13 November 2017

What must be considered before a startup  is incorporated? 10 FAQs.

The formal incorporation of a company by a notary is clearly not the first step in a startup project. What do the founders have to pay particular attention to in this early phase? The VISCHER Startup Desk answers the 10 most frequently asked questions.

1. Our startup is not yet incorporated. Can we nevertheless conclude a lease or enter into other legal transactions?
Yes. The founders may conclude contracts in their own name or in the name of the company to be incorporated.

2. Does it matter whether we intend to incorporate an AG or a GmbH?
No. Both the founders of an AG and of a GmbH can conclude contracts in their own name or in the name of the company to be incorporated (AG: Art. 645 CO, GmbH: Art. 779a CO).

3. How do we act on behalf of the company to be incorporated?
The persons must act expressly in the name of the company (AG: Art. 645 para 2 CO, GmbH: Art. 779a para 2 CO). This means that such persons must clearly state that the legal effects of their actions and the related obligations vest in the company to be incorporated. Recommended, but not mandatory is the use of the wording "in formation" following the company name. It is irrelevant whether the name of the company to be incorporated corresponds to the company name subsequently registered in the commercial register.

4. Does it make a difference whether we act in our own names or in the name of the company to be incorporated?
Yes. Only if actions have been taken in the name of the company,  the startup can, after its incorporation, take over the contract without the consent of the other contracting parties and thereby release the founders from their joint and several liability. If, on the other hand, the founders act in their own name, the startup can only take over the contract and release the founders from their joint and several liability with the consent of the other contracting parties.

5. Who can make commitments for the startup before its incorporation?
Not only those who actually subscribe for shares at the incorporation, but each person involved can act in the name of the company to be incorporated, and each such person can act alone. Therefore, caution is required when putting together the project team for a startup.

6. We have already concluded several contracts on behalf of the company to be incorporated. How long can we still wait with the actual incorporation?
There are no guidelines as to within which time period a startup must be incorporated after actions have been taken on its behalf. In principle, you can wait indefinitely. However, the acting persons are jointly and severally liable during this time period (if they do not conclude the contract subject to the condition of a successful incorporation, see question 10).

7. When is a company deemed incorporated?
A company is deemed incorporated when it acquires legal personality. An AG and a GmbH acquire their legal personality with the entry in the commercial register (AG: Art. 643 CO, GmbH: Art. 779 CO).

8. We have just incorporated our company. How can we transfer the contracts concluded so far and the associated liability?
If the persons have acted expressly in the name of the company, the company may take over these contracts and the associated liability within three months of its incorporation without the consent of the other contracting parties, thus releasing the acting persons from their joint and several liability (AG: Art. 645 para 2 CO, GmbH: Art. 779a para 2 CO).

Unless otherwise provided by the articles of incorporation or the organizational regulations, the board of directors (in the case of the AG) or the managing officers (in the case of the GmbH) is/are responsible for the takeover decision (AG: Art. 716 CO, GmbH: Art. 810 CO). The decision should at least be implicitly communicated to the other contracting parties.

If the three-month period has lapsed, a transfer of the relevant contracts that releases the acting persons is only possible with the consent of the other contracting parties.

9. Does the company have to take over the commitments entered into on its behalf before its incorporation?
No. Neither the persons acting on behalf of the company nor the other contracting parties have the right to request the incorporated company to take over the commitments. If the acting persons do not have the majority in the board of directors of an AG or the board of managing officers of a GmbH, it is conceivable that the previously concluded contracts are not taken over by the company. The consequence would be that the joint and several liability of the persons who have concluded transactions before the incorporation of the company continues to exist (subject to the conclusion of a contract under a so-called condition precedent, see question 10).

10. How can we prevent a joint and several liability in the event that the company (unexpectedly) does not accept the commitments made before its incorporation or in the event that the company is not incorporated?
The acting persons may agree with the other contracting parties that the contract is concluded on the condition that the startup is incorporated  and takes over the contract (condition precedent, Art. 151 CO). However, this solution is only feasible regarding contracts that the startup does not require to be fulfilled before its incorporation (e.g. not for leases of premises already required before the incorporation).

For further questions, please contact the authors or our Startup Desk.

Authors: Christian Wyss, Gian-Andrea Caprez, Ilaria Ianieri

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