Startups often want to pool their early investors so that they can act with a single voice in shareholder decisions. This can improve coordination, reduce overhead in shareholder resolutions, and simplify future cap table negotiations. It is often a requirement of future professional investors, so it is best to pool smaller shareholders from the beginning. But how do you actually set up such a pool in Switzerland?

Within Swiss law, a standard approach is to use the einfache Gesellschaft (eG), which is a Swiss simple partnership. Internationally, another common option is the Dutch Stichting Administratiekantoor (StAK), a legal entity that is designed specifically for pooling shares. Both can work for a Swiss startup, but there are important pros and cons to understand before choosing.

Why the einfache Gesellschaft is appealing

The einfache Gesellschaft is a time-tested legal form in Switzerland. It has several features that make it attractive for startups:

• Easy to set up: it can be created with a simple contract between the investors, no need for registration, notaries, or even public disclosure.

• Tax transparent: there is no legal entity between the investors and their income. Any gains or dividends are taxed directly at the level of the partners.

But there are risks to using an eG

Despite its flexibility, the eG carries a few serious drawbacks, especially if it is used in the startup context.

• Unlimited liability for its partners: Clearly, investors do not want to have unlimited personal liability for the actions of an eG that they have entered as part of a small startup investment. If the person running the eG starts to sign crazy loans or other obligations, then the investors might all be liable for those. That makes the eG unfit for investor pooling, unless those investors know and trust each other fully.
  
  Swiss law does allow an eG to specify in its articles that only one of the partners is the full risk-bearing partner, and the others have limited liability. But that is just an internal arrangement amongst the partners. The articles of the eG are not published in any public register. And so if the eG makes promises to third parties, then those external parties are not necessarily aware that there has been a reallocation of liability between the partners. That means they may not be seen as having agreed to this. They can therefore probably still claim the default rights that are specified in the law, and these indicate that there is unlimited liability for all partners. Therefore, that third party can still hold any partner responsible for any debt or obligation, and that’s unlimited, so all the possessions of that partner are at risk.
  
  This means the eG remains a very risky way to pool investors who don’t really know each other. And it remains very risky for investors to allow this kind of eG pool to be managed by someone that they don’t really know.

• Need for a managing partner: Even when the eG specifies internally that only one managing partner has full liability, the question remains who takes on the full legal liability as the managing partner. Some possible answers below:

1. If a founder becomes the risk-bearing managing partner, they assume personal liability, which is generally unwise. Also, founders sometimes leave a startup, at which point the pool may be run by the wrong person.
   
2. If one of the investors in the pool becomes the risk-bearing managing partner, they assume personal liability and a lot of tedious work. In general, the investor has no incentive to perform the work or take additional risk. Each investor also has private interests when it comes to the investment, which may not be the same as the other investors in the pool. In general, private investors have proven to be rather unreliable and unpredictable in this role. The risk of conflict is high.
   
3. If a professional party is used, it increases costs. A professional who can take on such a responsibility is not cheap, and the last thing a startup needs is another drain on their cash. Also, the risk of regulatory reclassification as an investment vehicle increases if a professional manager is put in charge and gains de facto control. We have more on this regulatory risk below.
   
4. Then there is the option that the startup itself becomes the risk-bearing partner. This is typically the best solution: the founders are already taking the risks inherent in being the directors of the startup. They are already responsible for running the shareholders’ meetings responsibly and acting in the interest of the shareholders generally. If the startup itself takes on the additional risk of running the pooling vehicle, this is just more of the same. But there is a clear limitation to setting up the pooling vehicle this way: the startup legally becomes a shareholder in itself, and a startup is only allowed to hold up to 10% of its own shares. That means in this form, the eG can be used as a pooling vehicle for at most 10% of the startup’s share.

• Regulatory uncertainty: FINMA has taken the view that a structure may be considered a regulated asset management vehicle – even if it’s an eG – depending on how it operates in practice. If the person managing the eG is deemed to have discretionary control over the pooled assets or voting rights, then the partnership could be classified as a collective investment scheme or a professional asset manager. If FINMA takes that view of an eG, then there might be licensing requirements and lots of other legal restrictions. This interpretation is not based solely on legal documents, but on de facto control, making it unpredictable and subject to change. A structure that seems compliant today could become problematic later, after the startup has already deployed it.

What is a Dutch StAK?

The Stichting Administratiekantoor (StAK) is a Dutch legal entity specifically designed to pool individual voting control of shareholders, while maintaining full economic benefits for each investor. It is widely used in startup and family business structures across Europe. Its advantages include:

• Cost efficient: After a small notary cost for creating the StAK, there are no requirements to file annual accounts, and generally no recurring costs, except perhaps for maintaining its postbox.
  
• Clear legal form: It is a recognized legal structure with one specific purpose, namely, pooling shares and issuing corresponding depositary receipts to beneficial owners. There is no legal ambiguity.
  
• Limited liability: The StAK is an independent legal person. The depository receipt holders have no liability for their actions whatsoever, and the board of the StAK only has the duty to run the entity responsibly. Typically, its composition is the same as the board of the startup.
  
• Stable regulatory treatment: Because its purpose and governance have been legally established for so long, the regulators’ viewpoints are well known. This form has been stable for close to a century. Many StAKs have been created over the years. Adjusting its legal interpretation would be effectively impossible, in the real world, given how many companies are using StAKs across Europe already.
  
• Compatible across jurisdictions: The StAK can hold shares in a Swiss GmbH or AG, or any other kind of entity.

Conclusion: a Swiss startup can use the StAK

If your Swiss startup is sure that the total % shares that need to be pooled will remain < 10% then the eG can be an option. The startup itself can be the risk-bearing managing partner.

Although there are no hard guarantees that the eG will not be seen as a regulated investment vehicle in the future, this may be a risk that you are willing to take. There also remains the risk that the investors will be held liable for promises that the eG has made towards a third party, but this is a risk that the investors may be willing to take. The eG is a native Swiss legal form, and it’s nice to keep everything Swiss.

But Leapfunder startups generally don’t know in advance whether their pool will eventually hold > 10% of shares, or not. So, overall, there always remain quite a few drawbacks to using an eG from the outset.

That’s why we are placing the StAK as the default option for the pooling vehicle into the language of our Swiss investment contracts. That pooling solution is fully stable.

However, our way of working does allow the startup to switch the StAK for an eG later. This can be done with the approval of the investors through a simple online meeting. We do have a set of eG articles available for any startup that wants one. Who knows: Swiss legal ‘tech’ could evolve, and new forms of pooling may become available. If that happens, our approach is flexible; through a simple online meeting with investors, you can do an upgrade. Best of all worlds.

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