All About the Board of Directors

TABLE OF CONTENTS

In the following article you will learn more about the topic “Board of Directors”. From the definition, through the most important rights and duties of board members, to the election and organization, the frequently asked questions are answered below.  Special rules apply to directors of listed companies, in particular with regard to elections, organization and compensation. These rules are not discussed here.

The Board of Directors is certainly a matter of people. But the formal aspect is also very important, and the existence and activity of the Board of Directors entail the creation of certain documents. We explain how these requirements can be met efficiently and in a legally compliant manner.

1. Board of Directors: What is It?

The Board of Directors (in German “Verwaltungsrat” or “VR”; in French “conseil d’administration“) is the supreme executive body of a stock corporation (or company) under Swiss law. The members of the board of directors are elected by the shareholders of the company assembled in a general meeting. The general meeting of shareholders is the supreme body of any stock corporation, not least because it has the power not only to elect but also to remove the directors.

2. What is the Difference Between the Board of Directors and the Supervisory Board?

The term supervisory board originates from German corporate law and refers to a statutory body.

The supervisory board and the management board are the two most important bodies of a company in Germany. However, there are differences in the tasks of the two bodies. The supervisory board assumes the function of a controlling body in companies. Unlike the management board, it does not intervene in day-to-day operations. Instead, it supervises the management of the company.

In Swiss companies, there is no distinction between the management board and the supervisory board: both bodies and their functions are combined in the board of directors

3. Why Does a Company Need a Board of Directors?

A company must have at least two bodies: a general meeting of shareholders and a board of directors, which is the governing body. Without one of these two bodies, the company cannot legally exist.

4. Board of Directors: Rights and Duties

The Board of Directors is composed of natural persons. They are all subject to a set of rules that define rights and obligations towards the company and the shareholders and, to a certain extent, towards third parties dealing with the company. In the following paragraphs we will take a close look at these rights and duties.

4.1. Supreme Management

The basic task of the Board of Directors is to exercise the supreme management of the Company. This includes a certain list of tasks and competences listed in the law (for example, the determination of the organizational and accounting rules, the preparation of the general meeting of shareholders, the appointment and supervision of the managers), which the board of directors may not delegate.

4.2. Delegation of Management

The shareholders may authorize the board of directors to delegate the management of the company in whole or in part to individual members or to third parties. The resolution of the shareholders’ meeting must be recorded in the company’s articles of incorporation, and the board of directors must define the scope and modalities of this transfer in organizational regulations. The law allows a great deal of flexibility in this respect. In practice, of course, this depends on the size and nature of the company’s activities. Very often, the management is delegated to a management team that takes care of the daily business (human resources, sales, accounting, IT security, etc.) and whose members may or may not be on the board of directors. In the first case, one speaks of a delegate or delegates of the board of directors.

4.3. Duty of Care and Loyalty (Fiduciary Duties)

The members of the board of directors must perform their duties with all due care and safeguard the interests of the Company in good faith. This also applies to third parties involved in the management of the company.

The courts interpret these fiduciary duties (in particular duty of care and loyalty) very broadly. The scope of these duties can be illustrated by concrete situations. For example, when a company needs financing, directors must exercise due diligence in evaluating the various options (capital increase or debt financing, etc.) and negotiating the best possible terms.

It is also advisable to document the decision-making process (see “What documents do I need to record a board decision“), if only to prove that the board members followed due process.

The duty of loyalty means that the members of the Board of Directors must be guided by the interests of the Company. This requires in particular that conflicts of interest are avoided as far as possible and that the necessary measures are taken to safeguard the interests of the company. If a director has a personal interest in concluding a contract with the company (for example, in the case of a loan to a director), he or she should not participate in the company’s decisions (so-called duty to abstain). Finally, it goes without saying that a faithful and diligent member of the board of directors must keep information about the company’s affairs to himself or herself (duty of confidentiality).

