIC – Administration for Industry and Commerce) within the Zone. All the relevant license and certificates (included but not limited to the business license, enterprise code certificate and tax registration certificate) will be issued altogether by AIC. In this way, the applicant can obtain all the relevant documents for company establishment in one place, contrasting with the outside Zone process where applicants must move between different authorities for the issuance of the different varieties of documents.

    Thanks to the adopted amendments under the latest resolution (September 3rd 2016), this pilot scheme will apply also nationwide. The simplified filing requirement process will replaces the burdensome examination and approval procedure for the formation and change of key elements of FIEs, starting from October 1st 2016.

    In the next post I will examine the main essential features of the new filing regime and the future perspectives following the reform.

    Under the freedom of trade and industry, every person in Switzerland (including foreigners, provided that they have a regular work and residence permit) may exercise any industrial or commercial activity, without any special official authorisation.

    Swiss civil law distinguishes between partnerships (sole proprietorship, limited partnership, general partnership) and legal entities (public company and limited liability companies). A foreign investor can chose the most appropriate type of company, according to her or his activities and strategic objectives. She or he may also establish a branch in Switzerland, as well as establish a joint venture or a strategic alliance. An interesting possibility for venture capital is also the new limited partnership for collective investments and capital.

    The time required for setting up a company is different, but it usually does not take more than three weeks and the procedure can often be performed via the Internet.

    Sole Proprietor

    This type of business is carried out by a sole proprietor and has to be registered in the commercial register if it produces at least CHF 100,000 gross income per year. It is not a legal entity (i.e. the proprietor is personally liable for his/her business without any limitation) and the proprietor is subject to taxation. This form of business organisation is commonly used for smaller enterprises.

    Simple Partnership (Einfache Gesellschaft)

    An ordinary partnership is based on a contract of association between two or more partners and is a very loose formation without being a legal entity. Each partner is individually subject to taxation rather than the partnership itself. For business debts, each partner is personally liable with his/her own private assets. An ordinary partnership cannot be entered into the commercial register. This form of business organisation is often used for activities of short duration or for specific projects only (consortia or joint ventures).

    Main use: joint ventures; consortiums in the construction or banking industry; shareholders under a shareholders’ agreement; founders of a company until the company has been duly established.

    General partnership (Kollektivgesellschaft KG)

    To form a general partnership, two or more individuals enter into a contract of association in order to operate an enterprise based on commercial principles. A general partnership has a trade name and must be registered in the commercial register.

    Although it can acquire rights, incur liabilities, take legal action and be sued, the general partnership is not in itself a legal entity. Liability for debts is not limited to the capital of the partnership but is extended to the private assets of the partners in the form of joint and several liabilities.  Only individuals can set up this form of business organisation and liability is limited to the capital of the company. Especially used for small family businesses or businesses run by a few trusted partners (might achieve better credit-worthiness than legal persons due to partners’ liability).

    Limited partnership (Kommanditgesellschaft)

    A limited partnership has two kinds of partners. One must be liable for the business without any limitation, while others are only liable to the extent of their capital contribution. Only individuals can be partners with unlimited liability, whereas partners with limited liability may also be legal entities, such as corporations. Since the limited partnership is derived from the general partnership, other characteristics (such as rights and duties) are the same as described in the section above.

    Unlimited partners with unlimited liability (at least one) and limited partners with limited liability up to the fixed amount as registered in the commercial register (at least one).

    Unlimited partners must be individuals, limited partners may be individuals, legal entities or general or limited partnerships Also similar use as with general partnerships, used in situations where not all partners are willing or able to be actively involved in business or for small businesses in the form of general partnerships looking for private investors.

    Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)

    A limited liability company is a legal entity with fixed capital. The minimum capital is CHF 20,000 and this has to be fully paid in cash or in-kind. For the formation of a limited liability company, at least one founder is required. Each partner (individual or company) participates with a capital contribution (minimum CHF 100 per share) and must have a name and domicile registered in the commercial register. The management and representation of the company may be transferred to people who are not partners, but at least one of the managing officers must be domiciled in Switzerland. All partners and managers may be non-Swiss citizens.

    The legal form of a limited liability company is especially intended for small and medium sized companies and so requires an equity capital of only CHF 20.000 for its formation.

