Choosing the right legal structure is a strategic decision with far-reaching consequences for liability, taxation, financing and administration. In Switzerland, the sole proprietorship and the limited liability company (GmbH) are particularly popular. But which structure is suitable for which situation? In this article, we compare the two legal forms and examine their advantages and disadvantages.
Sole Proprietorship
A sole proprietorship is operated by one or more natural persons and is characterised by its straightforward formation and administration. It is particularly suitable for small businesses and self-employed individuals. However, the owner has unlimited liability – including with their private assets.
For tax purposes, the profits of the sole proprietorship are taxed directly as the owner’s income and are subject to progressive income tax. Depending on turnover, accounting can be kept relatively simple in the form of income and expense records.
Advantages of a sole proprietorship:
- Simple and cost-effective formation
- Full control over the business
- Direct access to profits
Disadvantages:
- Unlimited liability
- More difficult access to investors
- No separation between private and business assets
GmbH
A GmbH is a legal entity with its own legal personality. The minimum share capital is CHF 20,000, and the liability of the shareholders is generally limited to their capital contribution.
Formation requires notarisation and registration in the Commercial Register. However, it should be noted that many online solutions such as fasoon.ch now offer a simpler and more cost-effective process without the need to visit a notary in person.
A GmbH may also offer tax advantages through the separation of company profits and private assets, although distributions can result in double taxation. Accounting requirements are more extensive and generally require double-entry bookkeeping and annual financial statements.
Advantages of a GmbH:
- Limited liability protects private assets
- Professional appearance towards banks and business partners
- Flexibility regarding ownership interests and succession
Disadvantages:
- Higher formation costs and administrative requirements
- Possible double taxation of profits
- More complex accounting
Comparison at a Glance 📊
| Category | Sole Proprietorship | GmbH |
|---|---|---|
| Legal form | Natural person | Legal entity |
| Liability | Unlimited, including private assets | Limited to share capital (minimum CHF 20,000) |
| Formation costs | Low | Medium to high (notary, Commercial Register, approx. CHF 500–1,000) |
| Formation process | Very simple, quick process | Formal, notarisation and registration in the Commercial Register |
| Minimum capital | None | CHF 20,000 |
| Taxes | Income tax on profits | Corporate income tax + tax on distributions |
| Offsetting losses | Possible against private income | Only within the GmbH; losses may be carried forward |
| Accounting | Simple (income and expense accounting may be possible) | Double-entry bookkeeping and annual financial statements required |
| Financing | Equity, bank loans | Equity, bank loans, easier participation by investors |
| Succession | More difficult | Easier through transfer of ownership interests |
| Reputation | Less formal | More professional towards business partners and banks |
| Advantages | Low costs, full control, straightforward use of profits | Limited liability, professional appearance, flexible ownership structure |
| Disadvantages | Unlimited liability, more difficult access to investors, no separation of private and business assets | Higher costs, administrative burden, possible double taxation |
Conclusion
The decision between a sole proprietorship and a GmbH depends largely on your priorities. If you operate a small, low-risk business and want maximum flexibility, a sole proprietorship may be a suitable choice. If, on the other hand, you value limited liability, a professional appearance and long-term growth or succession planning, a GmbH may be worth considering.
A clear strategy when choosing the appropriate legal structure lays the foundation for long-term success – both financially and legally.