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Guide and Explanations for Swiss Freelancers
Articles 772 to 827 of the Code of Obligations contain the legal foundations of the limited liability company. Certain aspects are governed by the law on joint-stock companies, like Article 773, which concerns the use of a foreign currency as the company's main financial unit.
Art. 18b32 Partial Taxation of Income from Commercial Asset Participations
LIFD, Audit Obligation, Ordinary Audit, Art. 727
From the article 772 of the Code of Obligations:
The limited liability company is a capital company with a personal character formed by one or more persons or commercial companies. Its share capital is fixed in the statutes. Its debts are guaranteed only by the company's assets. Each member holds at least one share of the capital. The statutes may provide for the obligation, for the members, to make additional contributions or to provide ancillary services.
A Limited Liability Company (LLC) is a business entity that combines aspects of a capital company and a partnership. It can be created by one or more persons, whether individuals or other companies.
The share capital of the LLC—that is, the money invested to create it—is defined in the statutes (the official document that sets the company's rules).
The debts of the LLC are covered only by the assets of the company itself, which means that the members do not risk their personal assets to repay the company's debts.
Each member holds at least one share of the share capital.
The LLC is a structure that protects the personal assets of the members while allowing them to contribute to the capital and operations of the company according to the rules defined in the statutes.
Below, you will find a list of terms used and their definitions to easily understand this article.
Capital Company: A capital company is a form of business where the invested capital plays a central role, and the liability of the owners (members or shareholders) is limited to the amount of their contribution.
Partnership: A partnership is a form of business where the human aspect—that is, the relationship between the partners—plays a central role. Unlike capital companies, the emphasis is on the personal collaboration of the partners and their direct involvement in the management of the company.
Statutes of a Company: The statutes of a company are a legal document that establishes the rules of operation and internal organization of the company. They constitute a sort of "contract" between the members or shareholders and define the main aspects of the company's life.
Share: A share is a unit of ownership in a company, especially in structures like limited liability companies (LLCs). It represents the portion of the share capital held by a member. Each share confers rights and obligations to its holder within the company.
Share Capital: The share capital is the total amount of contributions made by the members or shareholders when creating a company. These contributions can be in cash (money), in kind (goods, equipment, real estate), or sometimes in industry (skills or services, although this does not always form part of the official share capital).
Fee: A fee is a sum of money paid in exchange for a service rendered by a public administration or official authority. It is a charge or administrative fee that one pays for specific services, like the issuance of an official document, the registration of a notarized act, or the granting of a permit.
Director's Fees: Director's fees are portions of the profits distributed to the members of the board of directors.
To create an LLC, the starting capital contributed by the members must be a minimum of 20,000 francs. If the amount is in foreign currency, then its exchange value at the time of the incorporation act must be 20,000 francs.
The value of each share is a minimum of 100 francs. These shares represent the social shares distributed among the shareholders. These contributions must be fully paid to the company.
Besides being responsible for the debts up to the amount of capital invested, the statutes of the LLC can also oblige the members to:
Step 1: Draft the Statutes
They contain the name and location of the company's headquarters, a description of the company's activity and purpose, the amount of the share capital with the value of the shares.
Step 2: Incorporation Act
It's a contract between the founders who commit to respecting what is provided in the company's statutes (especially the conditions decided in case of difficulty). It allows for the appointment of managers who can be different people from the founders. They commit to purchasing the company's shares up to what they have agreed upon. The value of these contributions must be evaluated if they are material goods like computers or vehicles, for example. This must correspond with the conditions given by the law and the statutes. Ultimately, this act certifies that they have indeed paid the expected amount and that no other form of contribution or advantage exists to avoid hidden assets.
The notary renders this act authentic. Depending on the canton in which you create your company, a notary can be part of the public notariat and is employed by the State (ZH, TG, and AR) or part of the liberal notariat and practices as an independent (GE, VD, VS, FR, NE, JU, BE, AG, BS, UR, and TI). There is a mixed form where notaries divide their areas of intervention according to their skills to avoid competition. In all cases, they have the power to draft this authentic act of company creation.
Step 3: Payment of Contributions
You need to open a consignment account at a bank where the capital is deposited. Once the company is registered in the commercial register, the capital is made available to the company.
Step 4: Registration in the Commercial Register
A company can be a natural person (sole proprietorship) or a legal entity (SA, Sàrl). Registration in the commercial register is mandatory according to Article 779/1 of the CO for LLCs.
It is noteworthy that any modification of the statutes, capital increase, and any other actions modifying the constitution of the company must be transmitted to the commercial register.
The capital contribution costs 20,000 francs in cash. There are free consignment accounts in banks (UBS); otherwise, you should count between 145 francs, 250 francs, and more by adding management fees in case of modification of the initial contribution.
The incorporation fees at the notary have been the subject of discussions for many years. Our research took us back to 2008, the date of a report issued by the Confederation in which the reporters provide an inventory of the prices charged by notaries in the country.
We found it interesting to share these “final remarks” taken from the Comparative Examination of Notary Fees of November 2009.
“In summary, the Price Supervisor continues to consider that notary fees in the cantons of Geneva, Vaud, Jura, and Valais remain generally too high. For acts not requiring the obligation to contact a notary in one's canton of residence, the Price Surveillance recommends that the client engage in competition between cantons and thus examine the possibility of having the act executed by a notary in a canton with lower fee rates. The Price Surveillance will continue to monitor developments in the field of notarial tariffs in the coming years.”