    As is the case with joint stock companies, the limited liability company has sole liability for its debts; recourse against the equity holders is not possible. Unlike a joint stock company, however, the articles of incorporation can impose obligations requiring the equity holders to pay in additional ancillary obligations. If the limited liability company is unable to continue to function without an injection of capital or new equity capital is required for specific activities, the equity holders are obliged, if such an obligation was agreed upon, to provide the new capital (to a maximum of twice the value of the existing capital). Typical examples of ancillary obligations set out in the articles of incorporation are the obligation to supply or purchase goods and the obligation to perform certain services for the benefit of the company.

    In the absence of any rules to the contrary, the general management of a limited liability company is delegated to all of its members. By contrast, shareholders of a joint stock company are not automatically empowered to act in the name of the company and require separate authorization to function as a member of the board of directors or a duly authorized signatory.

    The law allows comprehensive restrictions on the transferability of quota shares. Unlike a restriction on transferability contained in a shareholders’ agreement, a restriction on transferability provided for in the articles of incorporation of a limited liability company is also binding on the company and can therefore be more easily enforced. In addition, the articles of incorporation of a limited liability company can impose a non-competition clause on to its members.

    In a limited liability company resolutions of both the general meeting and of the general management can be adopted by written consent.

    Only individuals may be elected as members of the board of directors. The board of directors has to include at least one member resident in Switzerland.  Shareholders are entitled and obliged to manage the company without being appointed (principle of self-management). The articles of association may provide that the managers are appointed and dismissed from office at the shareholders’ meeting.

    The board of directors/management of limited liability companies has the same non-delegable and inalienable duties as the directors/management of a corporation except for the appointment and dismissal of management.

    The principle of non-delegable duties of the management may be overridden as the articles of association may provide for a mandatory or optional presentation of certain decisions for the approval of the shareholders’ meeting.

    A shareholder may for valid reasons bring an action in court for permission to withdraw from the company. The articles of association may also grant shareholders a right to withdraw and may make this dependent upon certain conditions.  The law provides for a mandatory right of expulsion by way of the company bringing an action in court. The articles of association may go further and permit the shareholders’ meeting to expel shareholders for valid reasons.  The special squeeze-out provisions of the Merger Act also apply to limited liability companies.

    Public Company (Aktiengesellschaft, AG)

    The most common form of a company in Switzerland is the public company. The minimum capital is CHF 100,000 and at the time of incorporation the founders must pay at least the 20% of the nominal value of the capital (with a minimum of CHF 50,000). The capital of the company is represented by shares. Each share must have a minimum nominal value of CHF 0.01.

    Shares can be either registered or bearer. Whereas the former have the name of the shareholder, the latter protect the confidentiality of the investor and can be freely transferred. In order to issue bearer shares all minimum capital must be paid.

    Capital contribution can also be in kind. In this case, the following items can be contributed:

    • Goods;
    • Equipment and machinery;
    • Assets;
    • Real estate;
    • Participations and interest in other companies;
    • Patents and trademarks.

    The public company is a very flexible form of business organisation and it is often chosen by foreign investors because of the ease in which shares can be transferred.  For the formation of a public company at least one founder is required, which can be either an individual or a company. The management and representation of the company may be carried out by people who are not shareholders, but at least one of the managing officers must be domiciled in Switzerland. Shareholders and managers may be non-Swiss citizens.

    I. Introduction

    The 1919 American legal case of Dodge v. Ford Motor Company provides a lens through which an analysis of disputes between majority and minority shareholders can start to be conceived. After allowing the Dodge Brothers, already a supplier to Ford, to become minority shareholders within the company, majority shareholder and executive Henry Ford unilaterally decided to terminate special dividends for shareholders in order to maintain further investment in new plants. This measure served as a way to sustain the production of cars at lower prices, a feature of the car manufacturer that Ford saw as tantamount to the public good and, perhaps less ostensibly, represented the preservation of a business model seen by Ford as essential to the Ford Motor Company’s long-term success. The development spurred the Dodge brothers to bring civil action against the Ford Motor Company, citing it as an injustice that deprived them of deserved dividends. In 1919, the Supreme Court of Michigan, ruled in favor of the Dodge brothers and stated that the action of Ford was not justified under the rule of “shareholder primacy,” thereby awarding the Dodge Brothers of the dividends to which they were entitled. The Supreme Court simultaneously decided, however, that the case also shaped the “business judgement rule,” which reserves the right of final judgment to the executive or relevant directors.■ This example testifies to the unmediated conflict between the interests majority and minority shareholders that exists at the heart of a limited company and corporations: namely, the majority’s stronghold over the corporation’s operations and its preference to reinvest the corporation’s profits in the business itself, which fundamentally runs counter to the common desire of minority shareholders to obtain the maximum return on their capital. Further, the outcome in Dodge v. Ford illuminates how, in the case that the majority seeks to abuse its power and circumvent the minority, it is often necessary that the minority exercise its ability to react. ■ The minority shareholder’s “right to control,” which includes the right to be informed and the right to inspect certain documents of the corporation, along with the right to exit, typically serve as the chief devices at its disposal. This derives from the fact that such rights are, in the common practice of law, considered sovereign and do not fall under the majority shareholder’s umbrella right to exercise propriety and “good faith.” In simpler terms, this means that the minority shareholder possesses the principle rights to veto and to exit.

