Formation of a limited liability company (SA or Sàrl) or under sole proprietorship in Switzerland
Which legal Swiss entity do you choose and what are the criteria? Each Swiss company has its specific advantages and particular disadvantages.
Which legal status do you choose and what are the criteria? How do you protect yourself and protect your business in the same way? Among the steps you take in creating a company, the choice of the structure for your business is a determinant factor. By making the right choice, you can optimize your legal protection and tax situation from the outset. Here is a brief summary of the various options available to you.
Our advice: You may decide which structure is best for your business; but each structure has its specific advantages and particular disadvantages. RISTER puts its experts at your service and advises you in the administrative, legal and tax steps you take in the formation of your company in Switzerland.
01
The private limited company (Sàrl)
02
The public limited company (SA)
03
Business under sole proprietorship
The private limited company (Sàrl)
Advantages
Capital: The minimum capital required is 20,000 — which is less than required for a SA – and must be fully paid-in at the time of the company’s incorporation. This capital may consist of a contribution in kind (in stock, real property, customer account, etc.), which, however, has some disadvantages (see below).
Liability: Liability is limited to the fully paid-in capital of 20,000.
Company name: Unlike a private company (self-employed, in one’s own name, sole proprietorship), the company’s name can be freely chosen. However, the term “Sàrl” must be added thereto.
Foundation: A sole entrepreneur may now found a Private Limited Company.
Tax: A splitting of profits may ease and limit the progressiveness of taxes. The salary of the manager of a private limited company is deemed to be a company expense, which, therefore, reduces or — depending on the situation — maintains the level of taxes.
Sale of shares: Profits from the sale of shares are not taxable. However, the company is required to register the sale at the Trade Registry.
Disadvantages
Foundation: It incurs incorporation costs higher than those for a business under sole proprietorship (official and authenticated documents, and registration with the Trade Registry.
Publicity: The company’s organs, capital and shares can be freely examined at the Trade Registry (open to the public).
Management costs: A Sàrl’s management costs are higher than those for a business under sole proprietorship, especially due to the costs of protocols, shareholders’ meetings, and tax returns.
Taxation: As the Sàrl is a joint-stock company, its manager is subject to double taxation. He will be taxed on the Sàrl’s income and capital as well as on his personal income and assets.
Formation of a Sàrl
1. Meeting with RISTER to determine the elements of the company’s purpose; analysis of the business, provision of advice; analysis of the Cantonal and Communal Income tax and the Direct Federal tax, VAT, withholding tax, anticipated taxation, salaries, shareholders’ dividends, payroll contributions, mandatory insurance, employment contracts, work permits, and the managers’ rights and obligations.
2. Verification of the availability of the company name at the Trade & Companies Registry.
3.Opening of a deposit account for payment of the share capital (min. CHF 20,000)
4. Signing of the company’s authenticated document of incorporation, which will determine the text of the articles of incorporation and designate the organs. The notary will take care of the legal publicity procedures and obligations.
5. 15 days thereafter, opening of the company’s current bank account and payment of the capital upon receipt of the original from the Trade Registry.
The public limited company (SA)
Advantages
Liability: The shareholders of a public limited company are liable only for the amount of their shares in the capital.
Publicity: The distribution of assets is not public as the shareholders are not registered in the Trade Registry.
Social benefits: Like employees, the shareholders of a limited liability company must be insured and protected.
Company name: The company name may be freely chosen. Unlike the status of a business under sole proprietorship, which requires that the name of the employer be included, and the status of a Sàrl, which requires that such legal status be included in the company name, the choice of name is free in the case of a public limited company.
Tax: The progressiveness of taxes may be interrupted or even ended by the splitting of profits. Indeed, the much more flexible accounting of this status and the separation between the shareholder’s personal income and his dividends (which we call “business income”) enable tax optimization in a way that is completely legal.
Influence: The founder of the company may increase his influence in the company. He is able to use shares with preferred voting rights (class A and class B shares), restrict the transfer of shares, distribute his shares in his own environment, etc.
Sale of shares: The sale of shares is facilitated, as the founder may sell a share by simple transfer without a need to have the sale authenticated by a notary.
Taxation: The founder is not taxed on the profit realized from the sale of a share, which is deemed to be a capital gain (and is therefore tax-free).
Disadvantages
Capital : The minimum capital required for the formation of a SA is 100,000, which is higher than that of a Sàrl (note: unlike a Sàrl, the capital of which must be fully paid-in, the capital of a SA must be paid up to 50,000 upon the company’s constitution).
