Shareholder agreements are the backbone of many privately held companies in Switzerland. They define how shareholders cooperate, make decisions, and when they may exit the investment and transfer their shares. In short, they set the rules of the game.

But what happens when these rules become too restrictive? Leading decisions from the Swiss Federal Supreme Court remind us that even the most carefully drafted clauses can be unenforceable if they overly limit a shareholder’s freedom or breach mandatory provisions of law.

1. The Fine Line Between Control and Constraint

It is easy to understand why shareholder agreements often include strict provisions. Founders and investors want stability. They want to prevent outsiders from buying into the company or forcing an unwanted sale.

However, Swiss law places limits on how far these restrictions can go.

Under Article 27 of the Swiss Civil Code (CC), a person may not completely relinquish their economic freedom and contractual provisions that exces-sively restrict it are void. The relevance of this general rule for shareholder agreements is illustrated by two recent cases:

• In a decision (BGE 143 III 480 = 4A_68/2016, 27 June 2017), the Federal Supreme Court examined a shareholders’ agreement that bound one shareholder to the company indefinitely through strict transfer restrictions and no realistic exit option. The court held that this amounted to an excessive commitment under Art. 27 CC, ren-dering the relevant clauses unenforceable with effect ex nunc (non-retroactively).

  
  

• In a second leading case (BGE 145 III 351 = 4A_623/2018, 31 July 2019), the Federal Supreme Court addressed transfer restrictions for unlisted registered shares. It confirmed that private companies may limit who joins their shareholder base, but a blanket veto over any sale is impermissible unless the company (or a designated shareholder) offers to acquire the shares at their actual value under the statutory escape clause (Art. 685b CO). Even then, the board’s refusal must respect equality and non-arbitrariness; a blanket veto without a fair buy-out option would unlawfully ‘trap’ shareholders.
  

The takeaway: Even between sophisticated business partners, contractual freedom stops where it permanently limits a shareholder’s ability to act in their own economic interest.

2. Key Points to Consider for Your Shareholder Agreements

In Swiss practice, the safest approach to a valid and enforceable share-holder agreement is to build flexibility and fairness into the agreement, which can be done by observing the following principles:

• Add termination options, set a reasonable term and avoid indefinite duration.

• Transfer restrictions for registered shares are acceptable under Art. 685b CO, but only under certain conditions. Include exit routes that are clear, realistic and fair as to valuation methods. If shares cannot be freely sold (after an initial lock-up period, which is often acceptable), there should be a mechanism for other shareholders (or the company) to buy them at a fair price.

• Restrictions must pursue a legitimate corporate purpose (e.g., keep-ing strategic control, preserving independence) and be proportion-ate.

• Limit non-competes to what is truly necessary to protect the com-pany’s interests. Consider applicable anti-trust laws in addition to the contractual limits. Swiss courts accept non-competition under-takings between shareholders and/or the company, but they must be limited in scope, geography, and time.

• If a clause prevents a shareholder from working in any vaguely re-lated field for life or worldwide, it will be invalid.

• Respect the boundaries set by mandatory corporate law, e.g. statu-tory information and inspection rights, mandatory capital mainte-nance and profit distribution rules and the mandatory elements of the governance structure.

3. Typical examples of unenforceable clauses

The following examples illustrate provisions, as sometimes found in prac-tice, that have a high risk of being unenforceable under Swiss law, either because they (i) violate personal freedom (Art. 27 CC), (ii) contradict man-datory corporate law, or (iii) breach public policy (Art. 19–20 CO):

• Indefinite lock-ups without any termination right or any fair buy-out option, e.g., at a price far below fair market value without legitimate reasons;

• A good/bad leaver clause where “bad leaver” is defined so broadly that nearly any departure triggers forfeiture;

• Mandatory sale clauses or call options triggered by minor events, e.g., change of marital status;

• A call option at nominal value exercisable at any time, without cause, depriving a shareholder of economic value;

• Total voting control by another shareholder for an unlimited period (e.g., irrevocable voting proxy) ;

• Non-compete obligations with no geographic or time limit, or cov-ering activities far beyond the company’s actual business, e.g., a clause that prevents a shareholder from working in any vaguely re-lated field for life or worldwide;

• Perpetual obligations to fund the company (e.g., unlimited duty to provide loans or capital without termination right) ;

• Clauses that exclude statutory shareholder rights (e.g., right to in-formation, inspection, challenge of resolutions) ;

• Agreements that override mandatory capital maintenance or credi-tor protection rules (e.g., profit distribution in violation of account-ing standards). Such agreements could even trigger personal liabil-ity of directors or shareholders;

• Agreements that bypass corporate organs, e.g., reserving all man-agement decisions to shareholders;

• Clauses requiring a minority shareholder to always vote with the majority, regardless of content;

• Irrevocable proxies without time limit or revocation right;

• Excessive contractual penalties that effectively coerce compliance (subject to judicial reduction under Art. 163 CO);

• Shareholder agreements sometimes bind not only the parties but also their heirs or successors. This is only valid if successors can rea-sonably accept or exit the agreement. Absolute “perpetual” succes-sion clauses are invalid because no one can be bound by contract without their consent.
  

These examples are not exhaustive but illustrate common pitfalls seen in practice.

4. Conclusion

The best starting point is to ensure that every restriction in a shareholders’ agreement serves a legitimate business purpose. Swiss courts are pragmat-ic: if they see a reasonable commercial rationale, they will generally uphold it. Clauses that immobilize a shareholder indefinitely or strip them of essen-tial rights, however, are likely to be rejected. A review of the shareholders’ agreement from this perspective strengthens both the stability of the company and each shareholder’s right to fair treatment.