Two founders, one idea, share capital to split. Then comes the question that seems trivial and never is: fifty-fifty, or does one of the two take a single share more? Many decide in thirty seconds, over a coffee. It is often the heaviest decision of the whole incorporation, and the one most regretted later.<\/p>\n
The percentage, however, matters less than what the shareholders’ agreement (the convention d’actionnaires, in Swiss legal language) makes of it, and a poorly built 51\/49 protects less than a well-designed 50\/50.<\/p>\n
On paper, 50\/50 is the legal translation of trust. Two shareholders on equal footing, neither above the other. As long as both say yes, everything runs.<\/p>\n
The trouble starts at the first no. At the general meeting, resolutions are passed by a majority of the votes attached to the shares represented, not of all issued shares (Art. 703 para. 1 CO). Two blocks of 50% produce no majority, unless the articles give the chair of the meeting a casting vote, which the revised law has allowed since 1 January 2023 (Art. 703 para. 2 CO) and whose introduction requires a qualified majority (Art. 704 para. 1 no. 10 CO). On the board, the law breaks a tie in favor of the chair, who has a casting vote unless the articles provide otherwise (Art. 713 para. 1 CO). In a non-listed company the board elects its own chair, unless the articles give that election to the general meeting (Art. 712 para. 2 CO), so two founders sitting alone will first contend for the chair.<\/p>\n
The resulting deadlock is not confined to major decisions: a disagreement over a key hire, a budget, the renewal of a lease, and the business stalls. I have seen two equal partners let a major contract slip because neither would yield on principle. The competitor signed it.<\/p>\n
Hence the reflex of giving one of the two a single share more. With 51\/49, most founders believe, there is a boss and the deadlock disappears. It is wrong, or at least very incomplete.<\/p>\n
The 51% majority holder gains one thing, and one only: a simple majority at the general meeting (Art. 703 CO). It is enough to pass routine matters, approve the accounts and appoint a director.<\/p>\n
First limit: the decisions that really matter escape the 51%. Amending the corporate purpose, increasing capital out of equity, against contributions in kind or by set-off, restricting the transferability of shares, relocating the registered office or dissolving the company requires at least two thirds of the votes represented and a majority of the nominal values represented (Art. 704 para. 1 CO), a majority the law also imposes on a transformation into another legal form (Art. 64 para. 1 lit. a of the Merger Act). With 51%, the majority holder does not reach it, provided the minority is present or represented at the meeting. On those subjects, the 49% minority holds a de facto veto, which the law gives him without his signing anything.<\/p>\n
Second limit, more insidious: operational power lies with the board. Yet if the board is made up of the two founders and its decisions require the presence, or the agreement, of both, the 51\/49 of the general meeting is worthless at that level. The majority holder thinks he governs. In practice, the moment his partner objects on the board, we fall back into the 50\/50 deadlock. A majority holder who secures, in the articles, the general meeting’s power to elect the chair thereby controls the board through the chair’s casting vote, unless the articles exclude it. It follows that the choice of chair and the fate of the casting vote must be settled in the articles, in calm times.<\/p>\n
To see where the real protections sit, one must distinguish the layers of any Swiss company limited by shares.<\/p>\n
The articles of association first. They are public and can be consulted online at the commercial register (Art. 936 para. 2 CO). They set the architecture: capital, share classes, board organization, quorums, transfer restrictions (Art. 685a and 685b CO). What touches the very structure of the company lives here, under mandatory law.<\/p>\n
The organizational regulations next (Art. 716b CO). An internal document adopted by the board, not public. This is where the operational detail is settled: allocation of tasks, signatory powers, the organization of meetings and committees. It sits halfway between the public articles and the private agreement, and it is almost always forgotten.<\/p>\n
The shareholders’ agreement last. A private, confidential contract between the partners. This is where the fine mechanisms live: voting undertakings, contractual veto rights, exit clauses, deadlock resolution, non-competition.<\/p>\n
The distinction has practical consequences. The articles of a company limited by shares may restrict the transfer of registered shares only within the limits of Art. 685a and 685b CO, which allow the company to refuse a buyer on a ground set out in the articles or by offering to take over the shares at their real value, and they may not make those conditions stricter (Art. 685b para. 7 CO). A genuine right of pre-emption between shareholders must therefore be written into the shareholders’ agreement, where it binds only the signatories and has no effect on the company (ATF 145 III 351, consid. 4.3.1). Likewise, a detailed voting pact has no place in public articles. Knowing what goes where is half the work, and the most common mistake in templates found online.<\/p>\n
Whether the split is 50\/50 or 51\/49 with a parity board, the risk of deadlock exists, if only over the choice of chair. Since it cannot always be eliminated, its exit must be planned in calm times, while the two partners still get along.<\/p>\n
