(Un-)Certainty regarding the term of office of board members following recent decisions by the Swiss Federal Supreme Court

In a series of recent decisions regarding the term of office of board members of stock companies, Switzerland's Federal Supreme Court ruled that the term of office of board members automatically ends six months after the end of the financial year, unless they are re-elected until then. However, a subsequent decision casts doubt on this conclusion. This is a significant issue in practice, which may also apply to limited liability companies if they appoint their board members by shareholder resolution, given that numerous Swiss stock companies hold ordinary shareholders' meetings after the statutory time limit.

Background

Pursuant to art. 710 para 1 of the Swiss Code of Obligations (CO), the term of office of board members (Verwaltungsratsmitglieder) in listed stock companies (Aktiengesellschaften) ends at the latest with the next ordinary shareholders' meeting. For private stock companies, art. 710 para 2 CO states that the term of office can be defined in the articles of association for a maximum period of six years, with a default period of three years.

Articles of association of many private stock companies stipulate a one-year term. Many articles of association add that "the time period until the next ordinary shareholders' meeting shall be deemed one year" or similar wording. The recent decisions of the Swiss Federal Supreme Court are also relevant if the articles of association provide for a multi-year term of office, namely in relation to the final year of each term. Furthermore, the conclusions also may apply to limited liability companies (Gesellschaften mit beschränkter Haftung) if their articles of association foresee that the board members (Geschäftsführer) are elected by shareholder resolution.

Swiss corporate law includes an obligation to hold the ordinary shareholders' meeting within six months from the end of the financial year. For example, stock companies whose financial year corresponds to the calendar year must hold their ordinary shareholders' meeting by 30 June of the following year.

Legal doctrine has discussed whether the term of office of board members ends automatically upon expiry of this six-month period if no ordinary shareholders' meeting is held by then. Until recently, Swiss legal doctrine largely rejected such view, emphasising the character of the six-month deadline as a statutory provision not carrying any sanctions (Ordnungsvorschrift).

Recent decisions of the Swiss Federal Supreme Court and their implications

• BGE 148 III 69: End of the term of office six months after the end of the financial year

The Swiss Federal Supreme Court had touched on the above question in several cases (see decisions 4A_507/2014 dated 15 April 2015, 4A_279/2018 dated 2 November 2018, and 4A_380/2020 dated 25 August 2020). While the Swiss Federal Supreme Court had leaned towards or implied a termination of the term of office, it conclusively answered the question for the first time in its decision 4A_496/2021 dated 3 December 2021 (published as BGE 148 III 69).

The case concerned an entity whose board members were appointed upon its incorporation in June 2017, and subsequently re-elected in two extraordinary shareholders' meetings held in November 2017 and April 2019. The company never held an ordinary shareholders' meeting and its articles provided for a term of office of "one year until the next ordinary shareholders' meeting".

The Swiss Federal Supreme Court argued that the board of directors must not be allowed to extend its term of office by failing to call an ordinary shareholders' meeting. The court saw a need to protect the shareholders, and their inalienable right to appoint board members, from such abuse of power by the board. Hence, it ruled that the term of office ends at the latest upon expiry of the six-month period following the end of the financial year.

The decision triggered intense reactions in Swiss legal doctrine due to its practical implications. Many Swiss stock companies hold ordinary shareholders' meetings more than six months after the end of the financial year. The decision of the Swiss Federal Supreme Court means that all of these entities, if their board members are up for re-election in the year, no longer have a board of directors that is properly appointed (see also here). 

• Decisions 4A_387/2023 and 4A_429/2023: Former board members can no longer call a shareholders' meeting

In the Swiss Federal Supreme Court's decision in the joint cases 4A_387/2023 and 4A_429/2023 dated 2 May 2024, it seemed undisputed among the parties and court that the board members had not been re-appointed within six months from the end of the financial year, and that their term of office had been terminated. The case only concerned the question of whether the former board could still call a shareholders' meeting after such termination.

