Buying and Selling GmbH Shares: What Do You Need to Know?

There is much more to buying and selling shares in a private limited liability company (GmbH) in Switzerland than simply agreeing on a price. The process involves complex legal and regulatory requirements, complying with shareholders’ agreements, obtaining shareholder consent, and determining fair share valuations. This article explores the key aspects of GmbH share transfers and provides essential guidance to help both buyers and sellers execute successful and compliant transactions.

What is a GmbH?

The GmbH is one of the most common forms of business entities in Switzerland. It is a type of private limited liability company that offers both flexibility and legal protections, making it popular among SMEs and startups.

Establishing a GmbH requires a minimum share capital of CHF 20,000, which must be fully paid in. This capital can be divided into shares, which represent the ownership interests of shareholders.

How does GmbH share ownership work?

There are key differences in how share ownership works in a GmbH compared to an AG (stock corporation). In English, the term “shares” is commonly used when referring to the ownership stake of both a GmbH and AG; however, two distinct terms are used in German:

• “Aktien” is used for shares of an AG. These are generally more flexible and are often associated with public or private stock trading.
• “Stammanteile” is used for shares of a GmbH. These are typically not freely tradable and reflect ownership in a more personal and private company structure.

To distinguish “stammenteile”, we can use the more precise term of “registered shares”. This more clearly emphasizes their connection to specific individuals or entities whose share ownership must be listed in the commercial register.

Key features of GmbH share ownership

• Registered ownership: GmbH shares are registered, and the shareholder’s name is recorded in the Swiss commercial register. This creates a level of transparency not required for shares in an AG which are more anonymous and freely tradable.
• Complex transfer process: Unlike AG shares, which are easier to trade, GmbH shares require a formal assignment agreement for transfer. This involves legal documentation and compliance with company-specific requirements.
• Close relationships: GmbH ownership structures are often more personal, with shareholders actively involved in the company’s management. This adds an extra layer of scrutiny during share transfers.

Can GmbH shares be bought and sold?

Under Swiss law, GmbH shares can be bought and sold, either partially or in full. This involves transferring ownership through a written assignment agreement, as outlined by Article 785 of the Code of Obligations (CO). The assignment agreement ensures that the “assignment of capital contributions” (i.e., transfer of share ownership) is documented formally and legally binding.

Must existing shareholders agree to the sale?

According to Article 786 para.1 CO, share transfers generally require the consent of the other shareholders in a general meeting. Consent may be refused without the shareholders needing to provide reasons. This reflects the personal nature of a GmbH, where ownership and management are often closely linked. 

Article 786 para. 2 CO describes how the Articles of Association (AoA) can modify or override the standard consent requirements. For instance, the AoA may:

• Waive the need for shareholder consent entirely.
• Specify the grounds on which consent can be refused.
• Oblige the company to acquire the shares at their “true value” if they wish to refuse consent for a share transfer.
• Prohibit share transfers altogether.
• Require security or guarantees if there is concern over the assignee’s ability to fulfill financial or material obligations under the AoA.

Important: If the assignment is excluded or consent is refused, the shareholder retains the right to withdraw for good cause in accordance with Art. 786 para. 3 CO.

Shareholders’ agreements

In addition to the AoA, a shareholders’ agreement is a common and useful tool for regulating the relationship between shareholders. This separate agreement provides greater flexibility and detail regarding share transfers.

While the AoA sets out the basic framework of the company, shareholders’ agreements can cover numerous additional aspects of shareholders’ rights and obligations not commonly mentioned in the AoA. They often include more specific scenarios and restrictions related to share transfers, such as:

• Pre-emptive rights: Granting existing shareholders the right of first refusal before shares can be offered to external parties.
• Tag-along rights: Allowing minority shareholders to sell their shares alongside a majority shareholder in the event of a sale.
• Drag-along rights: Enabling a majority shareholder to compel minority shareholders to sell their shares if a sale of the entire company is agreed upon.
• Specific conditions for transfer: Defining specific conditions under which shares can be transferred (e.g., reaching certain performance targets, shareholder approval thresholds).

