Individuals and small businesses usually opt for a Sole Proprietorship. It is a straightforward business structure and the owner has total power over the business. The negative side is that a sole proprietor bears responsibility for the debts of the business and could potentially lose all his or her private and business assets should things go wrong.
Where two or more individuals wish to form a business, one of the ways that they can do this is via a General Partnership. This business form is not a separate legal entity, though the partners may choose to operate using a trading name. Partners should sign a partnership agreement and each partner is liable for their own taxes (paid at personal income tax rates). Partners in such partnerships have unlimited joint liability for the debts of the business . A General Partnership must be entered in the Commercial Register (further details on which are available here ).
Stock Corporation
A Stock Corporation (AG) is a popular business form and represents a separate legal entity from its owners. Liability for the debts of a Stock Corporation is limited to the assets of the company. The Board of Directors runs a Stock Corporation, one of whom must be a Swiss resident. Share capital is agreed ahead of forming the company and is allocated into shares, but the minimum required is CHF100,000, of which at least CHF50,000, (or 20% of the par value of the shares, whichever is the larger amount) must be paid up. This may put this type of corporate vehicle out of the reach of smaller businesses.
The GmbH, or Limited Liability Company, is an alternative to a Stock Corporation. The GmbH was originally a German form of business entity and a 2008 Act allowed a company to be formed as a GmbH in Switzerland. It is still a separate business entity and can be formed by one or more individuals (or other legal entities). Small and medium-based companies may prefer this form of company structure as it is not required to have a Board of Directors and the start-up share capital is less than with a Stock Corporation (AG) – a minimum of CHF20,000 is required (although this must all be paid up). Smaller GmBH companies may be subject to less onerous auditing requirements.
All shareholders of a GmbH will be made public via the Commercial Register.
An incorporated business form will pay tax on taxable profits at corporate tax rates.
The Terms 'Freelance', 'Sole Trader' and 'Self-Employed'
The Swiss terms Sole Proprietorship or Single-owner Company are the popular terms for small businesses and individual entrepreneurs. They tend to refer to small businesses run by one individual and perhaps assisted by their spouse or family.
Freelance workers, or contractors, often work in Switzerland for only part of the year and should therefore be aware of the rules of tax residency. However, there is no legal distinction made between the different types of self-employed workers; all are taxed under the personal income tax system.
This article is an extract from Personal Business Tax Guide , dated 4th January 2011, for the latest version please click here .