The Swiss Federal Supreme Court decided that the legal concept of a "de facto corporate body", which was invoked as the basis for the power to call a shareholders' meeting, primarily concerns directors' liability. The Swiss Federal Supreme Court rejected the notion that this legal concept could give a de facto board of directors the authority a properly appointed board, including the power to call a shareholders' meeting. Consequently, any resolutions passed at a shareholders' meeting called by former board members are null and void as the shareholders' meeting was not called by the competent body.

The decision was received rather negatively because it made it more difficult for stock companies, whose board members' term of office is deemed terminated, to remedy such a situation. Shareholders of these stock companies must either:

• hold a universal shareholders' meeting with all shareholders participating, which only seems feasible for stock companies with a single shareholder or a limited number of shareholders;
• have the company's auditor call the shareholders' meeting, which is not possible for stock companies that waived the audit of their annual financial statements (i.e. opting out); or
• seek a court order calling a shareholders' meeting.

The decision clarified that the reasoning of BGE 148 III 69 must not be applied to the appointment of the company's statutory auditors. The court referred to the wording in art. 730a CO, which (unlike art. 710 CO dealing with the term of office of the board members) explicitly states that "the term of office [of the auditor] ends with the acceptance of the last annual financial statements".

Some scholars criticised the distinction between the terms of office for board members and the auditors. However, apart from the difference in the wording of the statutory default term of office, different underlying rationales should be considered. As mentioned above, the Swiss Federal Supreme Court argued that the term of office of board members should end at the latest six months after the financial year to protect the shareholders from a board that tries to unilaterally extend its term by not calling a shareholders' meeting. The court focused on the risk that the board might otherwise continue to represent the company against the interests of the shareholders; the court referred to the board members being appointed to act generally during a particular time period. In contrast, in the words of the Swiss Federal Supreme Court, the auditor is appointed primarily for a particular task (i.e. scrutinising financial statements), thereby protecting creditors and shareholders. Furthermore, it does not seem justified to foresee the termination of the term of office of the auditor due to a delay in the calling of the ordinary shareholders' meeting, which will in practice mainly be driven by the board of directors.

• Decision 4A_508/2023: A change of mind?

In its decision 4A_508/2023 of 9 July 2024, the Swiss Federal Supreme Court decided a case concerning a company whose board members were appointed on 8 July 2019, 5 November 2021, and 20 September 2022. The articles of association provided for a term of office "until the next ordinary shareholders' meeting". The minutes of the shareholders' meeting dated 5 November 2021 referred to an appointment for "one year until the next ordinary shareholders' meeting". The question brought before the court focused on whether the term of office of the board members had lapsed beginning 1 July 2022 (i.e. six months after the end of the financial year in which the appointment was resolved).

The Swiss Federal Supreme Court referred to its position that articles of association of stock companies with few shareholders should be interpreted like contracts (based on the shareholders' actual or implied intentions), whereas articles of association of stock companies with a larger shareholder base should be interpreted similarly to statutory law. Given that the company in question had only two shareholders, the former applied.

The Cantonal court had concluded in this case that there was a consensus between the shareholders that the term of "one year until the next ordinary shareholders' meeting" (as it is described in the shareholder resolution appointing the board members) meant a term ending on the earlier of the next ordinary shareholders' meeting and the date one year after the appointment of the board members. Applying that rationale, the term of office extended beyond 30 June 2022 to 20 September 2022 (and would have extended until 5 November 2022, if no ordinary shareholders' meeting was held until that time). The Cantonal court also considered that the facts in this case differed from those of BGE 148 III 69, as the articles of association did not limit the term of office to one year. The latter observation by the court is somewhat odd, given that it seemingly applied the limitation to one year foreseen in the shareholder resolution rather than the articles of association. That wording, in turn, is similar to the wording that was used in the case underlying the decision BGE 148 III 69.

