Statutory Information and Inspection Rights of Shareholders
By virtue of the law, shareholders (unlike members of the board of directors) have no duties of loyalty towards the company and are also not subject to any non-disclosure obligations. Accordingly, the shareholders' statutory rights to information and inspection - in order to protect the company and its business secrets - are limited by law.
Shareholders' Right to Information
Pursuant to Article 697 of the Swiss Code of Obligations (CO), every shareholder (irrespective of its stake) is entitled to request information from the board of directors about the company's affairs and information from the auditors about the conduct and results of their audit at the general meeting.
Furthermore, in the case of non-listed companies, shareholders representing together at least 10 percent of the share capital or voting rights have the right to request written information from the board of directors about the company's affairs. The board of directors shall respond to the request in writing within four months and make the answers available for shareholders to inspect at the next general meeting.
Limitations to the Right to Information
However, the board of directors is only obligated to provide information to the extent that:
- The information is required for the proper exercise of shareholders' rights, and
- The provision of information does not endanger trade secrets or other legitimate interests of the company.
If such a danger to the company's interests exists, the board of directors may refuse to provide the information. The refusal needs to be justified in writing.
Shareholders' Right to inspect
In addition to the statutory right to information, Article 697a CO grants shareholders a right of inspection. According to this provision, shareholders representing together at least 5 percent of the share capital or voting rights may inspect the company's business records. All company documents are subject to this right of inspection, regardless of the format, including electronic files.
The board of directors must grant such access within four months of receiving the request. However, there is no obligation to make the documents objectively understandable or to translate them. Shareholders are not allowed to make copies of the documents under the right of inspection; they can only take notes.
Limitations to the Right of Access
Similar to the right to information, the right of inspection is limited and must be granted only if:
- The information is required for the proper exercise of shareholders' rights, and
- No trade secrets or other legitimate interests of the company are endangered.
As with the right to information, a refusal to permit an inspection must be justified in writing.
Legal Action for Information in Case of Denial of Information / Inspection
If information or inspection is wholly or partially denied or obstructed, affected shareholders have the right to bring an action before the competent court within a (very short) period of 30 days and demand the court to order the provision of information or inspection.
Right to Special Investigation (Art. 697c ff. CO) following Exercise of Information and Inspection Rights
After exercising the right to information and inspection, a shareholder may further request the general meeting to have specific matters investigated by independent experts where this is necessary for the exercise of shareholders’ rights.
- If the general meeting approves the request, the company or any shareholder has 30 days to ask the court to appoint the experts who will conduct the special investigation.
- If the general meeting rejects the motion, shareholders may within three months request the court to order a special investigation if they collectively represent at least 5 percent (for listed companies) or 10 percent (for non-listed companies) of the share capital or voting rights.
The request for a special investigation may cover any questions that were the subject of requests for information or inspection or were addressed during the consideration of the special investigation request in the general meeting, as long as the answers are necessary for exercising shareholders' rights.
The court shall order the special investigation if the applicants credibly show that founders or corporate bodies have violated laws or statutes and that the violation could harm the company or shareholders.
The special investigation must be conducted promptly and without unduly disrupting the company's operations.
The result of the special investigation is a report by the expert. This report is submitted to the company, and the court decides, upon the company's request, whether parts of the report violate trade secrets or other legitimate interests of the company and therefore should not be disclosed to the requesting shareholders.
Finally, the board of directors presents the report to the shareholders at the next general meeting and issues a statement. Subsequently, every shareholder has the right, for one year after the general meeting, to request a copy of the report and the statement from the company at its expense.
Shareholders' Information Rights are limited
As evident from the statutory information regime, shareholders' legal information and inspection rights are restricted, and investors may not be able to fully demand relevant information.
Shareholders' Information Rights in Shareholder Agreements
Given the limited (statutory) information rights of shareholders and the absence of confidentiality and loyalty obligations, shareholder agreements in Venture Capital and other Private Equity transactions often establish specific information rights and non-disclosure obligations.
Common information obligations include:
- Annual Reporting: The company is usually required to prepare the annual financial statements and a written annual report within a certain timeframe after the end of the year. The annual report shall contain information about the company's current situation and development, its competitive position, an updated business plan for the relevant fiscal year containing a projected monthly financial overview, and the relevant financial, earnings, and performance figures of the company.
- Quarterly Reporting: In the quarterly reporting, investors are provided with an (unaudited) quarterly financial statement and a written quarterly report within, for example, 30 days after the end of a business quarter. The quarterly report contains information about key business areas and general developments, often similar to the annual report.
- Monthly Reporting: In some cases, monthly reporting is also required. The corresponding monthly report contains a monthly financial statement as well as information on the most important key performance indicators. Instead of a monthly financial statement, many contracts provide that the company shall provide investors with management reports and information about key financial indicators.
- Annual Planning: In some cases, the company might be required to provide an overview of its annual planning, showing the goals for the upcoming year.
- Ad-hoc Information: Companies are typically obliged to inform investors proactively and promptly about extraordinary events.
- Access and Control Rights: Investors might also negotiate the right to access the company's premises at their discretion. This access right is usually limited to regular business hours and must not disrupt the company's business operations.
In addition to these common information obligations, other specific obligations can be considered. These specific obligations become particularly relevant when investors have specific information duties towards their own investors and require access to company data to fulfil these duties.
In the area of Impact Investing, for instance, it is common for companies to provide investors with a report on the social and environmental impact of the activity (Social and Environmental Impact Report).
Non-Disclosure Agreements as Counterpart to Information Rights
As a counterpart to the contractually granted information rights, shareholder agreements must include non-disclosure obligations. Shareholders who gain access to internal business information must be obligated to maintain confidentiality. Otherwise, there is a risk that the investors will use the information they receive for purposes that may harm the company. In order to further minimise the potential for damage, the agreement of a non-competition clause is sometimes considered. However, such non-competition clauses are rarely accepted by investors. This makes a well-drafted and comprehensive non-disclosure agreement all the more important.
Take Home Message
- The shareholders' statutory right to information and inspection is limited and exercising it involves a lot of effort.
- Venture Capital investors require specific information from the company and should therefore - in addition to the limited information and inspection rights - reserve corresponding information and inspection rights in the shareholders' agreement. Otherwise, they might not be able to obtain the necessary information.
- From the point of view of the company and the other shareholders, the granting of such comprehensive information rights must necessarily be combined with a comprehensive duty of confidentiality. Only such a confidentiality obligation ensures that the information provided to the investor is not disclosed.
- In the absence of a contractual duty of confidentiality, an investor is not subject to any statutory loyalty or confidentiality duties.
Disclaimer: The information contained in this article is for general information purposes and does not constitute legal or tax advice. In specific individual cases, the present content cannot replace individual advice from expert persons.
