What are the main forms of business types? What are the advantages and disadvantages of each company type?
The following are the two most common types of business vehicles in Switzerland:
- Limited liability company
- Corporation with limited liability
For each of these two types of organizations, the legal name and membership structure are different from each other. The LLC is better suited to small businesses because it doesn’t need as much money, has more control over how the company runs and must do certain things (like making sure all shareholders’ names are made public in the commercial register).
There are times when other legal entities, like businesses, may be used as commercial vehicles.
- Cooperative is a concept that refers to non-profit organizations that directly benefit its members.
- The word “association” is appropriate for non-commercial professional groupings.
- A partnership limited by shares differs from a corporation limited by shares in that at least one shareholder is jointly and severally responsible to creditors in a partnership limited by shares.
- A foundation is a legal body that has no members but may have beneficiaries for philanthropic reasons.
The following are examples of unincorporated businesses:
- Ownership by an individual
- Simple partnership
- Partnership in general
- Partnership with a limit
With the exception of the sole proprietorship, these entities are seldom employed in business since all or at least part of the members are personally liable. Swiss law forbids a limited partnership in which the general partner is a corporation.
Establishing a Presence from Abroad
While a foreign firm may form a joint venture with a Swiss company, purchase an existing Swiss company, or form a partnership to do business in Switzerland, the following are the most prevalent options:
- Establishing a local branch.
- Creating a subsidiary corporation.
A Swiss branch office is a business facility that performs the same functions as the parent company’s headquarters while maintaining economic and commercial autonomy. The branch lacks its own legal existence and is wholly reliant on the parent company. As a result, the parent company is liable for all obligations and penalties incurred by the Swiss branch office. The branch office and its chosen authorized representatives, who must be registered in the business registration, are subject to Swiss law. Switzerland must have at least one single signature authority representative or two joint signature authority representatives at all times, or both of them.
A Swiss subsidiary company is a legal entity subject to Swiss jurisdiction and controlled by Swiss law. The foreign parent firm often owns the majority of the shares in the subsidiary business and has managerial control over it. While the Swiss subsidiary firm is legally separate from the foreign parent business, its commercial and economic independence vary. For the most part, the foreign parent company is not responsible for the Swiss subsidiary’s debts or promises to pay.
The two most popular legal kinds of subsidiaries in Switzerland are corporations limited by shares and limited liability firms (LLCs). The required minimum capital in Swiss currency (CHF 100,000 for limited liability corporations and CHF 20,000 for limited liability partnerships) must be invested in the firm at the time of formation. When these businesses are registered under commercial registration, they get legal personality. At least one authorized representative with a single signature or two authorized representatives with joint signatures must reside in Switzerland and be registered with the business registry. Third-party shares (in a business limited by shares) or quotas may be issued or transferred (in an LLC). Another way for a limited liability subsidiary company to become public is to put its stock on a stock market.
Compared to subsidiaries, local branches offer the following advantages:
- Swiss corporate income tax on earnings and yearly capital tax on taxable stock apply to Swiss branches and subsidiaries. However, profits returned to headquarters from branch offices are free from Swiss withholding tax.
- The process of launching a branch office may be simpler and more cost-effective. Compared to a subsidiary company, branch offices dissolve more quickly in liquidation and have lower operating costs (like fees to register changes to the commercial register), which makes them cheaper to run.
- Local branches are not obliged by law to have a certain amount of corporate capital.
- If you’re only going to be in Switzerland for a short time and you don’t know what the future holds when you start a business, branch offices are better than subsidiary businesses.
The following are some of the benefits of having a subsidiary firm rather than a local branch:
- Branches are immediately impacted by the bankruptcy or insolvency of the principal foreign business since they are an integral element of the foreign principal firm’s activities and depend on it.
- Customers in Switzerland can choose to work with a local subsidiary instead of a global company (branch office).
Branch offices sometimes fall short when it comes to the parent company’s non-responsibility for the subsidiary company’s duties and pledges.
