Reorganization of a Sole Proprietorship into a Limited Liability Company or a Stock Corporation
The reorganization of a sole proprietorship into a limited liability company (GmbH) or a stock corporation (AG) may be an attractive option for various reasons. These include, in particular, the limitation of liability and easier access to capital.
Advantages of a legal entity
In a sole proprietorship, the owner has unlimited personal liability with all of his or her private assets.
With a GmbH or an AG, on the other hand, liability is limited to the company’s assets, which significantly reduces the owners’ private risk and places liability risks solely on the company.
Particularly if the sole proprietor wishes to join forces with other owners or if investors appear on the scene, the formation of a legal entity is usually an obvious choice. The rights and obligations of owners of a GmbH or an AG are largely regulated by law. By contrast, in the event of other forms of joint business activity, the details need to be contractually agreed.
In contrast to a sole proprietorship, the establishment of a GmbH or an AG requires a capital contribution. While the share capital of a GmbH must be at least CHF 20’000, the minimum capital of an AG is CHF 100’000, at least CHF 50’000 of which must be paid in at the time the AG is established. If further finance is required after the establishment phase, the company’s capital can be increased as required by issuing new shares in the AG or the GmbH.
Reorganization steps
The sole proprietorship cannot change its legal form through an actual reorganization in accordance with the Swiss Merger Act (Fusionsgesetz, FusG).
For a sole proprietorship to be converted to a legal entity (GmbH or AG), the assets of the sole proprietorship must be transferred to the company to be established.
This can be done by means of a “contribution in kind”, where the assets of the sole proprietorship are contributed to the company as capital. The establishment of a GmbH or an AG is somewhat more complex than that of a sole proprietorship and must be notarized. As soon as the transfer of assets has been completed and the new company has been registered in the commercial register, the sole proprietorship can be deleted from the commercial register.
Legal and tax aspects
Where necessary, any existing liabilities and contracts can also be transferred to the new company as part of the asset transfer (asset transfer pursuant to Article 69 FusG or Article 181 of the Swiss Code of Obligations)
However, if it is intended not only for the assets but also for the liabilities to be transferred to the new company, liability issues arise. As a general rule, the sole proprietor remains liable for the transferred liabilities for three years, jointly and severally together with the new company.
Against this background, it should be examined on a case-by-case basis whether the transfer of only certain assets and selected contracts (singular succession) – with the consent of the respective other contracting parties – is preferable to a blanket transfer of assets (universal succession).
The social insurance policies of the business owner and his or her employees also need to be adapted to the new legal form. This applies, in particular, to old-age and survivors’ insurance (AHV) occupational pension insurance (BVG).
Finally, the reorganization may have tax consequences, particularly with regard to the transfer of assets and liabilities.