Starting a business in Switzerland involves making a crucial decision between establishing a sole proprietorship or a limited company. Although the latter demands a higher initial investment, it offers a faster growth trajectory. The private limited liability company (LLC. GmBH, Sarl) is a popular choice among entrepreneurs in Switzerland, offering a blend of benefits from both corporations and partnerships. This guide provides a comprehensive overview to help you understand the intricacies of forming an LLC in Switzerland.
Why Choose a Swiss LLC?
A Swiss LLC is an ideal choice for family businesses and small to medium-sized enterprises (SMEs), with around 92,000 such entities registered in the country. It mandates the representation of at least one resident of Switzerland, offering a balance of management and operational benefits that attract numerous entrepreneurs annually.
Pros and Cons of an LLC
The Advantages of Forming an LLC
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Establishing an LLC (GmbH/Sàrl) in Switzerland is an attractive option for many entrepreneurs due to its minimal initial investment requirement (CHF 20,000) compared to other legal structures. It allows for the formation of a company by a single individual or legal entity, offering flexibility and ease of setup.
One of the most significant benefits of an LLC is the absence of personal liability for company debts. The liability is confined to the company’s assets and share capital, providing a crucial safety net for those venturing into risky businesses or making substantial initial investments in goods. This protection ensures that in case of bankruptcy, personal assets and wealth of the managers remain untouched.
Since the beginning of 2008, the establishment of a one-person LLC has been made possible, further enhancing the flexibility of this legal form. Entrepreneurs can start their business solo and later introduce new partners or shareholders seamlessly, without the necessity for a notarial deed. This ease of transition from a one-person to a multi-person company is another attractive feature of the LLC.
Additionally, an LLC offers the opportunity for conversion into a public limited company without the need for liquidation. This provision allows for effortless expansion and development of your business activities, ensuring sustained growth and progression.
The Challenges of Establishing an LLC
While forming an LLC offers numerous advantages, it’s essential to consider the potential drawbacks as well. One significant downside is the ineligibility for unemployment benefits for the founders unless they exit the company permanently. This limitation is a crucial factor to consider when deciding to establish an LLC.
The organizational structure of an LLC can be intricate, necessitating mandatory limited control with a workforce of ten employees and compulsory ordinary control upon exceeding specific thresholds:
- Balance Sheet Total: CHF 20 million
- Turnover: CHF 40 million
- Number of Employees: 250
These controls require the establishment of a shareholders’ meeting and a management body, leading to additional management costs that should be factored into your initial investment.
Another challenge is the imposition of double taxation on LLCs, impacting the overall financial health of your business. The public accessibility of information regarding corporate bodies, capital, and shares in the commercial register eliminates the possibility of maintaining partners’ anonymity, which might be a concern for some entrepreneurs.
Lastly, the perception of an LLC’s credibility by creditors, suppliers, or customers is generally lower compared to a Limited Company, potentially impacting the growth and development of your business. Despite these challenges, it’s worth noting that an LLC still holds a more favorable reputation compared to individual enterprises, offering a balanced approach to starting a business in Switzerland.
Checklist for Establishing an LLC in Switzerland
1. Formation Cost Planning:
Before embarking on your business journey, it’s crucial to plan and budget the formation costs meticulously. Ensure to account for the following expenses:
- Initial Capital: Allocate the required minimum capital amount of CHF 20,000 for setting up the LLC.
- Consultancy Fees: Budget for consultancy fees for professional advice on the company setup, which can amount to up to CHF 6,000.
- Notary Fees: Set aside funds for notary fees related to the deeds of incorporation, ranging from CHF 700 to CHF 2,000.
- Commercial Register Entry Fee: Account for the fee for entry in the commercial register, which is CHF 600.
- Stamp Duty: Be prepared for the stamp duty, a 1% tax of the share capital, applicable if the capital does not exceed CHF 1,000,000.
Properly budgeting for these expenses in your business plan will ensure a smooth and unobstructed process of establishing your LLC in Switzerland, allowing you to focus on the growth and development of your new venture.
Steps to Establish an LLC
1. Budgeting for Formation Cost:
- Allocate funds for the minimum capital amount (CHF 20,000) and other administrative and management fees, including consultancy and notary fees, entry fee in the commercial register, and stamp duty.
2. Selecting the Company Name:
- Choose a unique company name that will be protected throughout Switzerland, ensuring to include an indication of the legal form (GmbH, Sàrl, LLC).
- Decide the share capital and each participant’s basic contribution, ensuring each partner holds at least one share.
4. Appointing Management and Partners:
- Clearly define roles and responsibilities for each partner and management member.
5. Creating the Notarized Deed of Foundation:
- Draft a comprehensive deed of foundation covering all essential aspects of the company.
6. Registering in the Commercial Register:
- Complete the registration in the Commercial Register to obtain a company identification number (CID/IDE).
7. Defining Organizational Structure:
- Establish the shareholders’ meeting, management body, and auditor to ensure smooth operation and compliance.
8. Organizing the Founding Meeting:
- Conduct the founding meeting to finalize and approve various aspects of the LLC.
9. Understanding Taxation:
- Be aware of the double taxation applicable to LLCs and ensure compliance.
10. Registering with the Compensation Fund:
- Complete the mandatory registration with the compensation fund and conclude contracts for BVG (LPP) and UVG (LAA).
11. Clarifying VAT Liability:
- Determine your VAT liability based on your sector and turnover, and register with the Federal Tax Administration if applicable.
Embarking on the journey to establish a Limited Liability Company (LLC) in Switzerland involves navigating through more comprehensive and intricate procedures compared to a sole proprietorship. Despite the complexity, the effort is undoubtedly worthwhile. The substantial benefits of an LLC contribute significantly to the seamless growth and expansion of your business.
While the initial steps may seem daunting, remember that support and assistance are readily available. Engage with seasoned professionals to manage critical aspects of your business, such as accounting and other managerial tasks. This collaboration not only ensures compliance with auditing standards but also fosters a robust foundation for your business’s success.
In conclusion, while the path to creating an LLC entails various steps and considerations, the resulting business structure’s advantages offer a conducive environment for your business to thrive and flourish in the Swiss market.