Comparison of Swiss legal forms – the advantages and disadvantages
Company Formation in Switzerland – Facts That Speak for Us
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Would you like to start a company in Switzerland? Then the right legal form is an important decision for your company to succeed. We will introduce you to the most common legal forms in Switzerland.
What is a legal form?
A legal form describes the legal organisational structure of a company. It is important because it determines the legal framework – and influences aspects such as corporate management, accounting obligations, tax burden and legal and personal responsibilities. The most popular legal forms in Switzerland include the sole proprietorship, the LLC (limited liability company) and the JSC (joint-stock company).
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Legal forms comparison: The most important legal forms in Switzerland
1. Limited liability company (LLC)
The LLC is one of the most popular legal forms in Switzerland. It is a separate legal entity that can be founded by one or more persons. Liability is limited to the company assets, and it is suitable for small to medium-sized companies. The shareholders of an LLC can be natural or legal persons.
Advantages:
- Limitation of liability: shareholders are not personally liable for the debts of the company and only up to the amount of their contributions.
- Low share capital: the share capital must be at least CHF 20,000. This is lower than for legal forms such as a joint-stock company (JSC).
- Flexibility: shareholders can be natural or legal persons. An LLC can also easily be converted into a JSC.
- Tax-free capital gains: the sale of shares held as private assets is tax-free, as long as it is not a partial liquidation or transposition.
Disadvantages:
- Formation effort: notarisation and registration in the commercial register make the formation process more complex than for a sole proprietorship.
- Articles of association: an LLC needs articles of association. These must contain details such as the name, registered office, purpose and share capital as well as the contributions of each shareholder.
- Higher costs: the cost of setting up an LLC is lower than for a joint-stock company (JSC), but higher than for a sole proprietorship. This can be less attractive for small business owners and the self-employed.
- No unemployment benefit: managing directors of an LLC are not entitled to unemployment benefit as long as they are in office. A claim only exists if the LLC is dissolved or they give up their position.
- Double taxation: profits are taxed at the company and shareholder level.
- Less privacy: information about the LLC, including its shareholders, is public in the commercial register.
2. Joint Stock Company (JSC)
A joint-stock company (JSC) is the most expensive and complex of the legal forms mentioned here. It is one of the most common legal forms for Swiss corporations – and, like the LLC, can be founded by one or more natural or legal persons. It offers a strict separation between the company and its shareholders, which results in a limitation of liability.
Advantages:
- Access to capital: JSCs can easily raise capital by selling their shares on the stock exchange. This makes it easier to get money for business growth.
- Limitation of liability: shareholders in a JSC are only liable for the amount of their investment. So they only risk the money they have put into the shares.
- Creditworthiness: JSCs are often considered trustworthy and can therefore receive loans more easily.
- Anonymity of shareholders: the identity of the shareholders can remain protected, which increases privacy.
- Tax advantages: under certain conditions, shareholders do not have to pay tax on the profit from the sale of their shares.
Disadvantages:
- High capital requirements: a share capital of at least CHF 100,000 is required to establish a JSC. At formation, at least 20% of each share and no less than CHF 50,000 in total must be paid in.
- Complex formation and administration: many formal requirements, including registration in the commercial register and notarised documents.
- Strict accounting rules: JSCs must adhere to complex accounting regulations, especially if they are listed on the stock exchange.
- Double taxation: profits of the JSC are taxed first at the company level and then with the shareholders (if they are paid out as dividends).
- Statutory reserves: JSCs must form legally prescribed reserves, which can reduce the available profits.
- No unemployment benefit for executives: managing directors and other senior executives are not entitled to unemployment benefit as long as they are in office.
- Public information: the company name, registered office, purpose, share capital as well as the board of directors and authorised signatories are publicly available in the commercial register.
3. Holding
A holding company is not a separate legal form but a company – usually an AG or GmbH – whose main purpose is to hold investments in other companies. It is particularly suitable for larger corporate structures and for managing corporate investments.
Advantages:
- Tax optimization: depending on the structuring of companies and their investments, tax benefits may be possible.
- Limitation of liability: liability is limited to the assets of the holding company, which minimizes risk.
- Asset protection: by separating operating units and assets, one can reduce the risk to the company's total assets.
