Consider directors' and officers' liability
Fricker Füllemann Attorneys at Law was asked whether the residency requirement for stock corporations regarding the entry in the commercial register of a person authorized to represent the company could be fulfilled by making an entry without a functional designation and without this resulting in a position as an executive body and corresponding liability as an executive body. The result is as follows:
Pursuant to Art. 718 para. 4 of the Swiss Code of Obligations (OR) may be represented by a person domiciled in Switzerland.
According to the wording of the law, this requirement can be fulfilled by a member of the highest management or administrative body or a director.
The term “director” within the meaning of Art. 718 para. 2 CO: This is a “third party” (i.e. a person not belonging to the Board of Directors) to whom the power of representation has been transferred. It is therefore not necessary for this person to be entered in the commercial register as a director. A procuration or power of attorney, on the other hand, satisfies the requirements of Art. 718 para. 4, 814 para. 3 and 898 para. 2 CO(Practice Note EHRA 1/08 – October 17, 2008).
Registration without a function is therefore possible (and is even recommended in practice), but the registered person still has the function of a “director”, i.e. a third party authorized by the board of directors within the meaning of the law. The position of such a director must therefore be examined.
According to established case law and doctrine, the members of the Board of Directors and the Control Authority in particular are subject to directors’ and officers’ liability(BGE 86 II 171 and BGE 93 II 22). However, this would also include other persons, regardless of whether they are designated as executive bodies in the Articles of Association. Rather, it is the function that they actually perform that is decisive. Insofar as they exercise independent administrative and representative powers and thus participate in the decision-making of the legal entity, as is generally the case for directors, for example, they are organs and are liable as organs (GUHL, MERZ, KUMMER, Das schweizerische Obligationenrecht, 7th ed., p. 691).
FORSTMOSER (Die aktienrechtliche Verantwortlichkeit, 2nd ed.) distinguishes between formal and substantive board membership and states, among other things (N. 654 and 655, p. 209): “Board members within the meaning of the liability provisions are all members of the Board of Directors, irrespective of the tasks they actually perform (formal board membership).” However, he does not regard every person entered in the commercial register as a corporate body in the formal sense. However, an entry in a certain function – for example as a director – can result in a position as an executive body by proclamation and, as a rule, the person registered in a senior position will also be an executive body in the material sense. FORSTMOSER (N. 741 to 743, p. 232) comments on the status of directors, authorized signatories and authorized agents as corporate bodies: The question of whether these persons and other employees are subject to liability under company law is consistently based on the material or functional concept of a corporate body. As a rule, directors would be qualified as corporate bodies within the meaning of Art. 754 CO. It is also pointed out that the status of a corporate body should also be assumed if, according to the principle of trust, such a position can be inferred from the external circumstances (FORSTMOSER, loc. cit., p. 214/5 para. 676 et seq.).
Based on the above and in view of the fact that a mere “HR-registered mailbox address in personnel form” is likely to be teleologically undesirable by the legislator – for example in the case of liability for unpaid social security contributions – it is more likely to be assumed that the “director” is an executive body, ceteris paribus. This applies in particular in cases where the director is the only person in Switzerland who can be prosecuted. When accepting such mandates, it is therefore advisable to take the precaution of assuming an executive body position and to structure the remuneration model and the legal framework accordingly, even if the entry in the commercial register is made without a function designation.
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