Share Transfers, Shareholders' Agreements and SPA

Share Transfers and Shareholders' Agreements Lawyer in Lugano

Selling or buying shares in a Ticino company has legal implications that go beyond signing the contract. Haab Legal assists entrepreneurs and investors in transfers of shares in public limited companies and quotas in limited liability companies, in the negotiation and challenge of shareholders' agreements, and in the drafting of Share Purchase Agreements (SPA) with warranty, indemnity and earn-out clauses.

Transfer of LLC quotas

Limited liability company quotas are transferred by public notarial deed (art. 785 CO) and entry in the Commercial Register. The firm handles both the transfer contract and the public deed, thanks to the in-house notary (attorney Roberto Haab). Three critical points to manage before the transfer:

Pre-emption right

The LLC's articles may provide that, in the event of a sale of quotas, the other quotaholders have a pre-emption right (to purchase on the same terms offered by a third party). To exercise the pre-emption right, the transferring quotaholder must communicate the third party's offer to the other quotaholders with a reasonable period (usually 30-60 days). Failure to communicate = a valid transfer between transferor and third party, but with liability of the transferor towards the bypassed quotaholders (damages or, in serious cases, retrocession of the quotas). The basic rules are in art. 786 CO, which may be supplemented by stricter statutory clauses.

Statutory restrictions on transfer

For the LLC, art. 786 CO allows further statutory restrictions on transfer: transfer subject to unanimous consent, a transfer ban for X years, buy-back on the death of a quotaholder, drag-along and tag-along clauses. The restrictions must be written into the articles to be enforceable against the company and against third-party purchasers.

Shareholders' agreements in Switzerland

Shareholders' agreements are agreements between shareholders governing votes, pre-emption rights, restrictions on the transfer of quotas and governance outside the articles. They take effect only between the signatory parties; they cannot be invoked against the company itself or against third parties who acquire shares in good faith. If a shareholder breaches the agreement, the sanction is damages towards the other shareholders, not the invalidity of the act performed against the agreement.

The typical clauses

• Tag along: if the majority shareholder sells, the minority shareholders may join the sale on the same economic terms.
• Drag along: the majority shareholder may compel the minority shareholders to sell together with them (useful for those who want to exit 100% without leaving minority shareholders behind).
• Buy or sell (also called "shotgun"): in case of disagreement, one shareholder offers their price. The other chooses whether to buy or sell at that price. It forces separation.
• Right of first offer (ROFO): before selling to third parties, the transferring shareholder must offer their stake to the other shareholders.
• Voting trust or voting syndicate: the shareholders agree to vote at the meeting in a coordinated way on specific matters.

Duration and termination

Shareholders' agreements of indefinite duration are challengeable under art. 27 CC (limits on excessive personal commitments) if the duration is excessive. Case law generally considers durations of up to 10-15 years reasonable. For longer durations it is advisable to provide for automatic renewal clauses with a termination option. Unilateral termination of an agreement of indefinite duration is permitted on reasonable notice, unless otherwise agreed. The typical sanction for breach of the agreement is a contractual penalty (art. 160 CO), reducible by the court if excessive.

Share Purchase Agreement (SPA)

The SPA is the contract governing the purchase and sale of company shareholdings. The essential elements to draft well from the first draft:

1. Object and price, with any adjustments at closing (working capital adjustment, debt-free cash-free).
2. Conditions precedent: regulatory authorisations, third-party consents (banks, landlords), confirmation of key management.
3. Seller's warranties (representations and warranties): ownership of the shares free of encumbrances, accuracy of the financial statements, absence of undisclosed litigation, tax compliance, validity of key contracts, intellectual property.
4. Indemnities for specific risks that emerged in due diligence (e.g. a pending case of known value).
5. Limits on the seller's liability: cap (maximum amount, usually 10-30% of the price for business warranties, 100% for fundamental warranties), basket (minimum cumulative threshold, 0.5-1% of the price), de minimis (minimum amount per individual claim), limitation period for claims (18-24 months for business, 3-5 years for tax).
6. Earn-out: where part of the price depends on the target's future performance. Critical technical points to draft: precise definition of the metrics (turnover, EBITDA, milestones), rules for managing the business during the earn-out, escalation in case of disagreement over the calculations (independent expert or arbitration).
7. Non-compete and non-solicitation clauses of the seller towards clients and employees, usually for 2-3 years after closing.

Closing and post-closing

At closing the shares or quotas are transferred, the price is paid and the closing documents are signed. For public limited companies with registered shares, the transfer requires an endorsement on the back of the certificate and entry in the share register (art. 685 CO). For the LLC, a public notarial deed (art. 785 CO) and entry in the Commercial Register are required.

In the post-closing phase the following are managed: verification of the working capital adjustment (usually within 60-90 days of closing), the operational transition (advice from the seller for X months), and enforcement of the warranties if undisclosed liabilities emerge. For warranty claims, the standard procedure is written notice to the seller with a 30-60 day period to respond, followed by an escrow drawdown (if provided for) or legal action.