The mechanisms exist, and are chosen according to the degree of violence one accepts. A good-faith negotiation phase, then mediation, for ordinary disagreements. An expert-arbitrator who settles a specific decision, when the subject is technical. And for deadlocks that threaten the survival of the structure, the so-called buy-sell clauses, of which the ‘Russian roulette’ is only one variant: one partner names a price per share, the other chooses to buy or sell at that price. Brutal, but it forces an outcome rather than slow asphyxiation. These clauses form a family, and their exact terms must be drafted with care. A poorly calibrated roulette mechanically favors the partner with the deeper pockets.<\/p>\n
One safeguard, not to be overlooked. An agreement cannot bind a shareholder indefinitely: an undertaking that restricts his freedom excessively, by its duration or scope, falls under Art. 27 para. 2 CC. The Federal Supreme Court found excessive an agreement that, thirty years after it was concluded, seriously hindered the majority shareholder from passing the business on to the next generation, and declared it lapsed for the future (ATF 143 III 480, consid. 5). Excessiveness is assessed at the moment the undertaking is invoked, not at signature.<\/p>\n
The hurried founder’s reflex is to wave all this away with a ‘we’ll see, we get along fine’. Yet no one signs an agreement thinking of conflict. One signs it precisely for the day when the getting-along stops, and on that day, it is too late to negotiate the rules.<\/p>\n
Failing a contractual mechanism, shareholders holding together at least 10% of the share capital or votes may sue for dissolution for good cause, and the court may order another solution suited to the circumstances instead (Art. 736 para. 1 no. 4 and para. 2 CO, ATF 109 II 140).<\/p>\n
Beyond deadlock, a good agreement anticipates departures. They will happen, in one form or another.<\/p>\n
The good leaver \/ bad leaver distinction structures everything. The legitimate departure (retirement, disability, death, dismissal without fault) opens a right to buy back the shares at market value, as assessed by an expert. The wrongful departure (serious breach of the agreement, unfair competition) triggers a buy-back at a discount, sometimes steep. The difference in treatment, which is not punitive in principle, protects those who stay and deters conduct that endangers the company.<\/p>\n
To these are added the share-circulation clauses. The tag-along, which lets the minority exit on the same terms as the majority if the latter sells to a third party, which protects against ending up in business with a stranger. The drag-along, which lets one or more shareholders holding an agreed threshold (often a large majority, to be negotiated) pull the others into a 100% sale, at a negotiated floor valuation, failing which a single share would block the sale of the whole company. The trigger threshold is the real point of negotiation here. A lock-up period, finally, during which no one sells, giving the project time to take hold.<\/p>\n
None of these clauses is spectacular. Taken together, they head off the scenarios that send partners to court.<\/p>\n
A word for the 49% partner, or the 30%, or the 10%. The percentage is not destiny. A minority that negotiates its agreement well obtains protections the majority cannot circumvent.<\/p>\n
A contractual veto right over a list of strategic decisions, through a voting undertaking. Qualified quorums written into the articles, raising the threshold above the legal minimum and making its consent indispensable. An enhanced information right, beyond the minimum of Art. 697 CO. A joint bank signature above a certain amount. A guaranteed seat on the board.<\/p>\n
A minority shareholder can thus obtain the mandatory joint signature of any banking operation above a defined threshold, whereas one who signs the standard template without negotiating it can, in the end, only watch decisions being taken without him.<\/p>\n
One safety net the law stretches both ways: the prohibition of abuse of rights (Art. 2 CC). The majority, even at 51%, cannot exercise its rights to harm the minority, nor can the minority divert its veto from its purpose. A director bound by an agreement may not follow it to the detriment of the company’s interest, which remains in any event the limit of any instruction, and would incur liability by doing so (Art. 717 para. 1 and 754 para. 1 CO, ATF 145 III 351, consid. 4.3.1).<\/p>\n
The answer depends on the agreement more than on the split. A 50\/50 paired with a clear deadlock clause and exit mechanisms works better than a bare 51\/49, where the majority holder discovers too late that he controls neither the qualified decisions nor the board.<\/p>\n
The percentage sets a theoretical balance of power. The shareholders’ agreement decides what is made of it: who really decides, how a deadlock is broken, on what terms one enters and leaves the capital.<\/p>\n
The real cost lies in the absence of a well-drafted agreement, the day two partners who once valued each other face a contractual silence and a court.<\/p>\n
Company limited by shares and incorporation: Art. 620 et seq. and 626 CO. Ordinary majority at the general meeting: Art. 703 CO. Qualified majority (votes and capital): Art. 704 CO. Transfer restrictions: Art. 685a and 685b CO. Organizational regulations: Art. 716b CO. Shareholder’s information right: Art. 697 CO. Non-transferable powers of the board: Art. 716a CO. Dissolution for good cause: Art. 736 para. 1 no. 4 and para. 2 CO. Good faith and abuse of rights: Art. 2 CC. Excessive commitment: Art. 27 para. 2 CC. Federal Supreme Court: ATF 143 III 480 (excessive commitment of a shareholders’ agreement), ATF 145 III 351, consid. 4.3.1 (transfer restrictions and escape clause, a contractual pre-emption right has no effect on the company, the company’s interest limits instructions given to directors), ATF 109 II 140 (dissolution for good cause).<\/p>\n
Matthias Traussnig is an attorney at the Geneva Bar and founder of Sentinel Legal. He holds the CAS in Digital Finance Law from the University of Geneva and practices corporate law, white-collar crime and technology law.<\/p>\n