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The Swiss Verein, An Association For Managing Globalization

   The Fédération Internationale de Football Association (FIFA)[1], the International Committee of the Red Cross (ICRC)[2] and Baker & McKenzie[3]are global success stories. While pursuing very different goals, astonishingly, they all adopt the same strategy: global federalism, accomplished through the establishment of a Swiss association, commonly called a verein.. This legal form makes it possible to unify a great number of local offices or clubs within one international entity while preserving their financial independence. This article is dedicated to give an overview of the reasons for establishing a Swiss association in order to pursue both non-commercial and commercial purposes around the globe.

 In Switzerland, the association is the most widely spread legal entity.[4] This popularity can be explained by the fact that the Swiss association is a suitable tool for both commercial and not-for-profit entities who may pursue charitable, political, scientific, cultural, social or purposes., typically across many borders. [5] Furthermore, it is equipped with a legal status, meaning that only the entity’s capital is liable for its duties and torts, whereas the members cannot be held personally responsible.[6] While the Swiss traditionally established associations to reach non-commercial goals, the association is exploding as a viable alternative for managing international corporations.[7]

 In the case of globally operating associations the individual offices in various countries can stay financially independent from one another. They may operate using their own compensation structures and accounting systems.[8] If not set forth otherwise by local statutes, the members’ capital reserves and annual returns in each locale will not be distributed to other members in other locales.  At the same time, each office will be held liable for its own actions within the jurisdiction of it’s residential state, the same applies to its tax liabilities.[9]

 Eugen Huber, the founding father of the Swiss Civil Code, considered the Swiss association to be suited for commercial use over a 100 years ago.[10] Today, judicial opinion and the legislative doctrine agree that a commercial purpose is only lawful if the association as a whole refrains from conducting a commercial operation.[11] The law would  therefore be violated as soon as the association distributes the profits among its members for their personal gain only.[12] This restriction shall ensure that associations will never be established to serve as mere cash cows for multinational entities. However, an association is entitled to make profits as long as it pursues non-commercial goals. In such a  case, the association needs to be registered in the commercial register.[13]

 The restrictions concerning the pursuit of a commercial purpose make it even more striking that worldwide operating law firms are increasingly interested in the Swiss association.[14] Yet, the secret of its success can be unveiled by taking a glance at the association law: The legislator has set up only a handful organizational provisions that are mandatory. The law allows for great flexibility regarding the organisation and management of the entity, thus making the association fit the requirements of many sectors.[15] The founders can choose whether they want to establish a strong or weak leadership, whatever suits their particular interests.[16] Moreover, they can alter the democratic principle of the association by creating preferential voting rights.[17] Furthermore, the association may create additional committees to support its decision-making processes.[18]

 The founders may restrict the members’ duties to simply paying the member fees and to preserving the interests of the association. The members are granted a handful of inalienable rights, such as the right to vote in the general assembly, which is the association’s supreme governing body.[19] The general assembly holds the inalienable right to dismiss the members of the board of directors.[20] The board of directors, which is the second mandatory organ of the association, may consist of members and non-members.[21] It has the legal obligation to represent the entity.[22]

 The entity is free to decide the frequency of its meetings. There is substantial freedom to decide how the meeting are held as well, which can be a significant cost-savings.  Often meetings are held via video- or telephone-conference and the resolutions can be adopted via circulation, which speaks strongly in favour for the association’s use for international enterprises.[23] It is only when the entity exceeds a certain employment rate or a certain size of total assets or annual turnover, that it is legally required to submit its accounts to a full external audit.[24] Because of the  international flavour of most vereins, it is also typical for the association to choose an arbitration court to settle any disputes over its internal affairs.[25]

 Conclusion

 More than anything, the Swiss association is providing the means to establish efficient international enterprises. Thus, it simplifies the management of globalisation. The association’s structure allows its members to develop mainly on their own while sharing the same label and strategy to pursue its commercial, charitable or other goals. There are no financial burdens arising from cross-border lawsuits or any member’s own torts or other liabilities adversely affecting the other members.. This federalist governance is the main ingredient to the many global success stories realized through the founding of Swiss associations.

Associations should not be established without the assistance of highly-qualified attorneys.  The governing documents are crucial to capturing the advantages of the business form.  If you desire assistance, or wish to discuss whether the verein is a good fit for your needs, do not hesitate to contact us.

Chantal Lutz (lutz@bgpartner.ch) / Juliane Hogrefe (hogrefe@bgpartner.ch

[1] See FIFA Statutes 2015, April 2015 Edition, § 1.1 (henceforth: FIFA Statutes, §). Available at: http://www.fifa.com/mm/document/affederation/generic/02/58/14/48/2015fifastatutesen_neutral.pdf .

[2] See Statues of the International Committee of the Red Cross, adopted on 19 November 2015 and came into force on 1 January 2016. Available at: https://www.icrc.org/en/document/statutes-international-committee-red-cross-0 .

[3] See article in Handelszeitung, Warum die grösste Kanzlei ein Schweizer Verein ist, 30th of January 2015 (henceforth: Handelszeitung, date). Available at: http://www.handelszeitung.ch/unternehmen/warum-die-groesste-kanzlei-ein-schweizer-verein-ist-732432 .