    II. Pre-existing Realities of Minority Shareholder Participation

    Beyond a situation in which majority and minority shareholders have an already established relationship within a corporation or enter into special arrangements before acquiring or selling an equity interest, this article seeks to approach first the circumstances under which such a relationship lacks clear definition, for example in a succession mortis causa i.e. where the shares are owned by the heirs of a common relative and new minorities are thereby created. This happening typically occurs in family owned corporations in which the rights reserved to the minority shareholders are, therefore, even more crucial. Further, it should be noted that in the absence of applicable provisions within the corporate charter (also known as articles of incorporation), the corporation’s bylaws, and shareholder agreements governing the majority – minority shareholder relationship, the rights protected under the Italian Civil Code (“Codice Civile,” abbreviated as “c.c.”) solely take jurisdiction. On the surface, this would seem to preclude any advantage on the part of the majority shareholder and constitute a neutral majority – minority shareholder relationship. It should be noted that the present examination solely regards the so-called “Società per azioni” (abbreviated “S.p.A.”) “chiuse,” to which the English term “closely held corporations” in the U.S.A. stands as an equivalent. The main feature of a S.p.A “chiusa” is that it does not possess recourse to the risk capital market. ■ Further, unlike “Società a responsabilità limitata” (abbreviated “S.r.l.”) akin to a limited liability company in the U.S.A., shareholders in S.p.A.s do not possess the right of direct supervision over operations of the company. In S.p.A.s, in fact, supervision over operations is reserved to the Board of Statutory Auditors, which oversees that the directors of the corporation act in uniformity and in respect of the law, the charter and the bylaws, thus safeguarding, inter alia, the interest of the minority shareholders. In any case, however, the law stipulates that certain rights on the part of the minority in a S.p.A. are first and foremost reserved, namely the right to inspect some corporate records and the general right to information. These rights are, above all, limited to particular cases such that the shareholders cannot intervene in the corporation’s management, which is exclusively reserved to its administrators. It is important to note that the right of inspection, as protected under Article 2422 c.c., recognizes the shareholder’s right to verify the book of shareholders, which contains the information of all shareholders, in addition to the minutes of shareholders’ meetings.  Such verification can be carried out also by means of an agent and copy of said records can be obtained at his or her expense. This right, however, is limited exclusively to the aforementioned records without offering the possibility to examine the other corporate records indicated under Article 2421 c.c., which include the minutes of the Board of Directors, the Board of Statutory Auditors, etc. Such further records can only be inspected by the directors, the statutory auditors, and other subjects whose duty lies in the control of the corporation, thereby not possessing any limitation in the right of general access to them. This reality derives from the fact that such examination constitutes the necessary instrument by which they can exercise their supervision powers over the company’s administration, organization, and proper accounting in respect to the law, the articles of incorporation, the corporation’s bylaws, the principles of sound management, the administrative system, the accounting system, and the organizing structure of the corporation. That being said, the single shareholder does possess the following channels through which he or she can exercise control over operations within a privately held S.p.A. which the legislature explicitly places at his or her disposal:

    (i)                 To file a petition within the Board of Statutory Auditors, denouncing in any shape or form deemed appropriate by the shareholder a behavior on the part of the directors considered outside of compliance related to not adequately addressing proper organizational, administrative, and accounting duties under Article 2408 c.c.. The said denounce must obligatorily be taken into account and relayed to the management by the Board of Statutory Auditors who, if the petition is filed by a proportion of one – twentieth of the equity (i.e. 5%) must, in a prompt fashion, investigate this claim and inform the shareholders’ meeting of the results of the subsequent investigation in the conclusions of its report in the course of the annual shareholder’s meeting. Statutory Auditors have the duty to convene a general shareholders’ meeting in the following cases (a) omission or unjustified delay of such action on the part of directors (b) the recognition of reproachable practices on the part of the directors whose seriousness and urgency recommends that a meeting should be convened as covered under the second section of Article 2406 c.c. (it should be noted that this latter described ability and duty is not necessarily limited to the petition of the shareholders, but instead to the aforementioned practices considered to be of serious weight that must be correspondingly addressed in an urgent manner).