You are not obliged to resort to a notary from the canton where you create your company. In Switzerland, you can choose a notary from any canton, and the incorporation act will be valid nationwide. However, it may be more practical to choose a local notary to avoid travel and simplify procedures. You have the freedom to select the one that best meets your needs.
Now, here's an idea of what creating an LLC at a notary in the canton of Geneva in 2024 might cost, according to the website of the Chamber of Notaries of Geneva: 2,350 francs, including registration fees in the commercial register. Also, the company Entreprendre.ch offers a complete creation with a notarized act for 490 francs.
To compare and "engage in competition," you can try turning to cantons where the notary is employed by the State (ZH, TG, and AR).
The fees are capped by the Ordinance on Fees in Commercial Register Matters, Article 3, up to 250 francs. However, other fees may apply depending on the number of members and the constitution of the company.
| Advantages | Disadvantages |
|---|---|
| The minimum capital to establish an LLC is relatively low (CHF 20,000), and only one person is needed to create it. | Managers of an LLC are not entitled to unemployment benefits unless they leave the company permanently. This also applies to spouses working in the LLC. |
| The liability of a member is limited to the amount of their registered share capital. | Double taxation on the profits and capital of the LLC, as well as on the income and wealth of the member. |
| The choice of company name (business name) is free, but the addition of "LLC" is mandatory. | The incorporation costs are higher than those of a sole proprietorship. |
| An LLC can be transformed into a joint-stock company without going through liquidation (or closure). | Information on the company's organs (managers, members, audit body), capital, and shares is freely accessible in the commercial register. |
| The splitting of profits (the member's salary considered as an expense) can mitigate the progressivity of the tax. | Management fees (protocols, general meetings, tax forms, etc.) are relatively high. |
| Profits from the sale of shares are not taxable. |
Advantage: The splitting of profits (the member's salary considered as an expense) can mitigate the progressivity of the tax.
Simply put, when the profit resulting from the balance sheet of the activity is distributed in the form of director's fees to the members of the board of directors, this remuneration is subject to social charges and is accounted for in the company's personnel expenses. These costs are deductible from the company's taxes.
Disadvantage: Managers of an LLC are not entitled to unemployment benefits unless they leave the company permanently. This also applies to spouses working in the LLC.
Indeed, managers are the decision-makers and guarantors of the company's economic activity. As such, they cannot directly claim to be subject to the risk of unemployment.
Disadvantage: Double taxation on the profits and capital of the LLC, as well as on the income and wealth of the member.
If the profits and capital are taxable according to the corporate income tax, then the members who receive income from these capitals will also be taxed. There is double taxation.
Disadvantage: Management fees (protocols, general meetings, tax forms, etc.) are relatively high.
This disadvantage will be the last part of this article because it includes essential points to grasp before taking a step towards the LLC.
In a limited liability company, you are required to keep up-to-date accounts if your turnover exceeds 500,000 francs.
You must account for expenses and revenues in the fiscal periods to which they belong if your turnover exceeds 100,000 francs.
Example: You purchase advertising material to respond to the demands of 3 advertising campaigns in November 20_1, February 20_2, and April 20_2.
Conclusion: You paid 9,000 francs in 20_1 but only used 1/3 of this material, and the rest belongs to the following year. In accounting, this is called an adjusting entry. Thus, the expense of 6,000 francs will appear in your accounts in 20_2, so the advertising material expenses in 20_1 will have decreased.
The purpose of this operation is not to follow the "real" money that was used to pay the invoice. Rather, it allows for better taxation of the company based on the use of these purchases to produce added value in a well-defined time period.
This is the principle of matching expenses with revenues.
From the moment your company requires standardized accounting, resorting to an accountant becomes necessary. Therefore, the management costs of accounting add to your company's general expenses and vary depending on the volume of your activity and the provider you choose.
According to Article 958 of the Code of Obligations, the accounts must be presented with a balance sheet, an income statement, and notes to complete and clarify the methods applied to the accounting.
According to Article 727 of the CO, the accounts must be subject to an ordinary or limited audit depending on several size criteria:
If at least 2 of the following thresholds are exceeded during the last 2 financial years, then an ordinary audit is mandatory.
Otherwise, a limited audit must be carried out by a licensed auditor.
If your company employs fewer than 10 full-time staff per year, then it is not subject to an audit.
The LLC stands out with an accessible starting capital and protection of the members' personal assets while offering appreciable flexibility in its management and structure.
Creating and managing this type of company involves complying with clear accounting and legal obligations, with rigorous accounting and accounts presented according to standards defined by law.
While it allows benefiting from advantageous tax strategies, it must also face higher management costs and double taxation. Moreover, it allows separating the financial responsibility of the members from that of the company, thus protecting their personal assets.
The minimum capital to found an LLC is CHF 20,000, and only one person is needed to create it.
Profits from the sale of shares are not taxable, but double taxation on profits and capital remains a major disadvantage.
Did you notice that we didn't talk about VAT? That's normal.
VAT liability is defined by the level of turnover, notably, and not by the company's status. It becomes mandatory when it reaches 100,000 francs.
Choosing the limited liability company to launch your activity in Switzerland means opting for a solid and protective structure. Certainly, the administrative and accounting procedures may seem complex, but they ensure transparency and stability for your business. By anticipating these aspects well and surrounding yourself with the right advice, you can take advantage of the benefits of this legal form while managing its constraints.