What are the advantages and disadvantages of sole proprietorships, limited liability companies and public limited companies?

Sole proprietorship or limited company? A decision that is not so easy. If you want to set up or restructure a company, you have to decide on a legal form.

The sole proprietorship (also known as a sole proprietorship) is the most frequently chosen legal form in Switzerland. It owes its popularity to the advantages resulting from the simple formation requirements and the lack of minimum capital requirements. It is easy to set up and enables business to be started quickly.

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Advantages of a sole proprietorship:

• It is not necessary to pay in fixed share capital.
  
• All that is required is an entry in the commercial register. This is mandatory if the business is run in a commercial manner and the annual turnover exceeds CHF 100,000.
  
• The shareholders can take on the role of directors themselves.
  
• Economic double taxation of profits can be avoided.
  

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Disadvantages of a sole proprietorship:

• The personal liability of the business owner is unlimited.
  
• The ownership shares are more difficult to transfer than with a corporation.
  
• Partnerships, including sole proprietorships, have more difficult access to the capital market.
  
• The protection of the company name is limited in terms of territory.
  
• Anonymity is not possible due to the necessary entry by name in the commercial register.
  

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The limited liability company (GmbH) is a personal corporation formed by one or more persons or trading companies. This legal form is ideal for profit-oriented companies. It is mainly chosen by SMEs and family businesses. It is considered a hybrid of a joint-stock company and a general partnership.

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Advantages of a GmbH:

• Relatively little share capital (CHF 20,000) and only one person is required to form a GmbH.
  
• Liability is limited to the (fully paid-up) share capital.
  
• The business name can be freely chosen, although the addition “GmbH” must be included.
  
• A GmbH can be converted into a public limited company without liquidation.
  
• The splitting of profits (the salaries of the shareholders are booked as an expense for the GmbH) allows the top of the progressive taxation to be broken.
  
• Profits from the sale of company shares are tax-free.
  

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Disadvantages of a GmbH:

• The directors of a GmbH are not entitled to unemployment benefits unless they leave the company or their job permanently. This also applies to spouses who work for the GmbH
  
• Double taxation on the income and capital of the GmbH as well as the income and assets of the shareholders
  
• Formation costs are higher than for a sole proprietorship
  
• The executive bodies, capital and company shares can be viewed publicly in the commercial register
  
• The administrative costs (minutes, shareholders' meeting, tax forms, etc.) are relatively high
  

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As a corporation, the purpose of a public limited company (AG) is generally to operate a business. It is considered a typical corporate form for companies with higher capital requirements. It is suitable for almost all types of profit-oriented companies. It is the most frequently chosen legal form for corporations in Switzerland. It owes its popularity to the advantages in terms of liability and capital requirements, even for small companies.

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Advantages of an AG:

• With a public limited company, private and business assets can be separated. The liability of shareholders is limited to the share capital.
  
• The company shares are easily tradable.
  
• Active possibility of contractual and/or statutory trading restrictions.
  
• The creditworthiness of a public limited company tends to be high.
  
• Anonymous ownership is possible.
  

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Disadvantages of an AG:

• In the case of an AG, the management (Board of Directors and Executive Board) can be held liable with their private assets if negligent or criminal acts are involved.
  
• A minimum capital of CHF 100,000 is required for formation, at least half of which must be paid in at the time of formation.
  
• High formal requirements (and costs) are to be expected upon formation (public notarization, commercial register, articles of association, etc.).
  
• Double taxation taxes both the income and capital of the AG as well as the income (dividends) and assets of the shareholders.
  
• Increased administrative expenses for minutes, annual reports, bookkeeping, general meetings, tax forms, auditors, etc. must be expected.
  
• Strict accounting regulations apply with regard to legal reserves, measures in the event of over-indebtedness, etc.
  

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Source: KMU Portal