So you’ve got a business plan, a bit of funding, and you’re now ready to establish your business in Switzerland. But then comes another question: which of the 4 most used legal structures to use for your business? In this article, I’ll cover each of them and tell you why you might want to use it for your business.
- Sole proprietorship (Raison individuelle)
The main idea of the sole proprietorship is that the owner is also the manager of the business and is a company typically run by one person. The main advantage is that this is relatively easy to set up, there is very little bureaucracy and requirements by the state in terms of paperwork, and there is no minimum capital requirement to set up the business. The main disadvantages for this are : that the owner has unlimited liability in regards to the debts of the business. In other words, if the business owed debts, the owner is fully responsibly to pay them back and his personal assets (such as house, car, etc…) can be liquidated in order to cover these debts. Additionally, no partners can participate in running the business and there is no social security in case of unemployment.
- Joint proprietorship (Société en nom collectif)
The joint proprietorship is essentially an extended version of the sole proprietorship. The advantages and disadvantages are the same but there can be more than one owner of the company. Indeed, both owners are fully responsible for the debts of the company. In other words, if one of the owners contracts a service for the business and does not pay for it and cannot be found, the second owner is fully liable for the amount contracted as long as the service was within the scope of the business operations.
- Limited liability company (Sàrl – Société à risque limite)
This is the most widespread legal structure for SMEs in Switzerland. The main advantage of this legal structure is the distinction between the owner and the manager. Although these can be the same person, the legal distinction between the two means that the owner is not personally liable for the debts that the business incurs. In other words, if the business owes debts and these are not paid, the business can be put into bankruptcy. However, the personal assets of the owners cannot be liquidated to cover these debts. Another advantage for this type of structure is that it requires a low amount of capital to start (20 000 CHF). However, the business needs to publish its owners and their percentage share of the business to legal authorities.
- Corporation (SA – Société Anonyme)
This is the legal structure preferred by large businesses. The main idea of this structure is to facilitate the transfer of ownership through shares and to be established on the stock market. This means that there needs to be the establishment of at least one shareholder and at least one director on the board of directors. In exchange for this, the business is not required to publish the identity of its shareholders and their percentage share of the business. The main disadvantage of this structure is that it is very bureaucratic and requires a significant amount of capital to set up (minimum of 100 000 CHF with 50 000 CHF held as cash).
Overall, if you’re launching your startup and are looking to set up your business, in most cases, the most favorable legal structure is the Limited Liability Company (Sàrl) as it will protect your personal assets while giving you a certain standing among banks and investors to show that you do have a minimum capital of 20 000 CHF, to begin with.
Here at Do It Better Coworking, we are partnered with Ferz SA, a legal consulting company that can provide you with additional information on how to set up your business with the correct procedures to ensure a solid grounding in your business and can ensure that the administrative side of your business is handled with professionalism.