ARTICLE BODY

Optimal board structure in Swiss SMEs

In a nutshell. For an SA/AG or a Sagl/GmbH in Switzerland, one director is enough, provided that at least one person with power of representation is domiciled in Switzerland (Art. 718 and 814 CO). But "meeting the minimum" is just the starting point: the law assigns the board inalienable powers and significant personal liabilities. SMEs that work well build a board of 3-5 members, with diverse skills, orderly governance and — when needed — an independent figure that balances the relationship between shareholder and company.

Why the board really matters, even in a small company

In Switzerland the Board of Directors is not a statutory detail: it is the body that directs the company and is personally liable, with its own assets too, for how it is managed. For an SME this means two very concrete things: the opportunity to give yourself a solid organisation from the outset, and the need not to underestimate the roles and duties of those who sit around that table.

Let's line up what the law requires — citing the Code of Obligations where needed — and what practice recommends, in particular the Swiss Code of Best Practice from economiesuisse, the governance reference for the Swiss system.

What the law requires: SA/AG and Sagl/GmbH

Société Anonyme / Aktiengesellschaft (SA/AG)

• Minimum number of directors: 1 (Art. 716 et seq. CO).
• Representation: at least one board member must have the power to represent the company (Art. 718 para. 3 CO).
• Residence: at least one board member domiciled in Switzerland (Art. 718 para. 4 CO).
• Nationality: no Swiss citizenship requirement.

Limited Liability Company (Sagl/GmbH)

• Minimum number of managing officers: 1 (Art. 810 CO).
• Residence: at least one managing officer or director domiciled in Switzerland (Art. 814 para. 4 CO).
• Since 1 July 2015 the same principle as for the SA/AG applies: a representative resident in Switzerland is required.

For those who live or operate mainly abroad, this is the starting point of a conversation with a fiduciary: respecting the residence requirement is mandatory, and the most frequent solution is the figure of the local fiduciary director.

The board's "non-delegable" competences

The board can delegate a lot of operational management (to the executive team, to the CEO, to individual managers), but some competences remain with it by law and cannot be transferred (Art. 716a CO). In SMEs it is important to keep them in mind, because they are the points on which a director cannot "be unaware":

1. the overall management of the company and the issuing of directives;
2. the definition of the internal organisation;
3. the organisation of accounting, financial control and financial planning;
4. the appointment and removal of the executive team and of those who represent the company;
5. the supreme supervision over the management (also when it is delegated);
6. the drafting of the annual report and the preparation of the general meeting;
7. notification to the judge in case of over-indebtedness;
8. for listed companies, the drafting of the remuneration report.

These are attributions that also apply for SMEs: a director cannot ignore them "because the company is small".

The personal liability of directors

This is the point where you see the difference between someone who accepts a board role "just because" and someone who does it consciously. Art. 754 CO establishes that directors are liable for damages caused by intentional or negligent violation of their duties, towards:

• the company itself;
• individual shareholders or members;
• creditors.

The liability is joint and several: a single director may be called upon to answer for the entire damage, not only for their own share. Those who delegate to third parties are liable for the delegate if they cannot prove they used all due diligence in the selection, instruction and supervision (Art. 754 para. 2 CO).

In addition to civil liability, there are criminal profiles (in particular disloyal management and mismanagement, Articles 158 and 165 of the Criminal Code) and joint and several liability for unpaid direct and indirect taxes and for social contributions (AVS first and foremost) due by the company.

Textbook case: failure to notify over-indebtedness to the judge (Art. 716 no. 7 CO). It is one of the scenarios where personal liability of a director is most often contested.

Ideal composition of an SME board

Here the law is silent and practice speaks (Swiss Code of Best Practice 2022). The indications that work in most SMEs are:

• Size: typically 3-5 members. Small enough to decide effectively, large enough to have diverse competences at the table.
• Skills: at least one person with solid financial/accounting skills, one with knowledge of the market sector, in-depth familiarity with the Swiss context. For those operating abroad, international experience.
• Independence: the Swiss Code recommends a majority of independent members for listed companies; for SMEs it is not an obligation, but having at least one independent or external figure is often a winning choice, especially when the majority shareholder coincides with the CEO.
• Gender balance: in listed companies a legal obligation is foreseen (at least 40% of the less represented gender); for SMEs it is a recommendation, but a more balanced composition generally brings better views and decisions.

When you need an independent or external director

For a family SME it is entirely legitimate to have a board composed only of shareholders. There are, however, cases where adding an independent figure makes a real difference:

• When the majority shareholder is also the CEO: an external director helps keep management and supervision separate, and to bring a third-party perspective where they otherwise risk mixing.
• In the presence of recurring conflicts of interest between shareholders or between company and related parties.
• When extraordinary transactions are launched (capital opening, entry of new shareholders, M&A), which require specific skills and independence of judgement.
• When the SME grows quickly and needs to structure governance and decision-making processes.

Board meetings: what the law says and what practice says

Swiss law does not impose a precise frequency on the board, beyond the meeting necessary to prepare the annual general meeting. The Swiss Code recommends at least four meetings per year, plus extraordinary convocations when needed.

