Company Formation and Management
Jul 9, 2024

Choosing a Legal Structure: Matching Your Company’s Legal Structure to Your Requirements

Setting up or restructuring a business involves crucial decisions, one of the most significant being the choice of a legal structure. It’s essential to recognize that not all legal structures fit every business model. This guide provides future entrepreneurs with detailed information to help them select the most suitable legal structure for their company and also highlights the legal structures mostly used in Switzerland.

Partnerships and capital firms differ primarily in how they handle risk. If you’re comfortable shouldering risks independently and using your personal assets to cover any debts, you can easily register as a sole proprietorship. This route is straightforward and grants you full control, but it also means you’re fully liable for any financial setbacks.

However, if you’re teaming up with colleagues, forming a general partnership or a limited partnership is often a smarter move. These structures allow you to share both the rewards and the risks with your partners.

For those looking to minimize their financial exposure, establishing a capital firm is the way to go. With options like a limited liability company (SARL) or a limited company (SA), your personal assets are safeguarded, limiting your liability to the amount you invest. Additionally, you can support commercial ventures through associations or cooperative companies, which offer unique ways to back business activities while managing risk effectively.

Choosing the right business structure is a critical decision that hinges on your comfort with risk and your business goals. Whether you go it alone or join forces with others, there’s a suitable option to help you achieve your entrepreneurial ambitions.

 

The three most common structures for SMEs in Switzerland are:

  • Sole Proprietorship
  • Limited Liability Company (SA/AG)
  • Limited Liability Company (Sàrl/Gmbh)

 

Photo taken from Shutterstock

 

Key Considerations for Choosing a Legal Structure

1. Capital Requirements

  • Set-Up Costs: Initial expenses can vary significantly depending on the legal structure.
  • Necessary Funding: Evaluate your capital needs for the current year and the next 3 to 5 years.
  • Minimum Capital Requirements: Each legal structure has different minimum capital thresholds.

2. Risk and Liability

  • Sole Proprietorship: Ideal for those willing to assume full responsibility for debts with their personal assets.
  • General Partnership or Limited Partnership: Suitable for entrepreneurs starting with colleagues.
  • Capital Firms (SA or SARL): Limits financial risk to the capital invested, offering a safer option for those wanting to minimize personal liability.

3. Independence and Control

  • Sole Proprietorship: Offers maximum control but with personal liability.
  • Partnerships: Shared control with partners.
  • Capital Firms: Allows inclusion of investors, which can impact decision-making but reduces personal risk.

4. Taxation

  • Separate vs. Combined Taxation: The income and assets of the business and the owner can be taxed either separately or together depending on the structure.
  • Tax Advantages: Capital firms typically benefit from lower taxation on significant income compared to partnerships or sole proprietorships.

5. Social Security

  • Sole Proprietorship: No unemployment insurance and retirement savings plan enrollment is optional.
  • SA and SARL: Directors may register themselves as employees and are included in social insurance schemes, providing better social security coverage.

 

Comparative Table of Legal Structures

 

Criteria Sole ProprietorshipLimited Company (SA/AG)Limited Liability Company (Sàrl/Gmbh)
Capital RequirementsLow set-up costs, no minimum capitalHigher set-up costs, minimum capital requiredModerate set-up costs, minimum capital required
Risk and LiabilityHigh personal riskLimited to invested capitalLimited to invested capital
Independence and ControlFull control, high liabilityShared control with investorsShared control with investors
TaxationCombined taxation of income and assetsSeparate taxation, lower tax rates on significant incomeSeparate taxation, lower tax rates on significant income
Social SecurityNo unemployment insurance, optional pension fundIncluded in social insurance schemesIncluded in social insurance schemes

 

Conclusion

Choosing the right legal structure is a fundamental step in establishing a successful business. By considering factors such as capital requirements, risk and liability, independence, taxation, and social security, entrepreneurs can make informed decisions that align with their business goals and personal risk tolerance.

 

For tailored advice and comprehensive tax, financial, accounting and audit preparation services, feel free to contact our team of experts. We are here to help you navigate the complexities of legal structures and ensure your business is set up for success.

Comment

    Add comment

    The latest news Amizelle

    See all news
    Thanks for
    your feedback!
    img

    Sign up for a free
    15-minutes consultation!

    Learn More
    Expand
    img

    During the consultation, you or your company will receive:

    • An objective assessment of your current financial situation.
    • A specific action plan to handle your problem or request.
    • Confidence that your financial matters will be handled professionally, allowing you to focus on what you love.