When is it worthwhile to convert a sole proprietorship into a limited liability company?

When your sole proprietorship grows, converting it into a GmbH (LLC) can make sense – here’s when and how to make this transition.

Many entrepreneurs start as sole proprietors – this legal form is simple, requires no minimum capital, and grants full control. But as the business grows, the conditions, risks, and demands evolve.

This raises the question: When is it worth switching to an LLC? And how does this process actually work?

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When is the conversion to an LLC worthwhile?

A major advantage of an LLC lies in limited liability: members are generally liable only up to their share capital (at least CHF 20,000). In contrast, a sole proprietor is personally liable with their entire private assets.

Other common reasons to switch to an LLC include:

• You plan to bring in new investors – an LLC allows third-party participation.
• Your sole proprietorship generates significant profits, and you want a more professional tax and operational setup.
• You seek a stronger legal form to enhance reputation or meet partner expectations (larger clients often prefer dealing with a company rather than an individual).

Conversely, if your business is still small, with limited risk and simple operations, the sole proprietorship often remains the more flexible and suitable form.

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How does the conversion process work?

There are two main approaches: transformation and new incorporation.

1. Transformation
2. The sole proprietorship transfers its assets to a newly formed GmbH (asset transfer).
3. A certified auditor prepares a takeover balance sheet, the formation documents are notarized, and the new GmbH is registered in the commercial register.
4. New incorporation
5. Alternatively, you can dissolve and delete the sole proprietorship before founding a new GmbH (or simultaneously).
6. This option is often simpler, more flexible, less expensive, and faster.

In short: converting from a sole proprietorship to a GmbH is worthwhile when your business grows, risks increase, and you want a clearer structure.

Startups.ch can guide you efficiently through this process.

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