Buying Into a Swiss Business as a Foreign Investor: The Due Diligence Most Newcomers Skip

Investing in a Swiss company is, in theory, straightforward: Switzerland has no general restrictions on foreign ownership of private companies, the legal framework is commercially well-established, and the Swiss reputation for stability is not merely a cliché. In practice, however, acquisitions of minority or majority stakes in Swiss businesses by foreign investors regularly run into complications that a thorough due diligence process would have surfaced earlier.

The complications are rarely dramatic. Switzerland does not produce the kind of governance scandals or hidden liabilities that characterise distressed acquisitions in some other markets. But the specifics of Swiss corporate law, the relationship between share structure and control, and the tax treatment of cross-border investment create real risks for investors who approach a Swiss acquisition with assumptions formed in other legal systems.

Shareholder Rights and Minority Protections

Swiss corporate law gives shareholders certain protections, but minority investors in an SA or Sàrl should not assume that these protections are automatically sufficient. The right to inspect the books, the right to call a general meeting, and the right to bring derivative claims on behalf of the company all exist in Swiss law, but their practical exercise depends on the articles of association and on any shareholders’ agreement in force.

Before investing, I would advise clients to request and review at least the full constitutional documents of the target company – including the articles of association, the shareholders’ agreement if one exists, any investment agreements or preference rights attached to existing shares, and, if possible, the minutes of recent general meetings and board meetings. These documents reveal the real governance arrangements, which may differ significantly from what the company presents informally.

Undisclosed Liabilities and Contingent Obligations

Swiss companies are required to maintain proper accounts, and the quality of Swiss accounting is generally high. But accounting standards do not capture everything. Common areas of undisclosed or underestimated liability in Swiss business acquisitions include: pending employment disputes or wrongful termination claims not yet formalised; obligations to former shareholders under agreements that have never been documented; social security arrears, particularly in companies that have employed casual or freelance workers; and cantonal tax positions that are under review or pending clarification.

A thorough legal due diligence should include a review of the company’s social insurance (AVS/AI/APG) standing with the relevant canton, its VAT registration and compliance history, and any property it owns or leases – particularly if lease terms or options to purchase are material to the investment thesis.

The Shareholders’ Agreement – Negotiate Before You Invest

The moment when a foreign investor has maximum leverage in relation to governance terms is before the investment closes. After closing, re-negotiating the shareholders’ agreement requires the cooperation of existing shareholders who no longer have an incentive to agree. Common terms that foreign investors underestimate include pre-emption rights on share transfers (which can prevent an exit if existing shareholders refuse to consent), drag-along and tag-along provisions, dividend policy, and the rules for resolving deadlock at board or shareholder level.

Swiss law gives the parties considerable freedom to design these arrangements, and the terms of a well-drafted shareholders’ agreement can significantly affect both the value of the investment and the investor’s ability to realise that value. The negotiation of these terms is a legal exercise as much as a commercial one.

Tax Considerations for Foreign Investors

Switzerland’s tax treatment of investment income and capital gains varies depending on the investor’s tax residency, the structure of the investment, and whether the shares are held directly or through an entity. Swiss withholding tax of 35% applies to dividends paid by Swiss companies, but may be reduced under a double taxation treaty between Switzerland and the investor’s country of tax residency. The applicable treaty and the procedure for reclaiming withholding tax should be confirmed before the investment is structured.

Switzerland, like most jurisdictions, may deny the benefits of a double taxation treaty where a foreign parent company lacks sufficient economic substance and is therefore regarded as a mere conduit within a structure established primarily to obtain tax advantages. Such circumstances may be treated as an abuse of treaty benefits.

Frequently Asked Questions

Can a foreign investor hold 100% of a Swiss company?

Yes. Switzerland imposes no general restriction on foreign ownership of Swiss private companies. The only significant exception relates to real estate under the Lex Koller legislation, which restricts foreign acquisition of certain residential property – a restriction that applies to the underlying assets, not to the corporate structure itself.

Is a notarised transfer deed required to acquire shares in a Swiss SA?

No. Transfers of shares in a Swiss SA are effected by an agreement of assignment and endorsement of the share certificate (if physical certificates are in use) or notation in the share register. A notarial deed is not required for an SA share transfer.

How long does a typical Swiss business acquisition take to complete?

A straightforward acquisition of a minority stake in a small Swiss company can close within two to four weeks of term sheet agreement, assuming documentation is complete and there are no regulatory approvals required. More complex transactions – particularly those involving regulated activities or real property – take longer.

Does David Kohler advise on business acquisitions in Geneva?

David Kohler advises on private M&A transactions, shareholder negotiations, and investment structuring as part of his business law practice in Geneva. He regularly works with foreign investors acquiring stakes in Swiss-based companies across a range of sectors.

The due diligence process is not primarily about finding reasons not to invest. It is about investing with accurate information. A proper review of the target’s legal position, tax standing, and governance documents rarely takes long or costs much relative to the size of the investment – and the issues it surfaces can almost always be addressed in the documentation, or reflected in the price.

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Disclaimer: The information contained in this article is provided for general informational purposes only and does not constitute legal advice. It should not be relied upon as a substitute for specific legal counsel tailored to your individual circumstances. The author makes no representations as to the completeness or accuracy of the information presented, and accepts no liability for any action taken or omitted in reliance on it. Would you have a question relating to your specific situation, we encourage you to reach out to David Kohler, Swiss Attorney-at-Law.