By law, the articles of incorporation are a prerequisite for a valid establishment of a company limited by shares. They include fundamental provisions on the company, such as its company name, registered office, and business purpose, provisions on the share capital, the shareholders’ meeting, the board of directors, the audit, as well as communications to the shareholders.
Non-listed companies may only issue registered shares, with a few exceptions. Their transfer is often restricted in the articles of incorporation. In this case, the registered shares can only be transferred with the approval of the board of directors. This enables the board of directors to control the shareholder structure.
The articles of incorporation also contain important provisions on the organization of the shareholders’ meeting and the exercise of shareholders’ rights. In particular, the shareholders’ meeting may also be held virtually only or abroad if the articles of incorporation provide for this. In practice, there are few provisions regarding the organization of the board of directors. The latter is often free to determine the modalities of its organization, usually in a set of regulations, so-called organizational rules. However, the articles of incorporation may specify the number of board members and for how long they are elected, and provide that the chairperson is elected by the shareholders.
Compared to the standard version of the articles of incorporation, the extended version additionally provides for:
Conditional share capital: It authorizes the board of directors to conditionally increase the share capital by a maximum of 50% of the existing share capital by granting rights on shares to, for example, employees or creditors. In practice, options or conversion rights are used within the conditional share capital for the participation of employees or for financing purposes. The increase in share capital is conditional because new shares are only issued if these rights are exercised. The corresponding instruments may also provide for an ” obligation to exercise “, i.e. they are “automatically” converted into shares upon the lapse of a period of time or upon the occurrence of certain conditions.
Capital range: It gives the board of directors flexibility in setting the share capital. The board can thus increase and/or decrease the share capital by a maximum of 50% for a certain period of time, but not exceeding 5 years. If a limited audit has been waived, the board of directors may only be authorized to increase the share capital.
Contributions in kind: These are assets that are used to pay for shares instead of cash when they are issued. In order to be validly contributed against shares, an asset must meet certain requirements: Its value must be clearly determinable, and it must be transferable, disposable, and realizable. This includes, for example, furniture, claims, shares, intellectual property rights (e.g. copyrights and patent rights), real estate, etc.
If there are several shareholders, they often enter into a shareholders’ agreement. The articles of incorporation are then regarded as an official and public document that defines the basic organization and share capital of the company in relation to third parties, while the relationships between the shareholders are regulated in detail in the agreement, in particular the rules on corporate governance and the transfer of shares.
