When founding a limited liability company [Aktiengesellschaft] or increasing the share capital, it is possible to only partially pay-in the nominal value of the registered shares. Owners of such partly paid-up registered shares are seldom aware of the consequences of a partial payment. This article is to point out the legal consequences of such partially paid up shares.
Issuance of registered shares that were partially paid-up
When founding a limited liability company or increasing the share capital, the subscriber unconditionally undertakes, among other things, to make a contribution corresponding to the issuance amount of the shares. Thereby, at least 20 per cent of the nominal value must be paid-up and a total contribution of at least CHF 50,000.00 must be made. As such, founding a limited liability company under Swiss law requires assets of at least CHF 50’000.00. However, one has to pay additional CHF 50’000.00 at some point in the future to pay up the entire minimal share capital of a limited liability company.
Subsequent payment of contributions can be claimed at any time
After the issuance of partly paid-up registered shares, the board of directors has the right to demand the subsequent payment of the contribution at any time. The shareholder must therefore expect to be required to pay the contributions in full at any point in time.
If an owner of partly paid-up registered shares does not comply with this demand of the board of directors, he is obliged to pay default interest (art. 681 para. 1 CO). Furthermore, the board of directors is authorized to declare the defaulting shareholder to have lost his shareholder rights and the partial payment he already made. In addition, the board of directors may issue new registered shares in place of the defaulted registered shares (art. 681 para. 2 CO) and issue them to other people.
As such, if the shareholder fails to comply with his obligation to pay in the full nominal value, he may lose his entire shareholder status.
Obligation to make subsequent payment in the event of bankruptcy
If a limited liablity company with partly paid-up shares goes bankrupt, the shareholder's obligation to make the remaining contribution remains in force. In the event of bankruptcy, the authority to demand subsequent contributions is transferred to the bankruptcy administration and the bankruptcy estate may claim subsequent contributions from the shareholders.
It is not uncommon to see cases in which founders only partially pay up the share capital and then having to pay the rest of the contribution once the company entered bankruptcy. Especially in such situations the disadvantages of partly paid-up registered shares become evident.
Transfer of partly paid-up registered shares
If a shareholder sells his partly paid-up registered shares and the purchaser is then entered in the company's share register, the latter is obliged to pay the remaining amount upon entry in the share register and the seller is in principle released from his liability against the company (Art. 687 para. 3 CO).
However, if a company goes bankrupt within two years of its entry in the commercial register and the shares of the legal successor are declared forfeited due to non-payment of the remaining contribution, the initial subscriber (and not the purchaser) is liable for the payment of the full contribution after the sale of the shares.
For all these reasons and especially due to the deferred payment risk, which is particularly painful in the event of bankruptcy, we advise against only partially pay-in up shares in the vast majority of cases.
