Dividends can be broadly classified into the following categories: ordinary dividends, extraordinary dividends, interim dividends and dividend advances.
In any case, the following basic rules must be respected:
As defined above, extraordinary dividends are permitted under Swiss corporate law, provided that the following conditions are met:
From a strictly legal point of view, interim dividends are not permitted under Swiss corporate law. The reason for this rule is that dividends can only be decided on the basis of the final balance sheet of the past financial year showing a distributable profit.
However, in practice, an interim dividend tends to be allowed provided that it is based on interim financial statements that have been audited for less than six months and show distributable profits in accordance with Article 675 CO and the articles of association.
The new law on corporations, which is expected to come into force on January 1st, 2023 (article 675 nCO), will expressly allow for the payment of interim dividends, so-called “intermediate dividends” in the new law. We even believe that provisions in the articles of association expressly providing for the possibility of making such interim dividend distributions under the above-mentioned conditions should already be authorized by the commercial register.
An advance on dividends is allowed by Swiss corporate law practice, although it is not mentioned in the law. It takes the form of a loan to the shareholders from the current profit. It is repaid by offsetting it against the dividend subsequently decided by the General Meeting of Shareholders on the basis of the profit resulting from the balance sheet for that year.
Violation of the above-mentioned rules by the general meeting will result in the annulment (706 and 706a OR), or even the nullity, of the GM that decided on these distributions. In case of admission, the distributions already made must be returned by those who benefited from them in accordance with the restitution action provided for in Article 678 CO. The action for restitution belongs to the company acting through its board of directors or to a shareholder. They act in payment to the company. The board of directors and/or the auditors may also be held liable in this context.
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