5. Who Can Become a Board Member?

5.1. Natural Persons Only

Only a natural person may become a member of the board of directors. A director does not need to be a shareholder, although it is of course possible to be a member of the board of directors and a shareholder.

5.2. Director and CEO

It is also possible to be a member of the Board of Directors and CEO (or a member of the Board of Directors and Managing Director) at the same time.

5.3. Are There any Professional Requirements?

The law does not stipulate any factual or professional requirements for members of the board of directors. It is up to the shareholders themselves to decide who should sit on the board of directors, depending on the needs of the company. It can even be of great advantage to a company if the members have different professional qualifications.

However, the statutory rights and duties of the directors require that they are capable of fulfilling them. In practice, this means that they have the professional skills and, above all, the time to perform their duties.

5.4. Nationality and Domicile

In principle, there are also no requirements regarding the nationality and domicile of the directors. However, the company must be able to be represented by a person domiciled in Switzerland. This requirement can be fulfilled by a director or a (senior) manager with the respective signatory powers.

5.5. How Many Directors Must a Company Have?

The board of directors may consist of one or more members and must have a Chairman or President.

6. Resolutions of the Board of Directors

6.1. How Does the Board of Directors Take a Resolution?

The board of directors generally passes its resolutions at its meetings (exception: circular resolutions, see below). The meetings are convened by the Chairman or the President. The law does not stipulate a minimum attendance requirement for decision-making. In practice, and in order to ensure good corporate governance, the company’s articles of association, the shareholders’ agreement and/or the organizational regulations provide that a certain number of board members (often the majority) must attend meetings in order for the board to debate and make decisions.

6.2. Majority Requirements

The law provides that the board of directors makes decisions by a majority of the votes present, according to the principle of “one director, one vote”. This is a fundamental difference from the general meeting of shareholders, where the principle of “one share, one vote” applies, which underlines the very personal character of the board of directors.

The above-mentioned documents may provide for other quorums, such as qualified majorities for particularly important decisions, like the acquisition of real estate or transactions involving the company and the directors and/or shareholders themselves.

6.3. Chairman's Casting Vote

In the event of a tie, the chairman or chairwoman has the casting vote. The shareholders may decide to revoke this “privilege”; in this case, this decision must be recorded in the company’s articles of association.

6.4. Resolution by Written Consent of the Board of Directors

Board members sometimes need to make a decision quickly. In some cases, certain decisions involve an essentially formal matter that has already been discussed (for example, formally approving the employment contract of a member of the Executive Committee after the terms of employment have already been discussed in a meeting). In such situations, convening a formal meeting (usually with notice and in writing) can be cumbersome – if not completely impractical. For this reason, the law allows board members to make their decisions in writing, which is called a resolution by written consent of the board of directors. 

However, written resolutions are not valid if a member of the Board of Directors requests deliberations. The revised Swiss company law, which is expected to come into force in the beginning of 2023, provides that the board of directors may pass circular resolutions purely electronically (i.e. without a “hand signature” and even without a qualified electronic signature or eSignature, for example by e-mail, SMS / WhatsApp or DocuSign). This reflects a practice that is already widespread in many companies.

7. Signatory Powers: Individual Signature vs Collective Signature

Signatory powers refer to the number of persons who must sign a particular document (for example, a loan agreement with a bank) in order to represent the company in a legally binding manner in its dealings with third parties.

As a rule, all board members as well as members of the executive board are authorized to sign and represent the company (see “Who can or must represent the company?” below). Basically, there are two possibilities:

  • Either there is collective signatory powers by two, and two members of the board of directors (or the executive board) must sign to bind the Company
  • or there is an individual signatory power and one member of the board of directors (or the executive board) may sign alone.
 

In practice, collective signatory powers have become a standard for good corporate governance in most companies. The signing authority of each board member must be registered in the Commercial Register (see below “What documents do I need to register a new board member with the Commercial Register?“). 