[4] A study estimates that there are about 100’000 associations in Switzerland. See Dr. Alex Seidel, Marcel Hölterhoff, Marc Biedermann of Schweizer Prognos AG, Die Kooperation von Gemeinden und Vereinen, Zürich 2010, p. 21. Available at: http://www.vitaminb.ch/static/files/publikationen/Vereinsweg-Gesamtstudie.pdf .

[5] Art. 60 of the Swiss Civil Code of 10 December 1907 (henceforth: SCC). Available in five languages at: https://www.admin.ch/opc/en/classified-compilation/19070042/index.html .
Furthermore, it is usually less costly to set up an association than a public limited company, a limited liability company or a foundation, because the establishment of these legal entities requires mandatory visits at the notary. Since both the public limited and the limited liability company require a minimal capital, their establishment will cause the duty to pay the stamp tax.

[6] Except if a personal liability is explicitly constituted in the articles of association, see Art. 75a SCC.

[7] Dr. iur. Raoul Dias dedicated his entire dissertation to the role of Swiss associations in corporations. See Raoul Dias, Der Verein als herrschendes Unternehmen im Konzern, Diss. Bern 2009 (henceforth: Dias, p.).

[8] Nick Jarrett-Kerr and Ed Wesemann, Enter the Swiss Verein: 21-century global platform or just the latest fad?, Edge International Review, p. 26-32, p. 28 (henceforth: Jarrett-Kerr/Wesemann, p.). Available at: http://www.edge.ai/2012/10/enter-swiss-verein/ .

[9] Jarrett-Kerr/Wesemann, p. 28.

It is worth to point out that Switzerland also holds a favourable tax environment for the association itself. The tax competition between its 26 states has created divergent tax systems from which some have more beneficial tax rates for legal entities than others. Moreover, if the association pursues a charitable purpose, it may even be liberated from its tax liabilities.

[10] Message of the Federal Council to the Federal Assembly concerning a draft of the Swiss Civil Code, 28 May 1904, p. 19. Available at: http://digit-zgb.weblaw.ch/stufe-3-layout/botschaft/einleitung.html .

[11] Dias, p. 53 and 55.

In Swiss law, conducting a commercial operation is defined inter alia by the fact that a person or legal entity undertakes profit-oriented activities. See ruling of the Swiss Federal Supreme Court: BGE 104 Ib 261, E. 1 p. 262).

[12] Dias, p. 51.

[13] Art. 61 SCC. It is worth noting that the commercial register is publicly accessible. Basic information about the association can be accessed online, whereas more detailed documents will only be handed out following an inquiry.

[14] Primarily, the reason to choose a legal form governed by the Swiss jurisdiction might simply lie within Switzerland’s neutrality and the stability of its political and legal system. Furthermore, low costs regarding the founding, governance and accounting are creating an additional incentive to decide upon an association. See Adrian W. Kammerer/Thomas Sprecher, Swiss association, Publication 17 of NIEDERER KRAFT & FREY, p. 17-19 (henceforth: Kammerer/Sprecher, p.). Available at: http://www.nkf.ch/de/publikationen_suche/schriftenreihen.php .

In the recent years, law firms such as DLA Piper, Square Sanders and most recently Dacheng Dentons established Swiss associations to govern their global enterprises. See Jarrett-Kerr/Wesemann, p. 28 and Handelszeitung, 30th of January 2015.

[15] Dias, p. 136 and p. 144.

[16] Jarrett-Kerr/Wesemann, p. 29 and 32.

[17] If not established otherwise by the articles of association, every member has one equal vote within the general assembly (Art. 67 SCC). See Anton Heini/Urs Scherrer in: Basler Kommentar Zivilgesetzbuch I, Art. 1-456 ZGB, published by Heinrich Honsell/Nedim Peter Vogt/Thomas Geiser, 4th edition, Basel 2010, Art. 67 para. 5.

[18] For instance FIFA has set up an Ethics Committee that is provided with the competence to pronounce internal sanctions (including fines, match suspensions and stadium bans) to any official, player or match and players’ agent who was found guilty of infringing the FIFA Code of Ethics. Available at: http://resources.fifa.com/mm/document/affederation/administration/50/02/82/codeofethics_v211015_e_neutral.pdf .

[19] Furthermore, the members are entitled to request the convocation of the general assembly and to legally challenge its unlawful decisions or the ones that are contradicting the association’s articles. See Kammerer/ Sprecher, p. 12.

[20] Moreover, the general assembly holds the inalienable right to amend the articles of association. Also, only the general meeting can dissolve the association. Lastly, it holds the power to supervise all other organs and commissions of the association. See Kammerer/Sprecher, p. 8.

[21] Also, the board members are not legally obligated to have their residency in Switzerland. The authorities however prefer that at least one board member holding signatory power is living in Switzerland. See Kammerer/ Sprecher, p. 9.

[22] Art. 69 SCC.

[23] Kammerer/Sprecher, p. 10 and 12.

[24] Art. 69b SCC.

[25] The public courts may not be suited for the association’s interests since getting a final ruling takes time. For example, FIFA has chosen to settle its internal matters at the Court of Arbitration for Sport in Lausanne, Switzerland. See FIFA Statutes, § 66. 

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