New DLT act and the digitization of shares

On February 1, 2021, the first part of the Federal Act on the Adaptation of Federal Law to Developments in Distributed Electronic Register Technology (DLT Act) came into force. The DLT Act enables the digital issuance of shares, participation certificates, bonds, and other rights in the form of so-called register value rights. The amendments to the Code of Obligations, the Intermediated Securities Act, and the Federal Act on Private International Law enable the introduction of book-entry securities registered on a blockchain. The second part of the DLT Bill with amendments to the Financial Market Infrastructure Law is expected to enter into force on August 1, 2021.

The introduction of registered uncertificated securities offers new opportunities for share issuance, especially for SMEs. Instead of certifying shares and other rights as securities or issuing them as uncertificated securities, shares can now be issued as securities, as simple uncertificated securities (Art. 973c Swiss Code of Obligations), as register value rights (Art. 973d Swiss Code of Obligations) or as intermediated securities (as defined by the FISA).

Register value rights offer many advantages for SMEs compared to a traditional share structure. By digitizing the shares in a register of value, the shareholder can transfer his shares online. This is because the transfer follows the rules of the registration agreement, i.e., the transfer requires a valid commitment transaction and the effective transfer in the register of value. Faulty chains of transfer, as can occur in the case of securities, for example, due to a lack of endorsement, or in the case of uncertificated securities due to an inadequately written assignment, are ruled out in the case of registered securities. This leads to a more straightforward and legally secure transfer of shares registered in a register of uncertificated securities. A more straightforward transfer is also accompanied by better access to the capital market, as the register of uncertificated securities can be made accessible to the broader public. In addition to simpler transfer, the share register, the list of bearer shareholders, and the list of beneficial owners reported to the company can also be automated in the register of registered securities, provided that the legal requirements are met.

Consequently, the digitization of shares can benefit SMEs in many ways. However, in addition to an amendment to the articles of association, the company must also ensure that the register of uncertificated securities meets the legal requirements and that its purpose is organized accordingly. In addition, the correct functioning of the register of uncertificated securities must be guaranteed at all times in accordance with the registration agreement between the company and the shareholders. Therefore, it is advisable to use a third-party provider of a value rights register platform to structure the shares as register value rights and thus benefit from more effortless transfer and tradability in the broader public.