Digitize share registers and general meetings

The ban on assemblies set forth in the federal Covid 19 Order 2 prohibited all public or private events, including sporting events and club activities. This included shareholder or general meetings with more than five people. This ban on meetings, however, conflicted with the Code of Obligations, as the ordinary General Meeting of Shareholders must have been held within six months of the end of the financial year. In order to nevertheless ensure that the meeting could be held smoothly, the legislator had provided in the Covid-19 Ordinance: "In the case of meetings of companies, the organizer may, irrespective of the expected number of participants and without observing the notice period, order that the participants may exercise their rights exclusively: 1. in writing or in electronic form; or 2. through an independent proxy designated by the organizer." Many public limited companies - including Galledia Group AG, which also owns our journal - therefore held their general meetings by mail. However, the manual effort involved was high, and errors in the count had to be scrupulously avoided so that resolutions could not be contested.

General meetings via video conference?

So would holding the AGM by video conference have been a better alternative? Not necessarily. If more than ten shareholders had participated, there would have been a number of obstacles. Each participant would have had to be identified and authenticated so that he or she could have commented on the AGM's business or exercised their voting rights by video. The Zurich SME Aequitec AG therefore had a solution to this problem: With the help of a smartphone app, SMEs with unlisted registered shares were nevertheless able to hold a general meeting that complied with the Covid 19 Ordinance and the Code of Obligations. Namely, Aequitec relied on the option of independent proxies - provided by Swiss law firms and notaries with whom Aequitec has been working for some time. "We accompanied the voting procedure in each case with a cell phone and browser-based solution for the legally clean handling of the Covid general meeting," explains Christian Wilk, co-founder and product manager at Aequitec AG.

The crux with writing

But now that meetings of up to 300 people are possible again, demand for this solution is naturally declining. However, the example basically shows what is possible today thanks to digitization - to the benefit of the many SME stock corporations as well. For a general meeting to be held virtually, the shares themselves should also be available virtually. This is in line with the general trend anyway: that shares are physically tangible as securities should be a thing of the past in the medium to long term. Today, shares - as well as other uncertificated securities, securities and, in the future, possibly also registered securities - are increasingly being issued as book-entry securities - i.e., no longer in paper form. But even there, the Swiss legislator still sets limits: For one thing, only SIX SIS AG can structure shares as intermediated securities and hold them in custody together with a custodian. Secondly, a digital transfer of the shares can also only take place via the depositary, for example a bank. Companies that do not have their shares in the form of intermediated securities must transfer their shares by way of assignment in accordance with the Swiss Code of Obligations. And this assignment must be handwritten, because the digital signature has not been able to establish itself here. In addition, such assignments are susceptible to errors: If past assignments have not been properly documented, it is sometimes not even clear whether someone who claims to be the owner of a share is still a shareholder at all.

A "digital share" is not just digital

This makes it all the more important to keep a clean share register - even for SMEs. Aequitec AG is also a register provider for registered shares. "Our target customers are innovative Swiss SMEs with non-listed registered shares that are planning a capital increase, a succession plan or need to convert bearer shares into registered shares for the coming year," explains Christian Wilk. In essence, of course, this is also about the digital share - understood as a simple value right clothed in book-entry securities. "The advantage for SMEs with the digital share is the entry of the non-listed shares via ISIN number in the securities accounts at the respective house bank of the shareholder, i.e. the shareholder. Thus, the non-listed ownership can be attributed to the holistic assets of the customers," says Christian Wilk. "This is important for portfolio diversification, for example, as a customer may have a significantly higher shareholding than the bank can recognize today in its customer advisory service." In addition, new shareholder groups would be opened up for the entrepreneur, as the digital share can be booked as an admixture in existing securities portfolios.

When Christian Wilk talks about the digital share, he clearly distinguishes himself from so-called "tokens" based on public blockchain technologies, for example Ethereum. The key point: according to a majority of legal practitioners, "tokens " are (simple) uncertificated securities and are not clothed in book-entry securities. However, for these equity tokens without book-entry securities, no legally clean transfer of ownership is currently possible, as there is no mandatory written assignment ("cession") (Pasquier & Ayer, Formal Invalid Transfer of Shares on the Blockchain, 2019). Only the new stock corporation law, which is currently being revised, should provide corresponding clarity here.

From Excel sheet to smartphone app

The legally clean transfer of ownership thus turns out to be the "crucial question" for the digital share. Aequitec AG is therefore still primarily concerned with streamlining and improving the previous, established processes - be it in the transfer of shares or in the holding of general meetings. To this end, Aequitec has developed the smartphone app mentioned above, which allows formal tasks in the area of corporate governance to be handled easily - "a new kind of customer experience," as Christian Wilk emphasizes. However, the basis for this is and remains a well-maintained share register. Many SMEs still maintain this via Excel spreadsheets. This is a decisive obstacle on the way to digital shares or for smartphone applications. Christian Wilk: "Why not use the summer months to make the share register fit for the introduction of the digital share with us?"

How to make your share register fit

• Verification of names and addresses, especially of beneficial owners
• Registration not only of ownership but also of the associated voting rights
• Recording of all persons authorized to represent the company, especially legal entities
• Review of the expiration dates of the present powers of attorney
• Clear separation of share register and list of shareholders
• Clean separation of share and participation capital
• Recording of all inventory changes
• Recording of all share transfers (number of shares, acquisition price and date, specifications
  by the Articles of Association and the shareholders' agreement)
• Delete existing shareholders, not delete

More information: www.aequitec.ch