Disadvantages:
- Complexity: establishing and managing a holding company requires greater administrative effort and legal expertise.
- Stringent requirements: extensive financial and human resources are usually required for the establishment and operation of a holding company.
4. Founding a company using cryptocurrency
Starting a company using cryptocurrencies is particularly suitable for start-ups in the blockchain and fintech industries. This method can offer unique benefits.
Advantages:
- Innovation advantage: companies that use crypto and blockchain technologies can position themselves as pioneers in a rapidly growing market.
- Flexibility: digital currencies and smart contracts offer flexible financing and contract solutions.
- International scalability: cryptocurrencies enable easy and fast processing of international transactions without currency conversions.
- Transparency: by using blockchain, transactions can be traced transparently and made tamper-proof.
Disadvantages:
- Legal uncertainty: the legal situation surrounding cryptocurrencies is still unclear in many countries.
- Volatility: the high price fluctuations of cryptocurrencies can lead to financial risks.
5. Foundation
A foundation is a legal structure that is often used for charitable purposes. It offers the advantage of long-term asset protection and can be used for both social and economic purposes.
Advantages:
- Long-term goals: a foundation can be useful for the long-term protection and management of assets.
- Tax advantages: under certain conditions, foundations can benefit from tax relief.
- Flexibility: foundations can pursue both charitable and economic goals.
- Image improvement: establishing a foundation can increase the reputation of a company or a private person.
Disadvantages:
- Limited flexibility: once established, foundations are relatively rigid in their purpose and can only be changed under strict conditions.
- High administrative costs: the maintenance of a foundation can involve considerable costs, especially if professional administration is required.
- Difficult dissolution: once established, a foundation can only be dissolved or have its purpose changed subject to strict conditions.
- Limited income opportunities: as a foundation often pursues charitable purposes, the possibilities for generating profits are often limited.
6. Association
An association is suitable for groups with a common, non-economic goal. It is legally independent and must be entered in the commercial register if it runs a commercial business.
Advantages:
- No minimum capital required: allows the association to be founded without large financial upfront costs.
- Flexibility in the membership structure: an association can accommodate an unlimited number of members.
- Tax advantages: under certain conditions, associations can be tax-privileged.
Disadvantages:
- Limited economic purpose: an association cannot act primarily for profit.
- Administrative burden: an association requires the maintenance of membership lists and minutes of the general meetings.
- Public transparency: must be entered in the commercial register if it runs a commercial business.
A branch is not an independent company, but part of an existing company. It carries out the same or similar business activities as the parent company and enjoys a certain economic independence.
Advantages:
- Expansion without start-up: allows a company to expand its presence in different regions without having to start a new company.
- No minimum capital required: since the branch is part of the parent company, no additional capital is required.
- Economic independence: can make independent business decisions within the framework specified by the parent company.
Disadvantages:
- No legal independence: the branch is not legally separated from the parent company, whereby the latter is liable for the liabilities of the branch.
- Administrative burden: must be entered in the commercial register, stating the business activity and those responsible for the branch.
- Dependence on the parent company: decisions and strategies are often closely linked to the specifications of the parent company.
8. Sole proprietorship
The sole proprietorship is the most popular legal form in Switzerland. It is relatively easy to set up – and is the standard choice for people who want to build their own business without a specific corporate structure. A sole proprietorship can only be founded by a natural person and is legally connected to the owner.
Important: sole proprietors with an annual turnover of CHF 100,000 or more must register their business in the commercial register and keep proper accounts. From an annual turnover of CHF 500,000, double-entry bookkeeping is required.
Advantages:
- Simplicity and flexibility: no complex start-up formalities; the company can start immediately and is easy to manage.
- Tax transparency: profits are taxed as the personal income of the holder, which avoids double taxation.
- Low administrative effort: no need to register in the commercial register as long as the turnover is below CHF 100,000.
Disadvantages:
- Unlimited liability: the holder is liable with all their private assets for debts and obligations of the company.
- Limited growth and financing opportunities: sole proprietorship means you cannot sell shares or easily raise capital.
- Less trust from investors and banks: due to unlimited liability and the lack of capital, it is more difficult to obtain a loan.
Do you have any other questions? We will be happy to advise you free of charge.
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