In practice, it’s common for Swiss GmbHs to include detailed share transfer provisions in their shareholders’ agreements rather than the AoA. This allows for greater flexibility and customization without needing to amend the company’s foundational documents.

Shareholder protections and rights

The personalnature of a GmbH means that share transfers must balance the interests of both the transferring shareholder and the existing shareholders. To protect all parties involved, the law allows for the following:

• Blocking transfers for valid reasons (Art. 786 para. 1 CO): The need for shareholder consent and/or restrictions on share transfer outlined in the AoA and the shareholders’ agreement can preserve the integrity of the company’s ownership structure by preventing unsuitable parties from joining the GmbH.
• Exit for good cause (Art. 786 para. 3 CO): If an assignment (share transfer) is blocked, either due to lack of consent or restrictions in the AoA or shareholders’ agreement, the transferring shareholder has the right to resign from the company for “good cause.” This ensures that a shareholder is not trapped in an unsatisfactory situation.

What is the practical significance of these rules for buyers and sellers?

The rules and regulations governing the assignment of share capital of a GmbH impacts both the process and the necessary preparations for a successful transaction.

Practical tips for buyers and sellers:

• Sellers must ensure compliance with the AoA and shareholders’ agreements, obtain necessary approvals and consider a professional valuation.
• Buyers must conduct thorough due diligence, understand the company’s business and shareholder dynamics, and carefully assess any restrictions on share ownership or transfer in the AoA and shareholders’ agreement.

How do you value GmbH share capital?

Determining the true value of shares in a GmbH is something that many shareholders struggle with, especially when it comes to selling their stake. Unlike publicly traded shares with readily available market prices, valuing GmbH shares is a more intricate process.  

Because these shares are traded privately, often with unique terms and conditions attached, there’s no easy answer to the question of how much they are worth. Determining their true value requires a careful examination of the company’s financial health, its future potential, and the specific circumstances of the share transfer.

Some of the key factors affecting the valuation of GmbH shares include:

1. Financial performance: This includes factors like revenue, profitability, cash flow, and assets. Strong historical performance and positive future projections generally increase the share value.
2. Market trends: Industry performance and economic conditions affect the overall confidence of buyers and therefore impact on an individual company’s valuation.
3. Assets and liabilities: This gives the overall net asset value of a company which can provide a good baseline value, especially for asset-intensive industries like manufacturing firms.
4. Future potential: Factors like industry growth, the company’s competitive position, and its management team all influence its potential future earnings and thus its value.

Methods of valuation

Various valuation methods may be used in determining the worth of a limited liability company. Here are three of the most common:

1. Net asset value (NAV)
   This method calculates the value of the company’s assets minus its liabilities. It is best suited for businesses with substantial tangible assets, such as real estate or manufacturing firms. It’s a simple method but might not capture the full value of a growing company.
2. Discounted cash flow (DCF)
   The DCF method estimates the company’s future cash flows and discounts them to their present value using a discount rate. It’s a popular valuation method, but it relies on being able to make accurate assumptions about future growth and risk. It therefore works well for businesses with predictable earnings and growth.
3. Market comparison (comparable analysis)
   This method benchmarks the valuation against similar transactions within the industry and adjusts the value using metrics like revenue multiples or EBITDA multiples. It is most effective when sufficient comparable data is available but requires adjustments for company-specific factors.

It’s important to remember that all these methods are prone to error, and there is no universally accepted “true value” of GmbH shares. Utilizing professional third-party valuation services is often the best way to ensure accurate, unbiased valuations of a GmbH, especially when combining multiple methods or dealing with unique business structures.

What is the process of transferring GmbH shares?

The transfer of GmbH shares involves specific steps for both sellers and buyers, ensuring compliance with Swiss law and the company’s internal regulations. Below, we outline the respective processes for selling and buying GmbH shares.

Steps for selling GmbH shares

• Review the relevant agreements:
  Carefully review the company’s articles of association and any existing shareholders’ agreement to identify restrictions or conditions on share transfers, such as pre-emptive rights, shareholder consent requirements, or specified valuation methods.

