Foundations of Business Law

• Corporation acts through board of directors, shareholders have no right or responsibility to manage
• Shareholders have ownership rights (dividends)
• Participation rights (voting rights)
• Rights for their protection (inspection of corporate books and information)

• Bearer shares are transferred by transferring share certificates
• Shares registered in owner’s name must be endorsed or assigned depending on provisions of the article of incorporation (limits on total holdings or on foreign ownership) /transfer of registered shares (requires registration of new owner in share register of company

• A holding company holds the majority of voting shared of a daughter company
• Holding company is reduced to controlling and influencing business and management of owned company; it doesn’t actively participate in operating business
• Holding company is established in low tax or no tax offshore jurisdiction

Adv:

• Limited liability of shareholders to the amount of their investment in company’s stock
• Shareholders are not personally liable under certain limited condition (“piercing the corporate veil”)
• Death of an owner hardly ever is reason to dissolve the company
• Companies’ profits are either passed on to shareholder in dividends, or retained to yield higher profit in future (retained earnings)

Disadv:

• Corporate profits are taxed at corporate rate, dividends paid out are taxed at separate rate meaning “double Taxation” since any distributed profits will eventually be taxed twice

• Legal entity, own legal personality of one or more natural persons or legal entities
• Owners (members) of an LLC can decide how to operate the various aspects of the business by forming an operative agreement relating to management, sharing profits, transfer of membership interests
• If nothing else is agreed upon, LLC is managed by its members
• The LLC has some features of the corporation (limited liabilities of the members) and also of the partnership (direct management and control by members)
• Every member has to vote for each of his quota and the transfer of quotas must be recorded in writing and published in commercial register
• Start-up capital is 20'000, which makes the LLC a form suited for SME’s and family owned businesses

- Adv:

• Liability of its members is limited to the amount of their investments, although the LLC can be held liable for any loss or injury caused by wrongful acts of members; members themselves are not personally liable
• LLC is founded by filling the articles of organization (business name, it’s address, names of registered agent and members) with the responsible governmental authority

-Disadv:

• In the US. State LLC statutes are not uniform; different from Switzerland, an LCC has the same tax advantages like partnerships, no double taxation

• In case of cash contribution, share capital is transferred to a blocked account to be held in name of the company until the company in registered.
• If the contribution is made in kind, written contribution agreement and a specific founders report need to be filed with Commercial register
• Also, an auditor has to examine the founders report
• starting capital = 100'000

• Founders adopt the articles of incorporation, subscribe to all initial shares, elect members of initial board & the auditors and have minutes of meeting notarized

• At initial meeting, board of directors determines corporations internal structure (chairman, officers etc.)
• Board of directors consists of one or more individual

• Registration must be prepared and signed by all board members and signatories and sent to commercial register with notarized minutes of meeting and additional required information
• Information includes:
•  corporation’s legal address
• Statement of acceptance of office and duties by the board members and auditors
• Disclosure off the initial capital contribution of the founders
• Major assets to be acquired
• State of non-violation of the statute on Acquisition of Real Estate by Foreigners
• Corporation becomes a legal entity when it is entered in the Commercial Register

• Board of directors is responsible for preparing annual report to shareholders
• It contains annual financial statements (profit and loss statement, balance sheet and notes)
• Report on the course of the business
• Financial status of corporation
• Listed companies: further duties (e.g. disclosure of shareholdings, corporate governance obligations etc.)

• Corporations that meet certain criterias are subject to a full scope audit
• Corporations with less than 10 fulltime employees are dispensed from duty to be audited if shareholders agree

• Shareholders meeting must be held annually within 6 months after closing of business year
• Shareholders vote on approval of annual report and financial statements, pass resolutions on agenda and elect directors and auditors for statutory term

• Corporate shares or obligations listed on stock exchange are subject to an annual listing fee
• Fee is usually paid for several years in advance as part of initial listing fee

• If a firm wants to do business with permanent presence in more than one location/more than one country, it has to choose to found a certain business form in foreign location (subsidiary) or to establish a branch

• Subsidiary is legally independent from main business form in home country (parent company); branch office is merely a dependent division of main business form
• Branch differs considerably from the business forms --> bank only grants credit if business asking for it can offer sufficient security
• If business is a branch, no special guarantee is needed as debts are automatically the debt of company holding the branch
• If business is subsidiary, banks needs separate guarantee by the patent company

- law of nations > facilitating international cooperations and giving it predictable patterns, Governs relationships between states and international entities as individual or group

(Human rights, fight against terrorism, environmental regulations, trade & development, int. criminal law)

- national law > legal dispute between private parties has a foreign element, and determines the applicable law and the place of jurisdiction

(Swiss Code of Private International Law CPIL)

- Law of supranational organizations > Nations explicitly submit their right to make judicial decisions on a set of common institutions

 (EU>sovereign nations pooling their authority through system of courts and political institutions)

Choice of law clause: determines Swiss Code of Obligations as applicable law for all disputes about contract

