The choice of the legal form is mandatory if you want to open a company in Switzerland. It is true that some legal forms, such as the sole proprietorship, the joint-stock company, the general partnership and the limited liability company are the most well-known legal forms; but choosing the right one for your company can be difficult. Each of the four legal forms is associated with different requirements to the company founder or founders and brings certain advantages and disadvantages.
Suited for: Entrepreneurs who want to start a micro or small company, the sole proprietorship is usually the first choice: it consists of a natural person who operates a company in their own name and under their own responsibility. Thus, the sole proprietorship is particularly suitable for individual service providers such as painting shops, hairdressers, artists etc.
Advantages: The sole proprietorship is formed informally; the entrepreneurial activity can be taken up immediately. The holder is a self-employed person under social security law, so their registration with the SVA - the social insurance institution of the canton - is compulsory because they have to pay contributions to AHV / IV / EO. A capital investment is not required. The entry in the commercial register and the accounting obligation are only necessary from an annual turnover of 100,000 CHF. Up to an annual turnover of 500,000 CHF, it is only necessary to keep a simple record of income, expenses and the financial position.
Disadvantages: Since the family name must be included in the company name, you have no free name choice. In addition, the owner is liable with the private assets and no partners can be involved in the enterprise. Owners of a sole proprietorship don’t receive unemployment benefits and - depending on the canton - no family allowances. They are also not automatically insured against accidents.
Suited for: In the case of a general partnership, two or more persons join together to operate a company according to commercial rules. General partnerships are particularly suitable for small, highly personal companies: there is a personal bond between the partners who run the company itself. For a general partnership to be formed, it requires a formless contract among the shareholders. If the collective company operates a business, an entry in the commercial register is compulsory; the individual shareholders have to register as self-employed persons with the cantonal SVA. In addition, the shareholders must be recognized by the compensation fund as self-employed.
Advantages: As with the sole proprietorship, no minimum capital is required for the formation of a general partnership, the shares in the profits and capital of the company are taxed by the shareholders in their private tax return. So there is no economic double burden. Similarly, accounting record for general partnerships are required only from an annual turnover of 500,000 CHF, including a simple bookkeeping about income, expenses and net worth. Company names should not be deceptive and not consist of purely technical terms.
Disadvantages: The shareholders are liable for the time being with their company assets. But if that is not enough, it's up to private wealth - not only unlimited, but also solidary. Similarly, the shareholders receive no unemployment benefits and have to take care of themselves for accident insurance. And of the distributed profit, i.e. their earned income, the individual shareholder has to pay social security contributions.
Suitable for: Together with the sole proprietorship, the Aktiengesellschaft - AG for short - is the most common legal form in Switzerland for a good reason: it enjoys a good reputation among customers, suppliers and investors.
Advantages: The liability is limited to the company assets, which also benefits small businesses. In addition, several partners may participate as shareholders in the AG. The shareholders remain anonymous to the outside world. In addition, one is free in the name choice - the addition "stock corporation" or "AG" is mandatory. Shareholders can also be hired by the AG as employees and thus receive a normal salary and, in particular, enjoy social security rights such as compulsory accident insurance.
Disadvantage: The formation of the Swiss corporation is associated with a certain effort. The founding meeting of shareholders before the notary is required, as well as the entry in the commercial register. There are also financial hurdles to overcome when forming an AG: a minimum capital of 100,000 CHF of which at least 50,000 CHF or, starting from a statutory share capital of 250,000 CHF, 20% must be paid in advance. The AG is accountable. As a rule, an auditor must be specified to audit the annual financial statements; depending on the size of the AG, however, a so-called limited audit suffices. If the AG has less than 10 full-time employees, the audit can even be waived. Since the AG is a legal person, it is taxed separately. This may result in double taxation for shareholders: if the company makes a profit, it pays income tax. If a dividend is paid out of the profit, you also have to pay tax on it as personal income.
Limited liability company
Suitable for: Like the AG, the limited liability company - GmbH for short - is a legal entity that arises from the founding meeting before the notary and the entry in the commercial register. The GmbH is considered a popular legal form of Swiss SMEs.
Advantages: In contrast to the AG, only a minimum capital of 20,000 CHF is required for the foundation. This makes the GmbH especially attractive for small and medium-sized companies. The liability is limited to the assets of the company, although the articles of incorporation may stipulate an obligation to pay additional contributions by the common stockholder. The obligation to make additional payments may not exceed twice the nominal value of the basic share. The suffix «Limited Liability Company» or «GmbH» is mandatory for the company’s name. As with the AG, the company may conclude an employment contract with the individual partners.
Disadvantages: Compared to the AG, the GmbH often enjoys a deeper acceptance among customers, suppliers and lenders. Core shares are not as easily transferred as shares. Like the AG, the limited liability company is subject to the accounting obligation.
Don’t know which legal form is the right one for your company? Our Swiss company formation experts can help you to choose the legal form for your business and handle the necessary legal requirements to form the company. Get in touch!
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