What you do not compromise on, even in SMEs, is formalisation: convocations, agenda, minutes of decisions signed. Without minutes, in case of dispute, it is practically impossible to demonstrate due diligence. It is a point where small companies often make the mistake of "working informally" — and where, before a judge or a tax authority, shortcuts are then paid for dearly.

Board compensation and AVS contributions

Compensation paid to directors is subject to AVS social contributions, as if it were an employee's salary. It is a banal point but much neglected: paying a fee to the board without paying the contributions is one of the most frequent infringements found by the compensation funds, and exposes the company and individual directors to penalties and personal liability.

From a tax perspective, the compensation is taxable income at the director's level, to be declared in their tax return. Its deductibility at the company level must be correctly set up in the accounts.

The most frequent mistakes in SMEs (and how to avoid them)

From fiduciary practice, some recurring patterns we see in Swiss SMEs:

• No formal board meeting → liability for negligence, impossibility of proving diligence. Solution: at least one formal meeting per year, ideally four.
• Decisions taken orally, without minutes → impossible to defend in court. Solution: record everything in minutes.
• Confusion between shareholder and director role → risk of unlimited personal liability. Solution: clearly separate the two roles and follow formal procedures.
• Board compensation without AVS contributions → penalties and interest. Solution: treat board fees correctly in payroll.
• Over-indebtedness ignored → very heavy criminal and civil liability. Solution: continuous account monitoring, notification to the judge when needed (Art. 716 no. 7 CO).
• No internal control → frauds and errors go unnoticed. Solution: an internal control system proportionate to size.
• CEO and Board Chair coinciding without counterweights → the separation between management and supervision is missing. Solution: independent figure on the board or dual leadership.

The essential legal references (Code of Obligations)

For those who want to keep precise references at hand:

• Art. 716 and 716a CO — inalienable attributions of the board.
• Art. 716 no. 7 CO — notification of over-indebtedness.
• Art. 718 para. 3 and 4 CO — representation and residence in Switzerland (SA/AG).
• Art. 754 CO — directors' liability.
• Art. 810 and 814 para. 4 CO — managing officer and residence (Sagl/GmbH).
• Swiss Code of Best Practice (2022 edition) — governance guidelines, "comply or explain" regime.

Legal obligation vs recommendation: the summary that counts

How we help

For a Swiss SME, the board is not a formalism: it is the place where the difference between a well-governed and a vulnerable company plays out. Fidav is a Canton Ticino fiduciary established in 1982, with offices in Mendrisio and Lugano, and supports entrepreneurs and shareholders both in company formation and in the governance choices that follow: board composition, roles, internal regulations, minutes, correct management of fees and contributions.

When a third-party perspective is needed, we can also step in as strategic support — our CFO advisory, for example, is a frequent solution for SMEs that want financial direction skills without hiring a full-time in-house figure. For those not residing in Switzerland, we provide the fiduciary director and domiciliation so as to meet legal requirements with peace of mind.

Read more on our corporate and strategic advisory, company formation in Switzerland and the domiciliation and fiduciary director services.

Have doubts about your company's governance? Chat with us on WhatsApp at +41 79 741 02 89 or call +41 91 640 40 20.

FAQ (visible on page + FAQPage schema above)

How many directors are needed for an SA/AG or a Sagl/GmbH in Switzerland? Swiss law requires at least one director (for the SA/AG) or one managing officer (for the Sagl/GmbH). What counts is that the company must be able to be represented by at least one person domiciled in Switzerland (Art. 718 para. 4 CO for the SA/AG, Art. 814 para. 4 CO for the Sagl/GmbH). There are no nationality constraints: a director can be a foreigner, provided they are resident in Switzerland.

Do I necessarily need to have a director resident in Switzerland? Yes. Since 2015 both the SA/AG and the Sagl/GmbH must be able to be represented by at least one person domiciled in Switzerland, according to the Code of Obligations. If shareholders or directors reside abroad, the most frequent solution is to use a local fiduciary director, who formally assumes the role and ensures compliance with the legal requirement without anyone abroad having to relocate.

What is a director personally liable for in Switzerland? Art. 754 of the Code of Obligations establishes that directors are personally liable, jointly and severally, for damages caused by intentional or negligent violation of their duties towards the company, individual shareholders and creditors. In addition to civil liability, there are criminal profiles (disloyal management, mismanagement) and joint and several liability for unpaid taxes and social contributions. It is a role to be taken very seriously, never "honorarily".

How many members should an SME board have? There is no number imposed by law: formally 1 or 2 members are enough. The Swiss Code of Best Practice however recommends a composition "small enough to decide effectively and large enough to represent different competences". For most SMEs, a board of 3-5 members works well, with at least one independent or external figure when majority shareholder and CEO coincide.

Are board compensations subject to AVS contributions? Yes. Compensation paid to a director is considered income from dependent gainful activity for AVS purposes and must be treated as a salary as regards social contributions (AVS, AI, IPG). Not paying contributions correctly on these fees is one of the most frequent — and most costly — mistakes in SMEs, and exposes directors to penalties and personal liability.