Sole Proprietorship, Limited Liability Company or Company Limited by Shares? What Startups Ought to Know
The Commercial Register contains information on all companies based in Switzerland. Solo entrepreneurs with an annual turnover of under CHF 100,000 do not have to register; nor do people working in ‘independent professions’ (doctors, dentists, engineers, architects, lawyers, etc.) provided they do not run a commercial business.
A business is defined as any independent and ongoing economic activity carried out for profit. A commercial enterprise will focus on profitability, which requires a certain organizational structure and means the rate of return needs to be optimized.
The most ideally suited legal form for any company depends not only on that company’s size but also on the concrete requirements of the persons involved.
Sole proprietorship
Sole proprietorships are suited to individuals whose business activity is strongly connected to the business owner’s personal attributes.
They can be founded by simply filing an entry in the Commercial Register, and there is no need to pay in any share capital.
For social security purposes, sole proprietors are classed in law as self-employed. Insurance against inability to work and illness and occupational pension plans are largely optional and are the responsibility of the sole proprietor.
This legal form also poses certain risks in terms of legal liability, as the sole proprietor’s entire personal assets may be used to satisfy the business’s obligations.
Limited liability company (GmbH)
As the name suggests, limited liability companies are characterized by the fact that only the company’s assets can be used to meet the company’s liabilities – the shareholders’ personal assets cannot.
Limited liability companies are privately owned corporations and can have one or more natural or legal persons participating in them. Share capital of at least CHF 20,000 is required in order to found a limited liability company. Persons can acquire an interest in limited liability companies through capital contributions. The capital contributions must have a par value of at least CHF 100.
The name and address of the shareholders (Gesellschafter) are entered in the Commercial Register. Limited liability companies are different from companies limited by shares in that their shareholders not only have a duty to pay in capital, but they can also be bound by additional obligations like non-competition clauses and duties to make additional financial and material contributions. Shareholders can also be excluded from limited liability companies for good cause.
In the absence of any agreement to the contrary, the shareholders manage the business together. The articles of association can set down the procedure for appointing one or more managing directors, who do not have to be shareholders.
Company limited by shares (AG)
Companies limited by shares can also be founded by one or more natural or legal persons. The minimum share capital required is CHF 100,000, of which CHF 50,000 must be paid in when the company is founded.
Obligations over and above the duty to make payment in full (e.g., non-competition clauses) may be imposed on shareholders solely under a shareholders’ agreement. These obligations may not be set out in the articles of association.
Any agreements of this nature are valid only between the parties to the agreement. If any contractual obligations are to be passed on to future shareholders, this must therefore also be set down in the agreement.
In contrast to the shareholders of limited liability companies, shareholders of companies limited by shares have no managerial role per se; instead, they have to elect a board of directors, which will manage the company. This board can be comprised of one or more people, who can also be shareholders.
Any operational shareholders of a company limited by shares, or a limited liability company can also be employed by that company at the same time. These shareholders will then be classed as employees in law for social security purposes.