Most entrepreneurs who want to make the first step towards self–employment in Switzerland choose to do it in the form of the sole proprietorship. This means that a single individual manages a business without creating a company, such as a GmbH, for example. This person provides the capital, represents the business and bears all the entrepreneurial risk.
The main condition to set up a sole proprietorship is to have a work and residency permit in Switzerland. No other specific permissions are required. The business must be registered with the commercial registry only if the annual turnover exceeds 100,000 CHF. Even if the annual turnover does not exceed this sum, it is however recommended to register the business in the commercial registry. Without an entry, it is difficult to close business contracts, to open a business account our to do other important activities related to the business.
There is no necessity for having legal audits or other disclosure requirements. A sole proprietor bears all the liability for this legal structure. A person is considered of Switzerland if they have a work permit, if they conduct a business in Switzerland, or if they live in Switzerland for at least 180 calendar day per year.
Requirements for sole proprietorships
A person who operates a sole proprietorship is obliged to use their family name, as the essential content of their business name. This business must not have any type of suffix or ending that suggests its constitution as a company or partnership. Another business proprietor in the same location may not use the name for the sole proprietorship entered in the commercial registry, even if they have the same last name and first name from which the older business name is formed. In this case, the new business proprietor must add a suffix or ending to its own name to create a new business name.
Sole proprietorships do not require a minimum capital and no formal act of foundation is required. A sole proprietorship is generated when a person needs to start an independent commercial activity. Therefore, the costs of foundation may vary from case to case.
The sole proprietor is always liable, without any limitations. This means that the person is liable for all the debts made by the business. This also applies to private assets, even if they are separated in the accountancy. In some cases, even the entrepreneur’s spouse is liable for the debts made by the business.
A sole proprietorship registered in the commercial registry is also a subject to the bookkeeping rules. However, even sole proprietorships that are not registered in the commercial registry must keep accounts. Especially direct taxes and VAT impose documentation and storage duties. Swiss authorities also require that the business figures are traceable. Sole proprietorships are not a subject to any auditing duty.
Sole proprietors also have to register for tax and social security contributions and some occupations are regulated and may require special permits or licenses. Here are included banks, insurance companies, investment brokers, hotels, dentists, doctors, pharmacists, lawyers, employment agencies etc.
Advantage and disadvantages of sole proprietorships in Switzerland
The advantages are few formal business requirements, no minimum capital required and no corporate tax payments. However, entrepreneurs who want to start sole proprietorships in Switzerland must keep in mind that the sole proprietor has personal liability, credits are hard to obtain and other persons can not participate in this legal structures.
Foreigners who want to establish sole proprietorships
Foreigners are allowed to establish sole proprietorships in Switzerland; however, it is more difficult for citizens from countries that are not part of the EU or EFTA. According to the free movement of persons agreement, persons who do not have a residency permit (C permit) are also allowed to found a company, if they have a 5 year residency permit (B permit).
To register in Switzerland, the planned business activities have to be proven and declared. Documents required for registering include commercial register entry, VAT number, a business plan, professional register entry, proof of social insurance as a self – employed person and books of account. Further information is also provided by each cantonal migration office.
In the case of persons from states that are not EU or EFTA member states, they must have a C permit, be married to a Swiss citizen or to a person that has a C permit. All other persons must require a permit from the authorities. These persons have to convince the authorities that the planned company will have a sustainable and positive effect on the Swiss economy. A business plan is not necessarily required, but it is recommended to have one.
If all requirements are fulfilled, these persons are granted a short–term permit for third–party states (L permit), limited to 12 months. This permit may be extended for another 12 months. A new labor law examination is conducted by the administration each time this permit is extended.