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What is the right legal form for you?

You are gradually approaching your big goal - starting your own business. You know what it means to become self-employed, you know the market, you've got a good business model and you've come up with a plan for marketing and finances.

Before you can really start your own business and generate revenue, you need to take care of the legal aspects of setting up a company. The first step is to choose the best legal form. This is important because not every legal form is suitable for every company.

What legal forms are there in Switzerland?

The most important distinction for you on the subject of legal form is the following: Partnerships vs. corporations. With partnerships, as the name suggests, the focus is on the person. This form of company is therefore closely linked to the owner of the company. In the case of corporations, on the other hand, the focus is on the capital. This also means that in the event of bankruptcy, the company capital is liable.

Sole Proprietorship

The sole proprietorship is the cheapest and simplest way to establish a company. For a sole proprietorship with an expected turnover of less than CHF 100,000, initially no registration with the commercial register of the canton is necessary. We always recommend registration, as the advantages clearly outweigh the disadvantages. Furthermore, the activity must be reported to the cantonal compensation office and recognized if the status of self-employed is desired.   Finally, depending on the business model, it is also worthwhile to be subject to value added tax. The biggest disadvantage of the sole proprietorship is the unlimited liability for all debts, including private assets.

General Partnership

In a general partnership, two or more natural persons join forces to run a company. The general partnership is not a legal entity, but can act under its own name, acquire rights and enter into liabilities. All partners of a general partnership have unlimited joint and several liability with their own assets.  

In recent years, the majority of general partnerships have been replaced by the popular limited liability companies.

Limited Partnership

The so-called limited partnership is composed of the general partners (employees) and the limited partners (capital providers). It is not very common in Switzerland and is most likely to be found in old traditional companies. Two or more natural persons are required to form a limited partnership. The limited partnership is brought into being by a partnership agreement between the parties involved. Entry in the commercial register is mandatory.

Limited liability company (GmbH)

When a GmbH is founded, a personal entry of the managing persons is made in the commercial register. The founding capital or the capital contribution for a GmbH is at least CHF 20,000, whether in the form of cash or contributions in kind. Through the complete payment of the share capital, the joint and several liability among the shareholders is eliminated - only the company assets are liable.

Public limited company (AG)

The advantage of the AG is the high creative freedom, as well as the borrowing of outside capital is very well possible. However, at the beginning you need at least CHF 100,000 share capital (exception: partial liberation) and must comply with various regulations according to the Code of Obligations. The relationship between the shareholders is advantageously regulated in a shareholders' agreement. Here, too, Foundera helps you to design the perfect solution for you.  

Legal entities are obliged to keep double-entry accounts. This includes a balance sheet and an income statement, along with the necessary appendices. Good to know: sole proprietorships and general partnerships with an annual turnover of more than CHF 500,000 must also prepare a balance sheet and income statement.


6 important criteria for choosing the right legal form for your business

The following six points summarize the most important criteria for choosing the legal form for you:

1.Revenue & capital

How much turnover will your company generate per year? This is always difficult to estimate, especially at the beginning, but at this point you can refer to the figures and estimates from your business plan. The capital requirements should also be taken into account when choosing the legal form, because the start-up phase in particular entails many additional costs.

2. Company form & type of trade

If you want to issue shares in your start-up or shares, then of course you have to form an AG. However, if you want to start small and alone, then a sole proprietorship is usually sufficient. If you are founding together with others, a GmbH might be a good choice. Don't just focus on the here and now, but also plan for the future: take your growth plans into account when choosing the legal form. Another crucial point is the type of business: as a service provider you usually have no stock (and thus little capital commitment), as a production company or processing/manufacturing business you usually have to pre-finance your stock of goods and merchandise (and thus have a high level of capital commitment). This can have tax implications as well as liability implications.

3. Risk & liability

Liability is also one of the really important aspects when choosing the right legal form. As a sole proprietorship, for example, you are liable with your private property. Therefore, you should always be aware of the liability risk and then, if necessary, establish a corporation. Often this selection criterion is also decisive for participating persons and companies when granting loans and financing.

4. Taxes

Depending on the type of company, the income and assets of the company and the individuals involved are taxed separately or together. Especially in the case of high profits, corporations offer lower taxation than a sole proprietorship.

5. Independence

Depending on the legal form, your personal room for maneuver is more or less flexible. If you found a company together with other participants or have capital providers on board, then you cannot make many entrepreneurial decisions alone.

6. Social security

Depending on the legal form chosen, some social insurances are mandatory, some are voluntary and others are not available. Founders of a sole proprietorship, for example, are not automatically insured against unemployment and payment into the pension fund is voluntary. In corporations, on the other hand, managing directors are employees and therefore also insured against unemployment. 

Do you have questions about which legal form is the right one for you or would you like to start your business? The initial consultation with Foundera is free of charge and without obligation:

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