The Limited Company in Switzerland: Structure, Requirements and Advantages
The Limited company (Ltd.) is a legal form that enjoys an excellent reputation and offers numerous advantages even to small companies in terms of both liability and capital requirements.
The Ltd. is the form chosen by those who decide to think big and wish to integrate shareholders while maintaining their anonymity. Shareholders are not visible in an Ltd., in the sense that they are not registered and published in the commercial register. Internally, however, the company keeps a share register (Art. 686 ff. CO) and a list of the beneficial owners (Art. 697l ff. CO) and thus knows the identity of the shareholders as well as the beneficial owners of the shares.
The mandatory capital of the limited company (called share capital) must amount to at least CHF 100’000 (Art. 621 and 622 CO). Of this capital, at least 20 per cent of the nominal value of each share must be paid in (and thus paid up) at the time of incorporation, and total payments must be at least CHF 50’000 (Art. 632 CO).
In limited companies, a distinction can be made between private and corporate assets. In the event of bankruptcy, the owners of the limited company, i.e. the shareholders, are not liable with their private assets. Therefore, only the company assets will be liable for the liabilities of the limited company.
In addition, an Ltd. is mandatorily to be registered as a VAT taxpayer if its annual taxable turnover reaches CHF 100’000.
The organs of an Ltd.:
General meeting
The general meeting is the Ltd.'s supreme body. The general meeting, which meets at least once a year, can be attended by all shareholders and exercise their voting rights. The general meeting of an Ltd. is entrusted with various tasks, including approving and amending the articles of association, approving the annual accounts and appointing and dismissing members of the board of directors and the auditors. At the time of incorporation, the company must have at least one shareholder. The shareholders of a company can be either natural persons or legal persons (and thus companies).
Board of Directors
The task of the administration is to ensure the smooth running of the company by organising its activities. The administration of the Ltd. is carried out by the board of directors, whose members are elected by the general meeting. The board of directors is responsible for managing the company, defining its organisation, and appointing and dismissing the persons entrusted with the management and representation.
At least one member of the board of directors of a limited company must be authorised to represent the company (Art. 718 para. 3 CO). To represent a company, a person must have a valid/complete signature or must be able to form a valid/complete signature with another member of the Board of Directors.
Within the limits of its non-transferable powers, the Board of Directors may delegate administration, in whole or in part, to individual members or third parties outside the company.
Swiss law also provides that the company must be represented by a person domiciled in Switzerland. This person must have access to the share register and the FATF register. (Art. 718 para. 4 CO). To represent a company, a person must have a valid/complete signature or must be able to form a valid/complete signature with another person authorized to sign.
Upon registration of the company in the commercial register, all members of the Board of Directors (irrespective of their signatory rights) and the other people with signatory rights will be registered in the commercial register.
Audit Office
The general meeting appoints the auditors. The auditor is the only organ of an Ltd. that can be dispensed with under certain conditions.
Ordinary audit
The annual financial statements of a Swiss company are usually subject to ordinary audit if, for two consecutive fiscal years, two of the following thresholds are exceeded:
1. balance sheet exceeding 20 million Swiss francs
2. revenues exceeding 40 million Swiss francs
3. more than 250 full-time employees
Limited audits
If the requirements for an ordinary audit are not met, a limited audit must be conducted. In principle, any limited company that is not already subject to an extraordinary audit is obliged to conduct a limited audit.
Waiver of limited audit
The general meeting may waive the appointment of an auditor when:
1. The Company is not subject to ordinary audit
2. all shareholders consent
3. the Company has an annual average of no more than 10 full-time positions
Double taxation
From a tax point of view, a distinction is made between the private and the commercial in an Ltd. An Ltd. is a legal person and is taxed separately like any other person.
This is a disadvantage for the shareholders, as double taxation is generated. This is because the company's profits are subject to income tax, while any dividends of the shareholders are subject to private income tax.
From a share capital perspective, the same problem arises. The company will have to pay a capital tax on the taxable capital, while the shareholders will have to pay a tax on the value of the shares as their private assets.
With the "Corporate Tax Reform II (24.02.2008)," Article 20 paragraph 1bis of the Federal Direct Tax Act (LIFD) was introduced, with this article of law the disadvantages of double taxation at the level had been mitigated. The partial taxation of dividends was at the rate of 60 percent of private wealth and 50 percent of business wealth for shareholders holding at least 10 percent of the share capital, this allowed a more equitable leveling of the tax burden. Several Swiss cantons already mitigated economic double taxation on cantonal tax.