    (ii)               Shareholders further reserve the right to report to the Court in case of grounded suspicions that the Board of Directors and the Board of Statutory Auditors are in violation of their fiduciary duties and have committed serious mismanagement that could be the precursor to substantial damages for the corporation or for one or more controlled companies by such a S.p.A. In this case, shareholders who together constitute one-tenth (i.e. 10%) of equity interest have the ability to call for the procession of an investigation, while the cost of such investigation should be borne by the acting parties and as ordered by the Court. If such an investigation finds such a violation to be the case, the delivering of and appropriate decision follows. In the case that the responsible Board members or auditors resign, however, and/or are replaced with a new slate of duly proven professionals, the investigation can be avoided and suspended to a later determined date at the discretion of the Court. These professionals, however, have the obligation to address and eliminate in haste the practices of relevant mismanagement found in violation following the exclusion of their predecessors. The Court reserves the further right to convene a general shareholders’ meeting in the case that it believes the measures that have been undertaken failed to properly address the wrongdoing within the organization in an appropriate manner. In the most serious of cases, the Court can remove the directors and the statutory auditors, appointing a judicial administrator with envisioned powers for a duration deemed necessary.  This individual, as appointed by the Court, therefore, has legal standing and is entitled to exercise the so called “azione di responsabilità” (the “liability action”) namely an action against the directors for their liability for breach of fiduciary duties, as stipulated in the last provision in Article 2393 c.c.

    (iii)             Shareholders also reserve the right to exercise the liability action in case of breach of fiduciary duties, namely the breach of the duty of loyalty and the duty of care and in case of mismanagement, on the part of the directors or the Statutory Board of Auditors, as provided in Article 2393 bis c.c.. This action requires the shareholders together composing at least one – fifth (i.e. 20%) of shared capital ownership;  it should be noted that the bylaws might otherwise stipulate a greater threshold than one – fifth, but such can never exceed one-third ownership (i.e. approximately 33%). Article 2393 further specifies that the exercising of the liability action shall not be carried out if shareholders constituting one- fifth (i.e. 20%) of total capital vote to the contrary.  If, however, shareholders constituting one – fifth of ownership approve such a measure, Italian law dictates that the incumbent directors are automatically removed. 

    (iv)             The right is reserved to challenge and vacate shareholders’ meeting resolutions (including that relative to the approval of the financial statement as protected under Article 2434 bis c.c.) which are considered contrary to the law or the corporation’s bylaws as by Article 2377 c.c. In order to exercise this right, there must be a number of shareholders comprising one – twentieth (i.e. 5%) of shared capital.  Further, acting upon this right can be accompanied by the commensurate action of the shareholders aimed at recovering the damages produced through the resolution undertaken.  (v) As by Article 2429 c.c., the right to examine, during office hours, the companies’ project of financial statement in addition to the report of the directors, the report of the Board of Auditors, the report of the supervising auditing firm, on top of a summary of the data essential to the last financial statement of associated companies, in the fifteen day period preceding the general shareholders’ meeting scheduled for the approval of the corporate financial statement. 

    (v)               The right to participate in the deliberations of the shareholders’ meeting and exercise the right of “veto” in the so called case of an extraordinary Shareholders’ Meeting, on second call, involving “modifications of the bylaws, corporation’s name, substitution of its liquidators, and other matters expressly attributed to the extraordinary meeting by law,” as stipulated in Article 2365 c.c. in the case that there exist shareholders who hold a quorum of one – third (i.e. approximately 33%) of the shared capital only in the second meeting.

    (vi)             The right to call a summons for a general meeting convened without any delay, under Article 2367 c.c., which can be exercised by any quorum of shareholders constituting one – tenth (i.e. 10%) of shared capital. 

    (vii)           The right to call for the postponement of the meeting if not sufficiently informed prior, in the case that shareholders holding a third (i.e. approximately 33%) of shared capital vote for such a measure, pursuant to Article 2374 c.c. 