The Swiss Federal Court referred to general principles stating that the interpretation of a contract and the finding of a consensus between parties, which was the core of the Cantonal court's decision, are questions of fact rather than a matter of law. As the Swiss Federal Court explained, it could therefore only overrule the Cantonal court's decision if it was considered arbitrary, which it did not find. Hence, the Cantonal court's ruling was upheld: the term of office of the board members was not deemed to have expired on 1 July 2022.

Some scholars argue that the decision might indicate a change of mind of the Swiss Federal Supreme Court, giving up its stance on the strict time limitation of the term of office to six months after the end of the relevant financial year at most. The decision indeed indicates that the automatic termination foreseen by the Swiss Federal Supreme Court in BGE 148 III 69 will not apply in all cases, and rather depends on the articles of association. We concur with that conclusion, given that private stock companies have flexibility in how to define the term of office in their articles of association and could provide for a term of office of up to six years, and that the Swiss Federal Supreme Court's standpoint in BGE 148 III 69 is primarily concerned with protecting shareholders from abuse of power by the board. Thus, shareholders of a private stock company should indeed be able to explicitly consent to a term of office extending beyond the six-month period by way of a respective provision in the articles of association.

Furthermore, some scholars even argue that articles of association providing for the widespread definition of the term of office of "one year until the end of the financial year" should, following this decision 4A_508/2023, no longer entail the risk of an implied time limitation to – at most – six months after the end of the relevant financial year. Such a conclusion, however, seems questionable. In its decision 4A_508/2023, the Swiss Federal Supreme Court ruled that a finding of an actual consensus of the parties involved in the case at hand, pursuant to which such wording could be construed accordingly, is not arbitrary. It did not refer to its previous decisions being reversed. Also, as pointed out above, the Cantonal court's decision made an effort to highlight differences in the facts from those in BGE 148 III 69. Hence, caution should be exercised when deducting general principles from the decision 4A_508/2023.

Finally, even if the most recent decision signals that the Swiss Federal Supreme Court might reconsider its position of BGE 148 III 69, it is questionable whether this would increase legal certainty and reduce practical issues with the widespread wording "one year until the next ordinary shareholders' meeting". Pursuant to this most recent decision, the term of office of board members would end one year after their appointment rather than six months after the end of the relevant financial year. It would arguably be even more complicated to monitor and ensure that each ordinary shareholders' meeting is held at the latest on the same day one year after the election of the relevant board member. A general time limitation, six months after the end of the financial year, seems preferable in that regard.

Conclusion and recommendations

The key takeaways from the recent decisions of the Swiss Federal Supreme Court include:

1. The term of office of board members will eventually be deemed terminated if no shareholders' meeting resolving on the (re-)election of the board members is held. It is not possible to foresee a tacit renewal or extension.
    
2. In relation to stock companies whose articles of association contain a wording similar to the widespread phrasing referred to in the introduction ("one year, until the next ordinary shareholders' meeting" or similar wording), it is not entirely clear whether the term of office will be deemed terminated at the date one year after the respective board member's appointment or six months after the end of the relevant financial year if no shareholders' meeting resolving the (re-)election of the board members is held by then. The latter appears more likely to apply. Cantonal courts continue to apply this interpretation (see the decision HSU.2025.14 of the Cantonal court of the Canton of Aargau dated 2 July 2025).
    
3. Private stock companies may be tempted to introduce a definition of the term of office into their articles of association that delays the deemed termination to a later date. Respective proposals are considered below, whereby all proposals entail certain downsides. Hence, those potential workarounds should in our view only be considered if, in a particular case, there is a considerable risk that the ordinary shareholders' meeting can repeatedly not be held within six months (for reasons outside of the control of the board of directors), and the lapse of the deadline and the deemed termination of the term of office of the board members could not simply be overcome (in particular, if it essentially requires the shareholders to involve a court).

• Proposal 1: "The members of the board of directors are appointed for a term of office of [two-six] years."

