How to create a Limited Liability Company (LLC) in Switzerland ?
Definition of a Limited Liability Company (LLC)
Switzerland, with its economic stability, world-class infrastructure, and favorable corporate taxation, offers an entrepreneurial environment conducive to businesses of all sizes.
Among the various legal structures available, the Limited Liability Company (LLC) stands out for its flexibility and security. However, like any commercial entity, it has both advantages and disadvantages. Let’s examine them in more detail.
What is an LLC ?
An LLC is a limited liability company. This is a type of business in Switzerland. It is a legal entity, meaning it has its own legal personality. There are other types of businesses in Switzerland, such as the Public Limited Company (PLC), which is also a legal entity, or the Sole Proprietorship, which is a partnership.
Why create an LLC ?
Any entrepreneur who wants to start a business in Switzerland has several options available.
They can decide to become a self-employed (freelance) by obtaining self-employed status (also referred to as sole proprietorship). The entrepreneur may decide to create a capital company such as an LLC or a PLC.
An entrepreneur will generally create an LLC because they want to open a company or a business and want this activity to be carried out through a company. The LLC is the most common legal form in Switzerland thanks to its many benefits, which we will see below.
Who can open an LLC in Switzerland ?
Anyone can open an LLC: Swiss citizens, foreign citizens, or legal entities. However, note that an LLC must be represented by at least one physical person residing in Switzerland.
If you are a foreigner and do not live in Switzerland, you will necessarily need to find a manager or director who lives in Switzerland. This person does not need to be a Swiss citizen but must live in Switzerland with a valid work permit.
Can an LLC be created alone ?
Yes, it is entirely possible to create an LLC with only one individual or legal entity as a shareholder. This is referred to as a single-member LLC. If you are a foreigner and do not live in Switzerland, you can create your LLC alone, but you will need a manager representing your company and domiciled in Switzerland.
Advantages and disadvantages of opening an LLC in Switzerland
What are the advantages of the LLC ?
There are many benefits to creating a Limited Liability Company (LLC). Here are the main ones:
- The starting capital is relatively low: a minimum of 20,000 CHF ($24,000). This allows for starting up at a lower cost. Note that this capital is not locked up but will be used for the development of your company.
- The LLC is a limited liability company. This means that the liability of the shareholders is limited to the company’s share capital (unless otherwise stated in the statutes). Thus, shareholders will not be prosecuted on their assets or private wealth in case of bankruptcy.
- It is possible to create an LLC alone and then easily bring in additional shareholders or investors. Also, note that transforming an LLC into a PLC is possible without liquidation.
- Profits from the sale of LLC shares are not taxable in Switzerland because there is no capital gains tax.
What are the disadvantages of the LLC ?
Due to its unique legal form, the LLC also has some disadvantages:
- The foundation fees are higher than for creating a sole proprietorship. The cost of creating an LLC can go up to 3,000 CHF ($3,600) at a notary.
- There is no anonymity for shareholders, meaning it is entirely possible to know who holds shares in an LLC simply by looking on the Commercial Registry site.
- Managers of an LLC and their spouses are not entitled to unemployment benefits, except in the case where they leave the company permanently. The final decision rests with the unemployment insurance fund. However, an employee entrepreneur of an LLC is entitled to social insurances such as paternity leave or maternity leave.
- In terms of taxation, the LLC shareholder is subject to double taxation: the LLC’s income is taxed on profits and the company’s capital. The employee shareholder of his company will be taxed on income from his company, such as salary or dividends.
- The LLC is subject to mandatory limited audit as soon as the number of full-time equivalent employees exceeds 10, which leads to additional management costs.
- Closing an LLC is a relatively long and costly process. It is, therefore, essential to be sure of wanting to start before proceeding with the creation of the company.
The steps : how to create an LLC in Switzerland ?
What is the timeframe for creating an LLC ?
Creating a limited liability company is a relatively simple process in Switzerland. The timeframe for creating an LLC is about 2 weeks from the moment all the documents have been gathered. The Commercial Registry offers an express service that allows for the creation to be completed in 5 days.
To be clear: the longest part is generally gathering all the foundation documents that will allow your company to be created by the notary.
What are the official documents needed ?
Creating a company requires gathering many papers before going to the notary. For an LLC, you will need to gather:
- The confirmation of deposit of the capital in an escrow account at a bank
- The statutes of your company, which are the internal rules of your company
- The renunciation of limited audit, the deed of incorporation, as well as other documents specific to the creation of an LLC that will be prepared by your notary
- The legalization of your signature and those of the other partners and managers of the company
Creating an LLC : capital and escrow account
What is a capital escrow account ?
An escrow account is a bank account opened at a bank in Switzerland on which the founders of the LLC will deposit the starting capital (at least 20,000 CHF or approximately $24,000).