    ■ An analysis of the aforementioned critical percentage thresholds necessary for such shareholders’ participation within a closely held S.p.A, in fact, demonstrates that the relevant legal infrastructure provides a meagre pathway to minority representation. Beyond the 5% provision in Article 2377 c.c., which concerns the extenuating circumstance of challenging decisions made by the Board, minority shareholders remain relatively powerless in a private, closely held limited company and without the possibility to challenge decisions made by the majority shareholders (S.p.A. chiusa). Therefore, in order for a minority to be considered “qualified” and have its voice heard within the corporate governance of a closely held Italian corporation, it is necessary for it to hold a) the 5% shareholder ownership, which allows it to petition for the investigation of the Board of Directors or the Board of Statutory Auditors for behavior considered out of compliance (as by Article 2408 c.c.), and to vacate the decisions made in shareholders’ meetings (as by Article 2377 c.c.). b) the 10% quorum for a petition to the Court of the above cited serious wrongdoings on the part of the Board of Statutory Auditors and the Board of Directors, as by Article 2409 c.c., and to convene without hesitation the shareholder’s meeting, as by Article 2367 c.c.; c) the 20% threshold in total shared capital to bring about action of liability against the Board of Directors or the Board of Statutory Auditors, as by Article 2393 bis. c.c., or to oppose the resolution as by Article 2393 c.c. d) the 33% (+1%) quorum for the exercising of a veto in an extraordinary shareholders’ meetings on second call and for the request for the postponement of the shareholders’ meeting as by Article 2374 c.c.

    ■ Exit (withdrawal). The right to exit is the right of the minority to exit from the group of shareholders. The natural modality of exit is the sale of equity. Standing as the principal alternative to selling shares, in case of external events that place a significant change on the conditions of risk, the shareholder who cannot control such changes within the corporate scheme can employ the prospect of divesting, in full or in part, by means of this right of withdrawal. It is necessary for the shareholder to cite the exact cause, which prompts his or her exercising shareholder’s right to exit by means of withdrawal: namely, on one hand, such that the majority is able, in an informed manner, to influence managerial decisions regarding the corporation’s vitality and, on the other hand, the minority, in the case of feeling as a “prisoner” to the corporation, has a mechanism at its disposal to, in plain terms, get out. The withdrawal becomes, therefore, a powerful instrument of influence to be executed on the majority by the minority shareholder in addition to serving as a bargaining chip, which changes the premise of negotiation initially established by the shareholders, with the induction of specific motives of withdrawal.  The right of withdrawal is disciplined by Article 2438 c.c. withdrawal and is exercisable in the case verified by the following circumstances: a) modification of the corporate purpose that influences in a significant manner the activity of the corporation; b) the transformation of the corporation; c) the transferring of corporate headquarters abroad; d) the revocation of its state of liquidation; e) the elimination of one or more of the causes for withdrawal stipulated within the bylaws; f) the modification of the bylaws that has bearing on the value of the equity interest of the shareholder in the case of his or her exit; g) modifications of the bylaws concerning the rights of voting and administration; h) postponement of its terms; i) introduction or removal of obligations or legal limitation regarding the circulation of shares; l) if the corporation is acknowledged for an indeterminate period of time, the shareholder can exercise withdrawal with a notice of 180 days in advance; m) in the case that the corporation is subject to direction and coordination in the sense of Article 2497 c.c. Relative to the circumstances above cited, it is of fundamental importance to remember how some of these cases, most precisely those indicated by letters a) through g), are causes of withdrawal considered mandatory, that is to say, which are not susceptible to modification even in the case of voluntary compliance on the part of the relevant shareholders, while those indicated by letters h) and i) are subject to change and might be derogated in the case of the approval of the shareholders. The first part of Article 2437 c.c., second section, in fact, explicated, “unless the bylaws stipulate differently,” these causes, referring to those belonging to the first group (a through g), are recognized implicitly as much as independently sustained. One might therefore, configure a partition of the causes for exit into three categories: those legally mandatory, those legally non-binding and subject to change, and those stipulated in the corporate bylaws. For the exercising of the right of withdrawal, it is necessary to respect the modalities foreseen in Article 2437 bis c.c.; further, it should be noted that the exercising of this right involves the liquidation of the equity interest according to the relevant criteria of determination disclosed in Article 2437 part 3 c.c.

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