• Value the shares:
  Determine the value of the shares with the help of a professional valuation service. This ensures fair and transparent pricing, which can give a strong basis for negotiation.

• Identify potential buyers:
  Depending on the company’s structure and the shareholders’ agreement, you may need to offer your shares first to existing shareholders (pre-emptive rights). If not, you can identify potential buyers through your network, business brokers, or specialized platforms.

• Draft and negotiate the sales agreement:
  Negotiate the sale with your prospective buyer and then work with legal professionals to outline the terms of the agreement, including price, payment terms, and any other contingencies.

• Obtain approval:
  The sale of GmbH shares generally requires the express approval of other shareholders in the general meeting, unless otherwise stated in the AoA or shareholders’ agreement. Evidence of approval may be presented as a signed protocol, a circular resolution, or a co-signature on the registration form.

• Complete the sale and update the commercial register:
  Once all the approvals are in place, finalize the transaction through an assignment agreement and ensure the new ownership is recorded in the Swiss commercial register. This is a mandatory step for GmbH share transfers.

Steps for buying GmbH shares

• Conduct due diligence: Before committing to a purchase, conduct thorough due diligence on the company. This includes reviewing its financial statements, contracts, legal compliance, and any potential risks or liabilities.

• Review the relevant agreements: As a buyer, you need to be clear about what you are getting yourself into when purchasing share capital of a GmbH. Carefully examine the company’s AoA and shareholders’ agreement to understand any restrictions or obligations related to acquiring shares, such as limitations on voting rights, the requirement to be actively involved in management, and restrictions on future share transfers.

• Negotiate the terms: Agree on the share price, payment schedule, and any conditions that need to be met before completing the transfer.

• Finalize the assignment agreement: Once the terms are agreed upon, finalize and sign the share purchase agreement with the seller. Work with a legal professional to ensure that all necessary clauses are included and that the agreement meets Swiss legal requirements.

• Register new ownership in the commercial register: After the sale is finalized, the transfer of ownership must be notarized and registered with the Swiss commercial register. This step officially recognizes you as the new shareholder.

What are the costs involved in the sale of GmbH shares?

GmbH share transfers are more complex due to factors like reduced liquidity and the individualized nature of valuations and transfer agreements. These result in additional cost considerations for sellers and buyers, such as:

Costs for the seller

• Valuation services: If you hire a professional to value your shares, you’ll incur valuation fees.

• Legal fees: You’ll likely need legal counsel to draft or review the assignment agreement and advise you on the legal aspects of the sale.

• Capital gains tax: In most instances, personal capital gains is tax-free in Switzerland. So, selling your share capital in a GmbH should not incur capital gains tax. However, there may be exceptions where profit from the sale of participation rights is subject to tax. This is known as transposition. For more information, refer to Article 20a paragraph 1 of the Federal Act on Direct Federal Taxes (DBG).

• Commercial registry fees: There will be a fee to register the transfer of ownership with the Swiss commercial register.

Costs for the buyer

• Due diligence costs: If you conduct extensive due diligence, you may incur costs related to legal, financial, or technical reviews.

• Legal fees: You’ll incur legal costs for helping to review the share purchase agreement and advise you on the legal aspects of the transfer.

• Transfer fees: You may have to cover the fees for registering the new ownership with the Swiss commercial register.

What are the common difficulties faced in buying and selling GmbH shares?

Buying and selling registered shares in a GmbH is not as simple as the few clicks it takes to trade publicly listed stocks. The additional complexity and unique nature of each transfer can lead to some challenges:

• Valuation disputes: Buyers and sellers may disagree on the correct share price, even with the assistance of professional valuations.

• Finding suitable buyers: Sellers may struggle to find interested and qualified buyers, and the process can be time-consuming.

• Legal and administrative obstacles: Restrictions on share transfers outlined in the AoA or shareholders’ agreement may complicate the transaction or make the sale altogether impossible.

• Disagreements with existing shareholders: Selling GmbH shares generally requires the express consent of existing shareholders. They may be uncooperative to the sale or unwilling to accept the specific prospective buyer into the ownership structure of the GmbH and therefore refuse consent.