Beneficial owners cannot always be identified through shareholdings alone. Control by other means frequently arises through contracts, voting agreements, financing instruments, fiduciary arrangements or family structures. This article explains which constellations trigger a duty to report to the transparency register and what boards of directors, management and founders need to consider when correctly identifying the beneficial owners of their company.
With the new transparency register, Switzerland is introducing comprehensive transparency obligations for legal entities. Companies and other legal entities will in future be required to report which natural persons ultimately control them. These so-called beneficial owners cannot, however, always be identified through shareholdings alone. In many constellations, a person controls a company without this being apparent from the share register or the commercial register.
It is precisely for such cases that the legislature has introduced the concept of control by other means. It lies at the heart of every report to the transparency register, because actual influence is in practice frequently exercised not through shares but through contracts, voting agreements, fiduciary arrangements or family structures. This article explains what is meant by control by other means, which constellations are typically covered, and what boards of directors, management and founders should bear in mind when correctly identifying and reporting the beneficial owners of their company.
Table of Contents
- Legal Framework for Reporting to the Transparency Register
- Decision-Making and Veto Rights as Control by Other Means
- Contracts, Articles of Association and Financing Instruments as Instruments of Control
- Family Structures and Actual Decision-Making Power
- Fiduciary Arrangements as a Typical Form of Concealed Control
- Indirect Control via Intermediate Companies
- Conclusion on Control by Other Means and Reporting to the Transparency Register
Legal Framework for Reporting to the Transparency Register
The Federal Act on the Transparency of Legal Entities and the Identification of Beneficial Owners obliges legal entities to identify their beneficial owners and report them to a central, officially administered transparency register. The aim is to create greater clarity about the actual control structures within companies and to make it more difficult for company structures to be misused for money laundering or other illegal purposes.
A natural person is generally considered a beneficial owner if they control a company with at least 25 percent of the capital or voting rights. In addition to this control through shareholding, however, the Act recognises a second, independent category, namely control by other means (Art. 4 para. 1 LETA). The individual criteria are set out in detail in the associated ordinance (Art. 3 LETO). Such control exists where a person holds, directly or indirectly, rights or actual means of influence that enable them to exercise decisive influence over the company.
The underlying principle is clear. Anyone who actually steers a company should not be able to hide behind formal ownership structures. What matters for the purpose of reporting to the transparency register is therefore not solely who is entered in the share register, but who in reality takes the key decisions.
Decision-Making and Veto Rights as Control by Other Means
A first group of relevant constellations concerns persons who hold decisive rights of influence within the company. The ordinance covers in particular three types of powers that can establish control by other means and thus trigger a duty to report to the transparency register (Art. 3 para. 1 LETO):
- the right or actual ability to appoint or remove more than half of the members of the board of directors;
- veto rights that allow key corporate decisions to be blocked;
- the ability to enforce decisions on profit distributions by the company.
Each of these powers confers considerable influence over the company, even without a significant shareholding. Whoever can appoint more than half of the board of directors effectively determines the strategic direction of the company. Veto rights are frequently found in investor agreements or shareholders' agreements, for example in relation to resolutions on capital measures, the sale of the company or material strategic decisions. And whoever can control the flow of funds out of the company shapes its economic reality directly.
Contracts, Articles of Association and Financing Instruments as Instruments of Control
In addition to these clearly defined decision-making powers, the ordinance also covers further forms of material influence (Art. 3 para. 2 LETO). In practice, the most important starting points for control by other means can be grouped into four categories:
- agreements between shareholders or partners, in particular voting agreements and shareholders' agreements with coordinated decision-making mechanisms;
- financing instruments with special rights of influence, such as convertible bonds or profit-participating loans;
- provisions in the articles of association or comparable documents that grant certain persons special rights or a privileged position;
- factually dominant positions in broadly dispersed shareholding structures, where a person materially shapes the company's decisions even below the 25 percent threshold.
Such constellations give a person a controlling position without requiring a corresponding shareholding. This is particularly evident in broadly dispersed shareholding structures. Even a shareholding of less than 25 percent can suffice if the remaining votes are distributed in such a way that a single person effectively dominates the company. In every case, what is decisive is an individual assessment in which the specific means of influence available to the person in question are analysed in a sober and factual manner.