However, with the "Tax Reform and Financing of the OASI (RFFA) (09/28/2018)" this legal article was amended, limiting the tax relief. Therefore, the taxation of dividends was increased to 70 percent at the federal level and at least 50 percent in the cantons, with the possibility for the cantons to provide for higher taxation; with no more distinction of the tax relief for securities held in private substance respectively commercial substance.
Advantages and Disadvantages of Ltd.
Advantages:
Private wealth and commercial wealth are separate. Shareholders’ liability is limited to the share capital.
Company shares (shares) are easily negotiable.
There is an active possibility of regulating commercial, contractual and/or statutory restrictions.
The reputation of a limited company tends to be good.
The owner’s legal status may be anonymous.
Disadvantages:
In the Ltd. the management (board of directors and management) can be liable with private assets in case of voluntary or negligent breach of obligations.
The share capital required for incorporation must be at least CHF 100’000, at least half of which must be paid in at the time of incorporation.
At the time of incorporation, numerous formalities must be completed and numerous expenses incurred (public deed, commercial register, articles of incorporation, etc.).
Double taxation affects both profit and capital of the Ltd. and income (dividends) and shareholders' assets.
A high administrative burden must also be budgeted for minutes, annual reports, accounting, general meetings, tax forms, auditors, etc.
In addition, stricter budget provisions apply due to legal reserves, over-indebtedness measures, etc.
Minimum requirements for establishing an Ltd.
Below are the minimum requirements for setting up a limited company in Switzerland:
Owners -> At least one shareholder
Minimum capital -> minimum subscribed share capital of CHF 100’000, at least 20% paid in, minimum total paid in CHF 50’000
Administration->at least one member of the board of directors
Board representation-> At least one board member authorized to represent the company
Representation and domicile -> At least one person authorized to represent the company with domicile in Switzerland
𝘛𝘩𝘪𝘴 𝘣𝘭𝘰𝘨 𝘢𝘳𝘵𝘪𝘤𝘭𝘦 𝘥𝘰𝘦𝘴 𝘯𝘰𝘵 𝘤𝘰𝘯𝘴𝘵𝘪𝘵𝘶𝘵𝘦 𝘭𝘦𝘨𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦, 𝘪𝘵 𝘪𝘴 𝘱𝘳𝘰𝘷𝘪𝘥𝘦𝘥 "𝘢𝘴 𝘪𝘴" 𝘢𝘯𝘥 𝘮𝘢𝘬𝘦𝘴 𝘯𝘰 𝘤𝘭𝘢𝘪𝘮 𝘵𝘰 𝘤𝘰𝘮𝘱𝘭𝘦𝘵𝘦𝘯𝘦𝘴𝘴 𝘰𝘳 𝘢𝘤𝘤𝘶𝘳𝘢𝘤𝘺. 𝘛𝘩𝘦𝘳𝘦 𝘪𝘴 𝘯𝘰 𝘸𝘢𝘳𝘳𝘢𝘯𝘵𝘺 𝘰𝘳 𝘭𝘪𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘰𝘯 𝘵𝘩𝘦 𝘱𝘢𝘳𝘵 𝘰𝘧 𝘏𝘰𝘰𝘱 𝘸𝘪𝘵𝘩 𝘳𝘦𝘨𝘢𝘳𝘥 𝘵𝘰 𝘪𝘵𝘴 𝘤𝘰𝘯𝘵𝘦𝘯𝘵. 𝘐𝘵 𝘪𝘴 𝘦𝘹𝘤𝘭𝘶𝘥𝘦𝘥 𝘵𝘰 𝘵𝘩𝘦 𝘦𝘹𝘵𝘦𝘯𝘵 𝘱𝘦𝘳𝘮𝘪𝘵𝘵𝘦𝘥 𝘣𝘺 𝘭𝘢𝘸. 𝘜𝘴𝘦 𝘪𝘴 𝘢𝘵 𝘺𝘰𝘶𝘳 𝘰𝘸𝘯 𝘳𝘪𝘴𝘬. 𝘐𝘧 𝘯𝘦𝘤𝘦𝘴𝘴𝘢𝘳𝘺, 𝘭𝘦𝘨𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦 𝘴𝘩𝘰𝘶𝘭𝘥 𝘣𝘦 𝘴𝘰𝘶𝘨𝘩𝘵.
