If you’re starting a business in Switzerland, one of the first key decisions you will have to make is choosing a legal structure for your new enterprise. Although there are several different types of business structures in Switzerland, they can be broadly divided into three main categories:
- Sole proprietorships
- Partnerships (general partnerships and limited partnerships)
- Corporations (joint-stock companies and limited liability companies)
The type of business you choose to set up when you become self-employed will depend on a few key factors, including your line of business, your start-up capital, whether you have any business partners, investors or shareholders, and the level of risk you want to take. If you are not sure which legal structure is right for your business, a company formation specialist or a lawyer can advise you.
Legal structures in Switzerland
Here is an overview of the most common legal structures in Switzerland, along with some key information on how they differ from each other.
Sole proprietorship
Especially popular among freelancers, the sole proprietorship is a simple business structure where a single person manages the business in their own name: There is no minimum capital requirement to found a sole proprietorship and setting one up is relatively simple - indeed it can be done online via the EasyGov portal. The business only needs to be entered into the Commercial Register if its turnover in any given year exceeds 100.000 francs.
The downside of the sole proprietorship is that the business owner is fully liable for any business debts with their own personal assets, as there is no legal separation between the business and the owner.
Sole proprietorships are not subject to cantonal or federal taxation, but the sole proprietor is liable for income tax and taxes on profits generated and assets owned by the business.
Successful sole proprietorships can easily be converted into corporations like limited companies or limited liability companies.
General partnership
A general partnership is where two or more people (rather than legal entities) go into partnership in order to jointly operate a company. A general partnership can be simply formed by signing a partnership agreement and then registering the company in the Commercial Register. There is no minimum capital requirement.
As they don’t exist as a separate legal entity, general partnerships come with unlimited liability. This means that the partners are jointly and fully liable for all of their personal assets for any business debts.
General partnerships are not liable for corporate income tax, but the partners are directly taxed on their salaries, any share of earnings received, interest on equity capital, and their personal wealth.
Limited partnership
Very similar to a general partnership, a limited partnership differs only in that the liability of the partners is not equal: most commonly, in a limited partnership there is one general partner with unlimited liability (meaning they are liable for all company debts with their personal assets), and one limited partner with limited liability.
In this way, the limited partnership can be used to raise equity capital without having to involve a new general partner. The limited partner is only liable for the amount they contributed and has only limited rights of control over the company.
A limited partnership can be set up by signing a partnership agreement and registering it in the Commercial Register.
Limited company / joint-stock company (SA/AG)
One of the most common forms for businesses in Switzerland, the limited company sees a corporation established by one or more natural or legal persons as a separate legal entity. It is a more complex business form, requiring at least one director and at least one shareholder, and a start-up capital of at least 100.000 Swiss francs, with 20 percent (or at least 50.000 Swiss francs) paid upfront.
A limited company is founded by being registered in the Commercial Register. Other formal processes must also be completed, such as drawing up articles of association, appointing a board of directors and setting up a separate business bank account. At least one person authorised to represent the company must be resident in Switzerland. The shareholders can remain anonymous.
The main advantage of a limited company is that, as the name suggests, it separates the debts and obligations of the company from those of the owners; liability is limited to the value of the company’s assets.
Limited companies pay corporate taxes in Switzerland.
Limited liability company (GmbH/Sarl)
Very similar to a limited company, a limited liability company is a mixture of a limited company and a partnership, and involves similar formation procedures, including being registered in the Commercial Register and drawing up articles of association. It needs at least one director and shareholder who is a Swiss resident. However, a board of directors is not required.
One major advantage is that the start-up costs for a limited liability company are lower than those for a limited company: a start-up share of at least 20.000 Swiss francs is required (10.000 Swiss francs must be paid upfront).
As with the limited company, the debts and obligations of a limited liability company are separate from those of the owners, and the partners of the company have liability that is limited to the amount of their capital contribution. However, shareholders do not have the right to anonymity, as their names must be entered in the Commercial Register.
A limited liability company must pay corporate taxes in Switzerland, while its share capital is subject to wealth tax.
Cooperative company
A cooperative is a special legal form used by groups of people or companies to pursue mutual economic or social interests. Generally speaking, cooperatives are people-centred enterprises that seek to optimise rather than maximise profits. Profits are generally allocated to the cooperative’s assets, or (sometimes) paid out to members.
Cooperatives are characterised by collective decision-making and high levels of transparency, and can have an unlimited number of members.
A cooperative can be founded with a minimum of seven partners (which can be natural persons or legal entities). There is no minimum capital requirement. Members of cooperatives are fully liable for the company’s debts with all of their personal assets. Cooperatives are entered into the Commercial Register.