The money transferred to this account will be escrowed by the bank for the duration of the company’s creation. Once the company is created, the escrow account will transform into a traditional bank account and will be usable by the company and its shareholders for its development.
How do I deposit my LLC’s capital in escrow ?
For this, you need to contact a Swiss bank. After a few relatively quick administrative formalities, the bank will give you an IBAN to which you can transfer the capital of your company. Once the capital is deposited, you will need to wait for the bank to release the escrow account.
How to release the escrow account ?
Once your company has been created and the official announcement has appeared in the Swiss Official Gazette of Commerce (FOSC), you will receive a letter from the Commercial Registry confirming that your company exists. From then on, you will need to contact your bank and send them this letter so they can release your escrow account. Count on an average of ten days depending on the bank and the time of year.
Statutes of a limited liability company and registration in the Commercial Registry
What should the statutes of a Swiss LLC contain ?
The statutes of an LLC can contain many paragraphs. The main ones are as follows:
- The company name, headquarters, and purpose of the company
- The share capital
- The shares and everything related to their acquisition and transfer
- The rights and duties of the partners
- The organization of the company and especially the attributions of the general assembly (GA), the managers, and the audit body
- The provisions relating to the preparation of the annual accounts (balance sheet, income statement, and notes to the accounts)
- The information relating to the dissolution of the company and the legal jurisdiction You can also have custom statutes or add clauses if you wish.
How does the registration of my LLC in the Commercial Registry work ?
The registration of an LLC in the Commercial Registry (CR) is possible when you have signed and gathered all the documents relating to the creation of your company. Your notary, or an online company creation platform, then transfers these documents to the CR, which finally proceeds to register your company.
Domiciliation of the LLC and company name
Can I choose the registered office of my LLC ?
Yes, you are entirely free to choose the registered office of your LLC. Note that the choice of registered office will influence the taxation of your company.
Indeed, there are federal, cantonal, and communal taxes in Switzerland. It is advisable to be assisted by a trust company if you have doubts about the location of your company. You can change the registered office of your company once it is created.
Am I free to choose the name of my company ?
Yes, you are entirely free to choose the company name of your company. However, be aware that the Commercial Registry carefully ensures that the name of your company is not misleading. For example, you cannot call your company “Lausanne Trust” if your registered office is in Morges. Also, if the name of your LLC is already taken, you will need to find another one.
You can search for existing company names published in the Commercial Registry on the Zefix.ch website.
Management and administration of the Swiss LLC
How to manage the role of each partner in the company ?
Developing an LLC with several partners means having to make choices in the management of the company, right from its creation.
The goal : to ensure your company is managed as well as possible. All partners together form the Partners’ Assembly and can all aspire to a managerial role. However, it will be necessary to find a Chairman of the managers who will have a casting vote. Karpeo’s advice : clearly define the objectives of each of the partners, and this through a shareholders’ agreement.
What are the bodies of an LLC ?
An LLC has 3 main management bodies :
- The Partners’ Assembly : this consists of all the company’s partners. Their role is fundamental : election of the audit body, approval of the accounts, and decisions related to the use of profits and thus the annual dividend.
- The Management body : this is often the managers and directors of the company. They participate in the daily management of the company. They are generally elected by the LLC’s partners.
- The Audit body : it is not mandatory for companies with fewer than 10 people (unless desired by one of the partners). The audit body audits the accounts and submits an audit report to the partners’ assembly annually.
It is important for every entrepreneur to know these bodies to ensure the proper management of his company.
Can I bring investors into an LLC ?
Yes, it is entirely possible to bring investors into the capital of an LLC. For this, it will probably be necessary to sell shares of your company, which is done without great difficulty. Many investors do not wish to appear in the Commercial Registry. It is therefore very likely that they will ask you to transform your LLC into a PLC.
Limited Liability Company : The Ideal Structure for Entrepreneurs in Switzerland
In the final analysis, the LLC in Switzerland presents itself as an attractive option for entrepreneurs looking to combine security, flexibility, and credibility in a business environment known for its stability and economic vigor. The advantages are undeniable, but they should not overshadow the challenges, particularly the need for rigorous accounting and tax issues (VAT, corporate tax).
Choosing the right legal structure is a crucial decision that can influence the success of a business. This is why it is essential to carefully evaluate all aspects of the LLC before getting started. This may involve consulting experts like Karpeo to fully understand the implications of this decision.
Remember: every business is unique and deserves a tailored solution. By considering all factors, the LLC in Switzerland can be the perfect springboard for your entrepreneurial ambitions. Whether your entrepreneurial project is small or large, local or international, choosing an LLC could be your ticket to success in the dynamic and competitive Swiss economic landscape.
The CPAs of Karpeo can support you in the creation of your company. Contact us for more information.