A multi-year term of office only postpones the issue to the last year of the term of office. Further, in practice, if the (re-)election of the board members is not an agenda item each year, it is sometimes overlooked when the elections are due. It also seems disadvantageous from a corporate governance perspective, given that the (re-)election of the board members is discussed less frequently.

• Proposal 2: "The term of office of a member of the board of directors generally lasts one year. However, if no shareholders' meeting resolving on the (re-)election of the board members takes place within such time period, the term of office is extended until the actual date of the next ordinary shareholders' meeting, at most, however, up to six years" (see Vischer Markus/Galli Dario, Die Amtsdauer der Mitglieder des VR als Auslegungsfrage, SZW 2024, p. 764). 

The proposal is based on the argument that the articles of association could foresee a six-year term of office and any combination with a shorter term should also be admissible. There is, however, a risk that such a mechanism would not be upheld, as the provision does not initially stipulate a six-year term of office, but rather a default term of office of one year that could be extended in certain circumstances. Such an automatic extension is precisely what the Swiss Federal Supreme Court wanted to prevent.

• Proposal 3: "The term of office of a member of the board of directors lasts until the earlier of (i) the date two years after his or her election and (ii) the next shareholders' meeting resolving on the (re-)election of the board members".

With this wording, the default term of office would not be extended if no shareholders' meeting is held, but shortened if one takes place. It, however, seems somewhat artificial as the two-year term should never apply, given that there should always be an ordinary shareholders' meeting within this time.

• Proposal 4: "The term of office of a member of the board of directors lasts until the actual date of the next shareholders' meeting resolving on the (re-)election of the board members, irrespective of whether such shareholders' meeting is held within six months from the end of the financial year, at most, however, until [specify a date, such as the date 12 months after the end of the financial year or a term of three years]".

The proposal ties the term of office to the next shareholders' meeting resolving on the (re-)election rather than a time period in years. Furthermore, it specifies a point in time, more than six months after the end of the financial year, when the term of office will be deemed terminated, if no ordinary shareholders' meeting is held. Otherwise, the term of office of the board members would be at their own discretion, likely triggering the application of the six-month deadline as foreseen in BGE 148 III 69. The later cutoff date could, for example, be based on the statutory default term of three years or, for corporate governance reasons, a date in the second half of the year following the financial year during which the board members were appointed. With an explicit basis for such cutoff date, the six-month deadline should not apply. As per the proposed wording, one may consider expressly acknowledging that, in addition to specifying a later deadline. Compared to the proposals above, this wording seems less controversial. However, it still entails publicly referring to the possibility that the company might not hold its ordinary shareholders' meeting within the statutory timeline.

• Proposal 5: "The members of the board of directors are elected for a term of office of two years and may be re-elected at any time. Each re-election triggers a new term of office."

This proposal is based on the idea that the articles of association provide for a two-year term of office, while the board members are still (re-)appointed at each ordinary shareholders' meeting, triggering the start of a new term of office (rolling (re-)elections), which is considered admissible in Swiss legal doctrine. It may, however, be hard to understand for someone not familiar with the issue. Also, one needs to bear in mind that in a hostile situation, the board could remain in office for the two-year term rather than only one year. Notwithstanding, this proposal seems to gain traction in practice and seems preferable compared to a more complex definition of the term of office, given that the articles of association do not need to include any provisions that could be controversial nor do they need to refer to the possibility that the company might not hold its ordinary shareholders' meeting within the statutory timeline.

    4. In any event, stock companies are well advised to comply with statutory law and hold their ordinary shareholders' meetings within six months from the end of the financial year. One should remember that it will be at least more cumbersome and can be riskier for the board if dividend distributions are resolved after the lapse of six months.

    5. If the ordinary shareholders' meeting in a particular year cannot be held within such deadline, the company should convene an extraordinary shareholders' meeting confirming the board members for the term until the ordinary shareholders' meeting can be held.

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