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Getting Down to Business: Types of Companies in Switzerland
At a Glance:
There are five main types of companies in Switzerland: sole proprietorship, general partnership, limited partnership, limited liability company, and a public limited company.
A limited liability company is the most popular type of business set-up in Switzerland for small to medium sized companies.
The public limited company (AG) is the most frequently used business model for large companies.
Although Switzerland has many different business types to choose from, there are only three different kinds of business structures which differ in regards to liability. For sole proprietorships, the founder has complete responsibility for their company’s liabilities. For partnerships, each partner is personally liable for a certain percentage, and for corporations the owners are not personally liable for the obligations and actions of the company. Our guide walks you through each type in more detail.
Sole Proprietorship: The Ideal Start for a Small Business
Owned by one person, this is a suitable choice for small business owners and entrepreneurs. In order to start a sole proprietorship you do not need to be a Swiss resident, but you must have one home in Switzerland. This means that you need to have a registered address in Switzerland, but you do not need to live there all year round (e.g. you are a second home owner in another country). In addition, the organization will need to have your family name incorporated into its official business name, for example Smith Cleaning Company or Smith’s Carpentry.
One positive aspect about starting a sole proprietorship is that you do not need to meet any minimum capital requirements in order to register. On top of this, since there is only one person owning the company, there is more control over operations and profit.
The downside of this type of business is that the owner is liable for all of their business’s debts. In other words, if a business cannot afford to pay its liabilities, they will be passed on to the owner. This means that if your business defaults on a debt or does not pay a supplier, a creditor can legally take your house — or other personal assets — as compensation.
Another issue with this type of business is that you will not be able to add a partner in the future, unless you change your business’s legal structure. A sole proprietorship can be changed or upgraded to a public limited company or a limited liability company at any time.
If you would like to learn more about starting your own sole proprietorship, you’ll find more information on this website for startups in Switzerland.
Starting Out With a Business Partner: General Partnership
A general partnership is very similar to a sole proprietorship, but has more than one person involved. In this business structure, at least two or more people have joint unlimited liability — every partner’s personal assets are liable for the firm’s actions.
In contrast to a sole proprietorship, the company needs to have a Swiss address, and all partners need to be Swiss residents. In addition, at least one of the partner’s names must be present in the company’s name.
One of the best qualities of general partnerships is that there is no minimum capital investment. However, investors should be careful when considering if they should become a general partner due to the joint liability.
The Alternative Model: Limited Partnership
A limited partnership is similar to general partnership, but has both general and limited partners —the company must have at least one of both types. The general partner assumes the majority of the company’s liability, while the limited partner only assumes an agreed amount, usually in proportion with their investment.
To establish a limited partnership, there needs to be at least two people in the partnership. Unlike a corporation, a limited partnership requires no minimum capital to set up the company. Another benefit is that the owners have more flexibility over company activities, and the distribution of profits.
Minimizing Risk for Small Businesses: Limited Liability Company (GmbH)
A limited liability company is a business that has its own legal identity. This type of company can be formed by two or more people, and/or companies with nominal capital. As its name suggests, those that own a limited liability company only risk the capital they invested; their personal assets are not at risk if the company becomes bankrupt. Another positive aspect is that additional people and/or corporations may have stakes in the company.
Unlike a sole proprietorship, the partners have complete freedom when deciding the company name with one exception — they must have the suffix Ltd., Liab., or Co. (usually at the end). The initial capital needed to open a limited liability company is at least 20,000 CHF.
In addition, you will need to list a partner as founding shareholder, as well as an executive director — a manager with signatory authorization in Switzerland. It is mandatory for at least one of the executive directors to have their permanent home in Switzerland. To make things easier, the founding shareholder and the executive director can legally be the same person.
When setting up your company, you will need to make an entry into the commercial registry detailing the names of the shareholders and the transfer of voting shares in the company. This means that shareholders cannot be anonymous and share transfers will need to be published.
The company will be subjected to an audit as soon as it employs ten or more full-time employees. If the company never employs ten employees, it will not have to be audited. Another possible setback is double taxation. This is further explained in our article about taxation in Switzerland. Despite this, limited liability companies are still the most popular type of business in Switzerland.
The Most Common Design for Large Companies: Public Limited Company (AG)
The public limited company (AG) is the most frequently used business design for large companies in Switzerland and is the most commonly used business structure for financial companies. It is also a suitable design for small-to medium-sized businesses as well.
As with limited liability companies, the owners of a public limited company are not liable for its actions as the corporation has its own legal identity. A public limited company’s liabilities should be completely covered by its own assets.
In order to open a public limited company (AG) in Switzerland, you need to have a minimum starting capital of at least 100,000 CHF. In addition, you need to have at least one person on the board of directors and one share holder — technically these two positions may be filled by the same person. It is important to know that the majority of the people on the board of directors who have signatory authority must live in Switzerland.
Contrary to a limited liability company, investors in a public limited company (AG) in Switzerland can remain anonymous, and transferring shares within the company is simple. The only setback when opening a Public limited company is that the minimum starting capital is quite large compared to limited liability companies.