Jurisdiction clause: determines place of jurisdiction

• Sovereign, independent countries that pooled some of their sovereignty in order to gain strength and the benefits of size
• Community with shared institutions
• Between the fully federal system found in the United States and the loose, intergovernmental cooperation seen in the United Nations
• Based on the rule of law
• 28 Countries, 24 languages

• The four-fold freedom: single market guarantees free movement of goods, capital, services and people within EU’s member states; objective of European Economic Community (EEC)

• 1992 Maastricht Treaty set to create Economic and Monetary Union and turns EEC into EU

1. Court decides whether it has jurisdiction (procedural jurisdiction)

2. Characterization into legal categories (procedural or substantive law)

3. Legal category has one or more choice of law

4. Applicable law applied to judgment

5. Successful party must enforce judgment to secure cross—border recognition

1. Court applies law of forum to all procedural matters incl. choice of law rules

2. Court evaluates factors linking legal issues to substantive laws and applies laws with greatest connection

Connecting factors: domicile of contractual party, nationality of a person, place where piece of land is situated or where transaction takes place

- EU Law is a body of treaties (set broad policy goals and establish institutions)

- 1993: establishment of EU

- Schengen treaty:

• No police or customs checks between most EU borders
• Controls strengthened at external EU borders
• More police cooperation in EU
• Buy/bring back goods for personal use when travelling between EU countries

• Democracy and rule of law
• Functioning market economy
• Ability to implement EU-Laws

• European Parliament (Voice of the people): David Sossoli since July 2019
• European Council (Voice of member states): Donald Tusk (president of European Parliament) since December 2013
• European Commission (promoting common interest): Jean-Claude Juncker since Nov. 2014

1. Preliminary Ruling:  EU Member States are responsible for ensuring Application of EU law; may ask Court of Justice for advice “preliminary ruling”

2. Infringement proceedings: The commission or in some cases a Member State can initiate proceedings if they believe that another state isn’t fulfilling their duty

> member state must set it right if guilty

3. Proceedings for annulment: Member States, Councils, Commission

- materials and processes of which rules and principles regulating international community developed

- International Customs:

• important source of law consists of international customs that evolved among nations in relations with one another
• derived from consistent practice of states accompanied by opinion juris
• majority of states do not live up to a specific rule

- Treaty is a contract between two or more states authorized by supreme power of each state

Interpretation:

• disputes about meaning and application of national law > responsibility of courts to decide what law means
• International law> only courts with very specific and limited jurisdiction (International Criminal Court) have power to interpert > it is responsibility of states to interpret law for themselves

- Bilateral agreement: agreement by two states to govern commercial exchanges or other relationships with one another > Multilateral agreement: several states

- Resolve or reduce conflicts involving a foreign element, recognized by major legal systems of the world

- Principle of comity: one nation will defer to and give effect to laws and judicial decrees on another country, that are consistent with law and public policy of accommodating state

- judicial branch of one country will not examine the validity of public acts committed by recognized foreign government within own territory > Can have important consequences for individuals and firms doing business and investing in other countries (e.g.confication, expropriation)

Economic:

• (more or less extensive) monopoly right over the economic exploitation of ideas

• matter of protecting investment and creating incentive for future investment

Legal:

• defined set of the intangible products of human activity

• bundle of legally enforceable interests with respect to intellectual property

• trademark

• patent

• design

• copyright

•trade secret (undisclosed information)

- Sign used on a good or in connection with the marketing of a product/service

1. to distinguish the products/services of an enterprise from products of other enterprises or the same enterprise

2. in reference to a particular quality of products/services for which the trademark is used and stands for

3. to promote the marketing and sale of the products/services

-word marks (one or more distinctive words)

-word marks with special scripts

-designs (three dimensional trademarks)

-combination of any of the above

Federal Intellectual Property Office

-signs must not be «descriptive» or «generic»

-signs must not reflect the goods themselves, or be shapes of the product dictated by mere technical reasons

-signs must not be misleading

-signs must not be contrary to public order, good custom or applicable law

> absolute grounds for refusal

-signs must not be identical to an earlier mark used for identical goods or services

-signs must not be identical or similar to an earlier mark used for similar goods or services (likelihood of confusion)

> relative grounds for refusal

- national registration offices (Federal Intellectual Property Office in Switzerland)

- most important international registration: Madrid System for the international registration of trademarks (WIPO)

- registration for specific goods or classes of goods

- Exclusive right to use the trademark for the designated products/services:

• prohibit the application of the trademark to products, packages, etc

• prohibit that anyone stores, sells or brings into circulation products/services with the trademark

• prohibit the use of the trademark for advertising or other business purposes

• prevent the import/export of goods with the trademark

• civil claims for damages

• criminal remedies

• support by customs authorities

>legal protection in the countries where the trademark is registered

- Rights granted to the inventor of a technical product or process > Federal Patent Act

conditions regarding the invention:

• novelty

• usefulness (or capability of industrial application)

•involvement of an inventive step (or non-obviousness)

> most important are novelty and non-obviousness