Find the right legal structures: The best choice for start-ups and SMEs

Lara Bolliger

Senior Manager

Kim Meier

Consultant

Find the right legal structures: The best choice for start-ups and SMEs

Choosing the right legal structure is a crucial step for every start-up and SME in Switzerland. It does not only affect the legal and tax framework, but also the company’s liability and financing options. There are various legal structures available in Switzerland, each has its own advantages and disadvantages. This article provides an overview of the most important legal structures and helps founders to make the first landmark decision for their venture.

What legal structures are available in Switzerland?

In Switzerland, there are different types of companies with varying liability and capital requirements. A sole proprietorship is particularly suitable for individuals who want to start a business. However, if there are several founders, other legal structures make more sense. It is recommended that those who want to minimize entrepreneurial risk should establish a limited liability company (GmbH) or a public limited company (AG), as these structures guarantee limited liability.

When does which legal structure make the most sense? The following explanation of the different legal structures illustrates the key criteria for selecting the appropriate legal structure.

1. Sole proprietorship: uncomplicated establishment and little bureaucratic effort

The sole proprietorship is the simplest and most cost-effective legal structure in Switzerland. It is particularly suitable for smaller, personal companies. It does not require a minimum capital, which makes it particularly attractive to founders with little start-up capital. The establishment is straightforward and there is little bureaucratic effort. In addition, only a «simple account [Milchbüchleinrechnung]» of income and expenses has to be prepared if the annual turnover is less than CHF 500,000.00. You only need to register the sole proprietorship in the commercial register if your company’s turnover reaches the limit of CHF 100,000.00.

A major disadvantage of the sole proprietorship is the unlimited liability of the proprietor with all of his/her personal and business assets for the company's liabilities. This means that in the event of insolvency, personal property, such as a home or savings, may also be at risk. Therefore, this legal structure is particularly suitable for smaller companies that have a low risk and do not have high capital requirements. Succession planning is made more difficult in a sole proprietorship because the company is strongly tied to the owner.

2. GmbH (Gesellschaft mit beschränkter Haftung [Limited Liability Company]): suitable legal structure for many SMEs

The GmbH is a highly popular legal structure for small and medium-sized companies in Switzerland. In contrast to the sole proprietorship, the liability of owners of this legal structure is limited to the capital of the GmbH, which means that your personal assets are protected. This is a huge advantage if you want to limit the risk.

To establish a GmbH, a minimum share capital of CHF 20,000.00 is required. The shareholders are listed in the commercial register and are therefore publicly visible. In addition, the bureaucratic effort is higher than for a sole proprietorship: The GmbH is required to keep proper accounting records in accordance with the Swiss Code of Obligations. Nevertheless, the GmbH remains a good choice for founders who want to limit their liability and want to grow with their company. It is also possible to convert the company into an AG (Aktiengesellschaft [public limited company]) at a later date.

A notable disadvantage of the GmbH compared to the AG is that the transfer (sale) of registered shares requires more regulatory effort than the transfer (sale) of shares. Although the legal structure of the GmbH offers few hurdles, you should still pay attention to a few aspects when establishing it. That’s why it is usually worthwhile seeking professional support – for example, from a business advisor and fiduciary expert like KENDRIS.

3. AG (Aktiengesellschaft [Public Limited Company ]): suitable legal structure for companies with ambitions

The AG is one of the most popular legal structures for larger companies and those with high capital requirements. To establish an AG, you need a minimum capital of CHF 100,000.00, of which 20% of the nominal value per share, but at least CHF 50,000.00 in total, must be paid in. The AG enables you to issue shares and thus raise capital from investors, which makes it particularly interesting for companies that need larger financial resources or even want to go public.

In the international market, the AG, which is equipped with a higher capital, is a company that is more reputable than the GmbH. Another advantage of the AG is its anonymity since the shareholders of an AG are not publicly visible in the commercial register. Compared to the GmbH, the shares of an AG can also be transferred more easily. This is particularly exciting for companies that are planning a future participation from their key employees.

As with a GmbH, with an AG your liability is limited to the company assets, which minimizes personal risk. The AG is also required to keep proper accounting records pursuant to the Swiss Code of Obligations. Another obligation of the AG as well as the GmbH is the audit obligation under the Code of Obligations. If the criteria for a regular audit are not met, a limited audit must be carried out. However, it must be noted that an auditing office can be dispensed with (referred to as opting-out). However, the criteria must be met: approval of all shareholders and no more than ten full-time positions on average per year.

Choosing the right legal structure is an important step in establishing a company in Switzerland. It affects liability, capital requirements, tax aspects and administrative expenses. The right legal structure depends on your objectives and plans. At KENDRIS, we help you find the best legal structure for your company and guide you through the entire start-up process – from planning to implementation.

Contact us to learn more about our Business Advisory and Outsourcing Services and how we can help you choose the right legal structure for your business.