Structure & legal steps

Sole proprietorship, general partnership, LLC or SA: which legal form should you choose?

Choosing a legal form is one of the founding decisions for your company. Start-up capital, protection of private assets, fundraising, social insurance: each form has its advantages and constraints. An overview of the four most common forms in Switzerland.

The right questions to ask

Before choosing, clarify your situation with these five questions:

  • Will you be running your business alone?
  • How much is available at the outset to set up the company (less than CHF 20,000 or more than CHF 50,000)?
  • Are there private assets to protect from the financial risks of your business?
  • Do you plan to raise funds and/or bring in new shareholders?
  • Are you giving up membership of social insurance (unemployment insurance) and a pension fund (optional 2nd pillar)?

The sole proprietorship

The sole proprietorship is ideal for activities closely tied to the owner. Architects, craftspeople, doctors, lawyers and local businesses often opt for this legal form.

With this choice, you need no minimum capital contribution and only have to register in the commercial register if your turnover reaches CHF 100,000 a year.

In return, your liability will be personal and unlimited: as the business's assets and your personal assets are legally one and the same, all your property will be at stake. There is therefore no separate taxation of business and personal income and wealth — watch out for progressive tax rates. On the social insurance side, you will not contribute to unemployment insurance and so will not be entitled to it either. Occupational pension provision (BVG/LPP) is optional.

The sole proprietorship is right for you:

  • if your business requires only limited investment and stock that carry no particular risks,
  • if you have no assets to protect for the time being,
  • or if you simply want to test your idea... or your ability to run a business.

It is registration with the OASI compensation fund that gives you self-employed status. If you are planning to develop your business in the short or medium term, or want to be able to take on partners, look into the LLC (Sàrl) now.

The general partnership (SNC)

The general partnership is ideal for small businesses whose partners are close personally and professionally. Their venture is often driven by commitment to an ideal cause rather than the pure pursuit of profit.

This legal form is for a commercial business formed by two or more natural persons. It is particularly suited to carrying out a self-employed activity together and to small craft businesses run by closely connected people. Setting it up requires no initial capital and the founding deed is relatively simple, as is the internal organisational structure.

Liability can, however, be a problem: the partners are jointly and severally liable without limit, which creates interdependence between them. The right of all partners to have a say can hamper business flexibility, and the partners' professional flexibility is also limited, for example by the non-compete obligation.

The limited liability company (Sàrl)

The Sàrl is a hybrid of the public limited company and the general partnership. It is well suited to family businesses and small and medium-sized companies, and requires a capital contribution of at least CHF 20,000.

It protects your personal assets and those of your partners, as liability is limited to the company's assets. The founders are considered employees and are subject to the usual social charges. They contribute to unemployment insurance but can only benefit from it if the company closes.

As regards tax, there is economic double taxation: the company pays tax on its capital and profits, while the partners declare their income and pay their taxes separately, according to their personal situation and place of residence.

If you are considering bringing in new shareholders or raising additional funds, also look into the SA, provided you have minimum capital of CHF 50,000. Good to know: an Sàrl can easily be converted into an SA later, without liquidation.

The public limited company (SA)

The public limited company is a corporation that, in principle, runs a business. It is the typical company form for high capital requirements, and the preferred legal form for a high-potential start-up planning fundraising rounds and new investors coming on board.

The share capital of an SA may not be less than CHF 100,000. It is, however, possible to pay in only 20% of the share capital, but at least CHF 50,000.

Despite higher set-up and running costs than other legal forms, the SA offers many advantages:

  • shares in the company are easily tradable,
  • SA status brings a certain credibility in business relationships,
  • the anonymity of shareholders and investors is guaranteed,
  • as with the Sàrl, private and business assets are separate and shareholders' liability is limited to the share capital.

But be careful: in the event of unlawful or negligent conduct, management (members of the Board of Directors) can be held liable, including with their personal assets.

Unemployment insurance: a point to watch for Sàrl and SA

Note that people who determine the employer's (Sàrl, SA) decisions, or who can significantly influence them as a partner, member of a governing body or holder of a financial stake in the company, are in principle not entitled to unemployment benefits.