The Limited Liability Company in Switzerland: Structure, Requirements and Advantages
An LLC. is a limited liability company: the most common legal form in Switzerland, useful for limiting the personal liability of the owners. In fact, in an LLC. each partner is liable up to the amount of the share capital he has paid in.
The modalities for setting up a limited liability company (LLC.) are similar to a limited company. Unlike an Ltd., however, the partners of an LLC. are visible, in the sense that they are registered and published in the commercial register. In addition, internally the company keeps a share register and a list of the beneficial owners of the shares of the company (Art. 790 ff. CO).
The company's mandatory capital (called share capital) must amount to at least CHF 20’000 (Art. 773 CO). This capital must be fully paid in at the time of incorporation.
Only the share capital is liable for the liabilities of the limited liability company. In the event of bankruptcy, therefore, the owners of the LLC., i.e. the partners, are not liable with their private assets.
Because of the flexibility of this legal form and its personal character, the LLC. is ideal for all small and medium-sized businesses, including family businesses, or more simply for individual entrepreneurs who wish not to risk their personal assets in their new business.
In addition, a Limited Liability Company is mandatorily to be registered as a VAT taxpayer if its annual taxable turnover reaches CHF 100’000.
The organs of an LLC:
Partners' meeting
The Partners’ meeting is the supreme organ of the LLC. The partners’ meeting, which meets at least once a year, may be attended by all shareholders and exercise their voting rights. The partners’ meeting of an LLC. has several roles, including approving the annual accounts and appointing and dismissing members of the management and the auditing office. At the time of incorporation, the company must have at least one partner. The partners of a company can be either natural persons or legal persons (i.e. companies).
The management
The task of the management consists in ensuring the smooth running of the company by organising its activities. The administration of the LLC. is carried out by the management, whose members are elected by the partners' meeting. The management is responsible for managing the company, defining its organisation, and appointing and dismissing the persons in charge of management and representation of the company.
At least one manager of an LLC. must be authorised to represent the company (Art. 814 para. 2 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 manager.
Within the limits of its non-transferable powers, the management may, by means of administrative regulations, delegate all or part of the management 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. 814 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 person authorized to sign.
Upon registration of the company in the commercial register, all partners, all members of the management (irrespective of their signature rights) and the other people with signatory rights will be registered in the commercial register.
Audit Office
The partners’ 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 liability 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 partners 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 LLC.. An LLC. is a legal entity and is taxed separately like any other person.
This is a disadvantage for the shareholders, as double taxation is generated. This is because the profits of the company are taxed on the profit, while any dividends of the partners are taxed on their private income.
The following problem also arises from the point of view of share capital. The company will have to pay a capital tax on the share capital, while the shareholders will have to pay a tax on 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 LLC.
Advantages:
Private wealth and commercial wealth are separate. Shareholders’ liability is limited to the share capital.
Company 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 LLC.
Below are the minimum requirements for setting up a limited liability company in Switzerland:
Owners ->at least one partners
Mimimum Capital -> Minimum share capital of CHF 20’000, fully paid up
Administration -> At least one member of the management
Board representation -> At least one member of the management authorised to represent the company
Representation and domicile -> At least one person authorised to represent the company domiciled 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.
