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Duration of the election of the member of the board of directors of a Liechtenstein company limited by shares

Again and again the question arises how long exactly a person who has been elected to the board of directors of a Liechtenstein company limited by shares is actually in office.

In principle, the term of office is determined by the articles of association of the respective company limited by shares. If the articles of association do not specify the term of office, it is determined by the body responsible for the appointment in accordance with the corresponding appointment resolution. As a rule, this is the supreme body (in the following, therefore, we shall only refer to the general meeting). The law restricts the options available to the board of directors with regard to the maximum term of office per election, but not with regard to re-election. The members of the board of directors are elected by the general meeting, initially for a maximum of three years and subsequently for a maximum of six years. For the first three years, the members of the administration may be designated by the articles of association (Art. 341 para. 1+2 PGR [Liechtenstein Persons and Companies Act]). As a rule, the minimum term of office is at least one year, although a shorter term of office should also be permissible, provided that this does not impair the functioning of the board of directors. A term of office of only two months, for example, would certainly impair this ability to function.

Annual confirmation in office in the case of a multi-year term of office is not recommended. Re-appointment or re-election at a time not close to the end of the term of office is contrary to the purpose of the term of office and is therefore not considered permissible (see also PSR Die Privatstiftung 2013/39).

Already through the election to the board of directors by the general meeting and the acceptance of the election by the elected person, the board member is legally binding in office, i.e. the entry in the Commercial Register is only of a declaratory nature (Art. 950 para. 3 PGR). However, it is also conceivable that the election/acceptance of the election may take place at a certain point in the future (e.g. from 1 January of a certain year), although the exercise of office by previous board members duly elected up to that date must be guaranteed until that date.

Art. 341 PGR speaks of a term of office in years. In principle, this would mean that the term of office would expire at the end of one or more calendar years after the election date, although such a rigid rule would of course be “inappropriate”. As a rule, both the articles of association of the company limited by shares and the minutes of the corresponding general meeting only record the term of office in years (e.g. 3 years) or the financial years for which the election is to apply, and keep silent about the exact date of expiry of the term of office. The term of office begins as set out above, subject to acceptance of the election, on the date of the general meeting which has held the election, and ends, subject to other provisions of the articles of association, with the ordinary general meeting following the end of the financial year for which the election has been held. The term of office thus lasts from general meeting to general meeting, as does the term of office for the auditors.

If a member of the board of directors is neither voted out of office nor re-elected at the end of his or her term of office (for example, because re-election was simply forgotten), but continues to exercise his or her office, this is – at least according to some doctrine – to be seen as a tacit extension of the term of office (Basler Kommentar OR II- Wernli/Rizzi, Art. 710 N 2). Another part of the doctrine takes the view that, in the event of “forgotten” re-election, the board of directors’ mandate would continue until the next general meeting, at which the election on the agenda would be put to the vote (Krneta, N 404 and 427; Vetter, p. 146 f.; Müller/Lipp/Plüss, p. 55 f.). It should be noted, however, that the Federal Supreme Court of Switzerland assumes that in this case the company limited by shares constitutes an organisational deficiency under Art. 731b Swiss Code of Obligations (cf. Art. 971 para. 1 no. 1 PGR for Liechtenstein), since anything else would be incompatible with the concept of the shareholders’ decision-making process in the context of the general meeting, according to which a resolution is only deemed to have been accepted and otherwise rejected when a quorum is reached, and a positive expression of will in the general meeting is required in the light of Art. 710 Swiss Code of Obligations (see Art. 341 PGR for Liechtenstein) (Federal Supreme Court of Switzerland ruling 4A_235/2013 of 27 May 2014, E. 2.1 and 2.8).

In principle, it is advisable to address the problem of the end of the term of office with a corresponding provision in the articles of association, thus creating clarity and uniformity. A possible solution would be, for example “The term of office of the members of the board of directors lasts until the annual general meeting has held a new or re-election. The right of prior resignation or dismissal is reserved.” However, it should be noted that this solution carries the risk that the board of directors, which is normally responsible for convening the general meeting of shareholders under Art. 167 para. 1 PGR, may delay the general meeting in order to “renew” its term of office. Of course, this can also be counteracted by stating in the articles of association the date by which the annual general meeting must be held.

However, one also sees time and again, especially in election minutes from general meetings, cut-off dates on which the term of office ends (e.g. 31 December of a particular year) and which cannot be derived directly from the articles of association. If the successor has not yet been elected on that date, this can lead to distortions, which is why a term of office until the general meeting at which the successor is elected is clearly preferable. This also obviously has the advantage that the end of the term of office and the election of the successor coincide in time and that any outstanding matters such as discharge (Art. 338 para. 2 no. 3 PGR) of the person leaving the office can also be dealt with at the same time.

In addition to the expiry of the term of office, there are other reasons for the departure of a member of the board of directors, which are briefly mentioned here for the sake of completeness:

a. Death or incapacity of the board member

b. Statutory eligibility requirements no longer applicable (“age guillotine”)

c. Deselection

d. Failure to comply with the domicile requirement

e. Resignation

f. Dissolution of the company