8. Who Can or Must Represent the Company?

The board of directors may delegate representation to one or more members (delegates) or third parties (for example directors). At least one member of the board of directors must be authorized to represent the company. The company must be able to be represented by at least one person who is resident in Switzerland. This person may be a member of the board of directors or a manager.

9. Board of Directors in Switzerland: Election and Organization

9.1. Who Elects the Board of Directors?

The shareholders’ general meeting is responsible for electing the members of the board of directors. In practice, board members can be elected jointly, but it is increasingly common to elect each board member individually. The revised company law, which is expected to come into force in the beginning of 2023, provides for individual election as the rule.

The general meeting elects the directors by an absolute majority of the votes represented, unless the articles of association and/or a shareholders’ agreement provide for a higher majority (for example, two-thirds of the votes). The election by the general meeting must be recorded in minutes.

9.2. How is the Board of Directors Constituted?

The principle of self-organization applies to the board of directors. In other words, the board of directors constitutes itself. But what does that mean in concrete terms? This includes the determination of the function (for example who is chairman, vice chairman, delegate) as well as the regulation of the signatory powers of the board of directors (for example individual signature, collective signature by two signatures, see above). The only reservation to the principle of self-organization is that the articles of association may stipulate that the chairman is to be elected by the shareholders’ general meeting. As a rule, the constitution takes place at the first board meeting after the election.

9.3. Compensation of the Board of Directors

The law does not contain any provisions on the compensation of members of the board of directors in unlisted companies (in listed companies, the shareholders must approve the remuneration). Theoretically, members of the board of directors may work without remuneration (in contrast to the company’s employees, for whom the labor law prescribes remuneration). In practice, this may even be the case if a board member has been delegated the management of the company and/or performs executive duties for which he or she already receives compensation (for example, CEO and board member), or in family-owned companies where traditionally all shareholders are represented on the board of directors.

In the vast majority of cases, however, the company compensates its board members, and this compensation is generally subject to social security contributions. In start-ups, it is common to provide for little or no financial compensation and to remunerate the directors with options or shares as part of a shareholding plan.

10. What Documents do I Need to Register a New Board Member with the Commercial Register?

The members of the board of directors must be registered in the Commercial Register. In the following article we have answered the above question in detail.

11. What Documents do I Need to Keep a Record a Decision of the Board of Directors?

The law stipulates that the deliberations and resolutions of the board of directors must be recorded in written minutes. In the following article we have dealt with this issue in detail.

12. Templates for the Board of Director

12.1. Templates for the Board of Directors in German

12.1.1. Teamplates for the Elections of the Board of Directors (in German)

Wahl neuer Verwaltungsratsmitglieder: Anmeldung beim Handelsregister
Wahl neuer Verwaltungsratsmitglieder: Protokoll der Generalversammlung
Wahl neuer Verwaltungsratsmitglieder: Wahlannahmeerklärung

12.1.2. Templates for the Resolutions of the Board of Directors (in German)

Zession von Namenaktien: Beschluss des Verwaltungsrats
Zirkularbeschluss des Verwaltungsrats
Sitzungsprotokoll und Beschlüsse des Verwaltungsrats
Verwaltungsratsbeschluss betreffend die Einberufung der ordentlichen Generalversammlung

12.2. Templates for the Board of Directors in English

12.2.1. Teamplates for the Elections of the Board of Directors (in English)

Election of New Board Members: Registration with Commercial Register
Election of New Board Members: Minutes of the Shareholders' Meeting
Election of New Board Members: Declaration of Acceptance

12.2.2. Templates for the Resolutions of the Board of Directors (in English)

Transfer of Registered Shares: Resolution of The Board of Directors
Resolution by Written Consent of the Board of Directors
Minutes of the Meeting and Resolutions of the Board of Directors (BoD)
Resolution of the Board of Directors for Convening the Ordinary Shareholders' Meeting

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Tobias Güntenspenger - Sales Manager bei Approovd - Schweizer Vertragsmanagement Software

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