03.04.2020
Sole proprietorship, limited liability company or private limited company? Anyone intending to set up a company must determine the legal form in the founding phase. So which legal form is most appropriate for your company?
Are you setting up a garage, an architect's office, a cleaning company or another business? Then you will need to decide on the appropriate legal form. When choosing a legal form, company founders decide on the type of liability for their company – i.e. who is liable for what.
The Swiss Code of Obligations provides for different legal forms of companies that are legally defined according to specific conditions. The entrepreneurial risks and associated personal liability, the organizational expenses and the running costs resulting from the legal form are key factors in this choice. Growth plans also play a role. Below is a list of the main legal forms under the Swiss Code of Obligations.
Both natural persons and legal entities have legal capacity, which means they have rights and obligations. While natural persons have legal capacity from birth, legal entities need to have been registered on the commercial register, for example. |
A sole proprietorship is the least binding but most common form of enterprise. One characteristic of this legal form is that it can be founded and discontinued informally. A sole proprietorship is a particularly suitable legal form for microenterprises and sideline businesses, but can also employ staff and subsequently be changed to another legal form.
This legal form is advisable for anyone wanting to go into business for themselves and run a company with limited financial risks. While optional, registration on the commercial register is advisable as it sends a strong signal to suppliers and customers. The founders should also clarify recognition of their self-employed status at an early stage with the compensation office to avoid conflicts with social security law.
With partnerships, it is common that all or some of the partners bear joint liability for company debts with their private assets. This legal form is generally suitable for small companies with manageable financial risks. Partnerships can be a suitable legal form for a company with manageable liability risks set up within the family, while a legal entity is the advisable legal form for all other startups. A simple partnership is always created when several people start an informal profit-making activity. One example is implementing an event or a project.
A simple partnership (as the simplest form of partnership) can be suitable when operating a shared office which is not visible externally. For independent companies of a more permanent nature, a simple partnership is not suitable.
With a general partnership, two or more natural persons join forces to operate a company together in accordance with commercial rules.
As a rule, legal entities are suitable for all companies, and especially for those with growth plans, an increased risk of losses and a group of founders who are independent of one another. The main difference with regard to partnerships lies in the limited liability of the partners to the legally and contractually stipulated capital contribution. The shareholders are therefore only liable up to the amount of their shares, but in general not with their private assets. Founding this form of company involves greater obligations than for partnerships. Examples of this are notarial certification of the certificate of incorporation and the articles. Furthermore, limited liability companies and private limited companies are subject to audit requirements if they employ more than ten staff.
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Publication “ku – Managing small enterprises”, topic: Founding a company, published by: PostFinance Ltd in cooperation with the KMU-HSG at the University of St. Gallen