Foundation: The incorporation formalities are extensive and tedious and, in some situations, may be costly.
Double taxation: Like all joint-stock companies (including the Sàrl), the owner is taxed on the company’s profitability and capital as well as on his dividends and personal assets. This double taxation (for the reasons mentioned above in the advantages) is often more advantageous fiscally than the taxation applicable in some self-employed situations (to be analyzed with a RISTER expert).
High management costs: protocols, management reports, accounting, shareholders’ meetings, tax forms, and auditors. (Note: The amendment to corporate law specifies in particular that an auditor is no longer mandatory under certain conditions, which considerably reduces these costs, and, in some situations, authorizes the use of electronic means for administrative purposes, which facilitates the management of the SA and makes it more economical).
The formation of a SA in Switzerland requires the assistance of a consultant in that regard.
Formation of your SA in Switzerland
1.Meeting with the firm to determine the elements of the company’s purpose ; provision of advice ; analysis of the Cantonal and Communal Income Tax and the Direct Federal Tax, VAT, withholding tax, anticipated taxation, salaries, shareholders’ dividends, payroll contributions, mandatory insurance, employment contracts, work permits, and the managers’ rights and obligations.
2. Verification of the availability of the company name at the Trade Registry.
3. Opening of a deposit account for payment of the capital (minimum CHF 50,000)
4. Signing of the company’s authenticated document of incorporation, which will determine the text of the articles of incorporation and designate the organs. The notary will take care of the legal publicity procedures and obligations.
5. 15 days thereafter, opening of the company’s current bank account and payment of the capital upon receipt of the original from the Trade Registry.
Business under sole proprietorship
A business under sole proprietorship is often used for activities that are directly carried out by the owner, such as:
- doctors
- craftsmen
- small shopkeepers
- lawyers
- veterinarians, etc.
Formation of a business under sole proprietorship in Geneva or elsewhere in Switzerland (also called self-employed business) is simple, as no capital is required upon its constitution, and the business can be conducted immediately. Registration in the Trade Registry is mandatory when annual sales reach CHF 100,000.-.
The name of the self-employed business must include the owner’s surname, to which a business description may be added.
The founder and owner of a self-employed business has unlimited liability for the business’ losses and risks.
Advantages
Freedom: As the sole owner, the self-employed person decides on the strategic directions to be taken for his business in a completely autonomous way. This legal status provides the individual with a great deal of freedom.
Capital: In theory, a self-employed business may commence without capital contributions. In practice, regardless of the nature of the business, the self-employed person will have to invest, in one way or another, a minimum amount of start-up capital that is necessary to launch the business.
Foundation: It does not require any particular formalities and, therefore, entails few costs and fees. Only the registration in the Trade Registry is costly.
Tax: The self-employed person is taxed only once on all of his income, whether personal or commercial. Therefore, there is no double taxation. Note: There is also a real disadvantage here, which is the progressiveness of taxes.
Administrative expenses: In theory, there are very few. In reality, they are often higher than expected, as the law requires a standard accounting of the business, and self-employed persons often retain accounting firms or fiduciaries like RISTER.
Disadvantages
Liability: The self-employed person is liable up to the amount of his business and private assets. He is also liable for his business’ activities, even if an error is made by one of his employees or a commercial intermediary.
Publicity: Unlike a public limited company, the self-employed person’s status of ownership is publicly known and therefore not anonymous.
Company name: The owner’s name must appear in the company name, which therefore cannot be chosen freely.
Balance sheets: Insofar as they are registered in the Trade Registry, self-employed businesses are required by law to keep an accounting (in accordance with the prescriptions regarding balance sheets). Therefore, this obligation entails administrative and management costs.
Tax: The self-employed person is not subject to double taxation, which can be a real disadvantage depending on the situations and the type of business. Indeed, by grouping private and business assets on the same tax form, a self-employed person is exposed to progressive taxation. That is a major disadvantage, which may sometimes lead to situations where the commercial business is clearly overtaxed.
Bankruptcy proceedings: Insofar as the self-employed person is registered at the Trade Registry, he is exposed to severe proceedings for the collection of debts, the purpose of which is forced sale of all of the obligor’s assets. Therefore, a self-employed person’s liability may be imposed on his own assets, even if they are not in Switzerland (it is to be noted that real estate abroad may be seized).
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