Except in the event of a regulated organization (such as a Swiss firm operating in the same industry), a foreign corporation may normally trade without acquiring a license in Switzerland. Trading can be conducted cross-border (via postal services, telecommunications, and occasional business travel to Switzerland), through the establishment of a representative or branch office in Switzerland, or through collaboration with a Swiss individual or legal entity acting as an agent, distributor, franchisee, or similar. The immigration legislation, which restricts the number of days foreigners may remain in Switzerland each year without acquiring a residency or work visa, may generate practical complications.
If a foreign firm does business in Switzerland via a local branch, the branch must be registered with the commercial register.
General partnerships, which must have at least two partners, are governed by articles 552 to 593 of the Swiss Code of Obligation (CO) (natural persons). After the parties sign a partnership agreement, the general partnership is formed. It is required to register with commercial registration (it is constitutive for businesses pursuing non-commercial aims and declaratory for businesses pursuing commercial aims). A general partnership has no minimum capital requirement.
A general partnership seems to be legally distinct. It may thus acquire rights, take on obligations, bring litigation, and be sued in its own name. The assets are held by the partners jointly. Any obligations taken on in the partnership’s name by the controlling partner, as well as any tortious conduct performed by a partner while performing partnership activities, are the responsibility of the partnership. The partners are jointly and severally accountable for the partnership’s commitments to third parties. A partner’s assets, on the other hand, are only held responsible in a secondary capacity (after the partnership’s assets have been exhausted). Individuals who join a general partnership after it has been created are jointly and severally responsible with their whole assets for the firm’s existing obligations. Creditors have five years from the date of dissolution to make claims against the partnership. The individual partnership agreement governs internal responsibility.
For tax reasons, the partnership is deemed transparent. Individual partners, on the other hand, are responsible for paying taxes on their portion of the partnership’s revenue and assets, as well as any additional sources of income and assets.
Articles 594 to 619 of the CO regulate limited partnerships. Limited partnerships, like general partnerships, have quasi-legal personalities, are required to register with the commercial register (which is constitutive for non-commercial organizations and declaratory for commercial enterprises), and do not have a minimum capital requirement. Limited partnerships, unlike general partnerships, may incorporate legal entities as partners (but only as limited partners). Two partners are required, with at least one of them being a natural person with unlimited liability. The responsibility of the other partners is restricted to the amount specified in the business registration. If the restriction of responsibility is not written down in the business register, the “limited” partner is responsible for everything unless the partner can show that the third parties knew about the restriction of responsibility.
In Switzerland, international joint ventures (JVs) are prevalent and may assume a number of legal forms. The stages involved in forming a JV differ depending on the legal structure chosen. Contractual joint ventures, for example, may be created via the execution of one or more agreements between existing legal entities; corporate joint ventures, on the other hand, need the formation of a new company. Additionally, agreements are often used in corporate joint ventures to define the enterprise’s governance.
Swiss law doesn’t allow trusts to be set up. In some cases, though, different legal methods may all lead to the same thing.
When the HCCH Convention on Trust Law and Recognition was signed in 1985, Swiss people agreed to sign it in 2007. For this reason, Swiss courts usually accept the results of trusts set up properly under a foreign law that the settlor named in the trust instrument.
Forming a Private Company
A corporation limited by shares (SA) and a limited liability company (LLC) are both legal entities with distinct legal personalities. Shareholders (or quota holders in the case of an LLC) are their members, and their responsibility is limited to the registered company capital. Due to its reduced minimum capital requirement and customizable governance structure, the LLC model is preferred by several small to medium-sized firms. A limited liability company’s disclosure requirements are more stringent than those of a corporation limited by shares.
The name of the quotaholder, in particular, is recorded in the corporate registry and therefore accessible to the general public. A limited liability company (LLC) must have a minimum capital of CHF 20,000 (payable in full at the time of establishment), whereas a company limited by shares must have a minimum capital of CHF 100,000 (of which at least CHF 50,000 must initially be paid up).
The commercial registration authority of the canton in which the firm will be registered is the competent authority for the formation of a company limited by shares or LLC.