Family Structures and Actual Decision-Making Power
Another frequent constellation involves family connections. In family-owned companies in particular, control often cannot be reliably determined from formal shareholdings alone. Where several family members hold shares but the material decisions are in practice taken by a single person, that person may qualify as a beneficial owner. The ordinance expressly takes this into account (Art. 3 para. 2 LETO). What matters for the purpose of reporting to the transparency register here too is actual decision-making power, not the formal shareholding percentage.
Fiduciary Arrangements as a Typical Form of Concealed Control
Fiduciary arrangements play a particularly important role. They are expressly mentioned and further specified in a dedicated provision (Art. 3 para. 2 lit. e and Art. 4 LETO). A fiduciary arrangement exists where a person acts formally in their own name but in reality acts on behalf of and in the interest of another person. In international parlance, one speaks of Nominee Shareholders or Nominee Directors. Under Swiss law, this corresponds to the fiduciary shareholder or partner, or a fiduciary member of the board of directors or manager.
Typically, the fiduciary shareholder holds the participation in their own name and is also entered in the share or participation register. The rights associated with the shares, in particular voting rights and economic rights, are however exercised by the fiduciary on the basis of a mandate agreement in the interest of and in accordance with the instructions of the principal. From an economic standpoint, control therefore lies not with the registered shareholder but with the principal. It is precisely for this reason that fiduciary arrangements qualify as control by other means. They enable a person to control a company in a manner comparable to a shareholding of at least 25 percent, without themselves appearing formally as a shareholder.
For the purpose of reporting to the transparency register, it is not the fiduciary but the principal who qualifies as the beneficial owner in such constellations, or the natural person standing behind them within any chain of control. Not every fiduciary arrangement is, however, relevant. Only structures that genuinely serve to identify a beneficial owner are covered. Purely functional constellations, such as independent proxy representation at the general meeting, do not fall within scope, because they do not confer a comparable controlling position.
Indirect Control via Intermediate Companies
Control by other means can be exercised not only directly. It can also arise indirectly, that is, through interposed persons, companies or other legal entities (Art. 3 para. 3 LETO). As a general rule, an indirect shareholding in a company only confers relevant control where the beneficial owner holds at least 50 percent of the capital or voting rights of one or more intermediate companies which themselves hold, directly or indirectly, at least 25 percent of the target company (Art. 2 para. 3 LETO).
The rules on control by other means reach further, however. Where for example several shareholders align their voting behaviour at the level of a parent company, they can jointly dominate a subsidiary, even if none of them individually reaches the threshold that would otherwise be material for indirect control through shareholding. In such cases, control arises not through formal ownership structures but through the factual pooling of rights of influence. The chain of control must then be traced back to the natural person who ultimately holds the reins. That person qualifies as the beneficial owner and must be reported to the transparency register.
Conclusion on Control by Other Means and Reporting to the Transparency Register
The rules on control by other means significantly broaden the concept of beneficial owner. For the purpose of reporting to the transparency register, the following forms of influence are in particular relevant:
- control over voting and personnel decisions, for example through the appointment of the board of directors or through veto rights;
- control over distributions and financial decisions of the company;
- control through contracts, articles of association and financing instruments with special or influential rights;
- control through fiduciary arrangements, family structures or the factual pooling of rights of influence in multi-tiered company structures.
The examples set out in the ordinance are expressly non-exhaustive (Art. 3 LETO lists them as "in particular"). For boards of directors, management and founders, this means above all one thing: identifying the beneficial owners and thus fulfilling the duty to report to the transparency register cannot be accomplished by a glance at the share register. What is required is a careful examination of all contracts, articles of association and factual structures that could confer material influence on any person. Anyone who approaches this diligently creates not only legal certainty vis-à-vis the transparency register, but also a clear picture of their own governance.
Preparing for the Report to the Transparency Register with a Structured Share Register
A well-maintained share register is the foundation of any reliable assessment of control structures and therefore of any correct report to the transparency register. If you want to document the shareholding and control structures of your company clearly and prepare for the new requirements, it is worth taking an early step towards a structured, digital solution. With Konsento's free digital share register, you always have a complete overview of shareholders, voting rights and supplementary agreements — and thereby create a solid basis for identifying the beneficial owners of your company.
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