A corporation offers limited liability — until the day a director or managing officer breaches a duty. Anyone in a corporate function should know the five liability traps.
GmbH and AG are corporations — liability is in principle limited to the company's assets (Art. 794 and Art. 620 CO). This protection is not absolute. The corporate bodies — directors in the AG, managing officers in the GmbH — are personally liable for damages they cause through breach of duty.
Liability is detailed in the CO: Art. 754–760 CO for the AG, Art. 827 CO for the GmbH (referring to AG law). In practice, risks are highest in liquidation mandates, over-indebted companies, employment matters and tax debts.
1. Who is liable — definition of corporate bodies
Liability hits corporate bodies in a legal and a factual sense. A legal body is anyone registered in the commercial register as director or managing officer. A factual body is anyone who actually exercises management functions — even without registration. The Federal Supreme Court has clarified in several decisions: a 'straw-man' director is fully liable; a 'shadow management' by a majority shareholder is equally so (e.g. BGE 128 III 92).
2. The three (four) conditions of body liability
Under Art. 754 para. 1 CO, a corporate body is liable when the following are met:
• Breach of duty — violation of law, articles or general duty of care and loyalty.
• Damage — to the company, to shareholders or to creditors.
• Adequate causal link between breach and damage.
• Fault — the breach must be wilful or negligent.
Burden of proof: the claimant must prove all four elements. Fault, however, is presumed — the body must prove its diligence.
3. The five most common liability traps
Non-payment of social-security and withholding-tax contributions
Whoever orders salary payments as a corporate body without correctly remitting AHV/IV/EO contributions and withholding tax is personally liable for the outstanding claims (Art. 52 AHVG). Liability also hits directors who are not operationally active — the duty of supervision suffices.
Delayed notice of over-indebtedness (Art. 725 CO)
Where the board recognises that the company is over-indebted (assets no longer cover liabilities), it must notify the court — unless realistic restructuring measures and rank-subordination agreements secure the situation. Waiting too long makes the board liable to creditors for the damage caused by the delay.
Distributions without coverage
Dividends or liquidation proceeds may flow only from distributable net profit (Art. 675 CO). Distributions without coverage harm creditors — and trigger personal liability for restitution.
Commingling of business and private assets
Anyone treating the company as an 'extended wallet' — private expenses via the company account, lacking accounting discipline, no separation of asset pools — risks piercing the corporate veil. With sufficiently severe commingling, courts can disregard limited liability and reach the private assets.
Breach of duty of care and loyalty (Art. 717 CO)
Directors and managing officers owe the company care and loyalty. Classic breaches: self-dealing without approval, competition with the company, accepting commissions, favouring related persons.
In over 60 percent of liability cases before the Federal Supreme Court, the violation concerns Art. 717 CO — usually after insolvency, when the bankruptcy administrator sues on behalf of creditors.
4. Three avenues of action
• Action by the company (Art. 754 CO) — typically by the board or a new body after change.
• Shareholder action for performance to the company (Art. 756 CO) — derivative action.
• Creditors' action in bankruptcy (Art. 757 CO) — the bankruptcy administrator assigns the claims to creditors who can then sue.
5. Limitation period
Liability claims are time-barred under Art. 760 CO 5 years after knowledge of the damage, but at the latest 10 years after the breach. Where the breach is criminally relevant, criminal limitation periods apply (often 15 years).
6. Insurance — the D&O policy
Directors & Officers policies cover liability claims up to an agreed limit (typically CHF 5–50m). For Swiss SMEs, D&O policies are available from CHF 1,000–3,000 annual premium. What the policy does not cover: wilful breaches, fines, personal enrichment. Anyone serving in several companies should examine a 'Personal D&O' variant.
7. Practical tips to reduce risk
• Complete documentation of board meetings with minutes.
• Compliance with the thresholds of Art. 725 CO — quarterly equity checks, especially with growing losses.
• Clear division of responsibilities — who is in charge of what.
• Separation of business and private accounts, clean expense documentation.
• Pay social-security contributions on time; treat withholding tax as fiduciary money.
• On self-dealing: prior approval by the full board with minute entry.
• D&O insurance with sufficient limits and retroactive cover for prior mandates.
Practical note
Sobiera Legal Consulting advises directors and managing officers on risk analysis, governance set-up and pending liability claims — in Ukrainian, Russian, German, English and French. At the first signs of over-indebtedness or an opened investigation, early advice is worthwhile — the threshold to personal liability is lower than often assumed.