The general partnership is a type of partnership regulated by the Swiss Code of Obligations (art. 552-593 CO). It is characterized by the active participation of all partners in the management and administration of the business.
In a general partnership, two or more physical persons join forces to operate a business under a common trade name (art. 552 para. 1 CO). The partners in a general partnership are considered co-entrepreneurs and are jointly and unlimitedly liable for the company’s debts.
Management of the general partnership is carried out by all partners, who have the power to make decisions for the business. However, the bylaws may provide for the appointment of a manager to handle the business’s management.
Taxation and taxation
Although the general partnership is not taxable as an entity, its partners are subject to direct taxation on their remuneration, share of profits, equity interests, and wealth.
Each partner is subject to taxation accounting for their share of income and wealth in the partnership, as well as their private income and assets. Tax planning may be possible. However, a general partnership owner will generally pay less tax if the business headquarters and private residence are not located in the same place.
Advantages of the general partnership
The general partnership offers several advantages for entrepreneurs, including:
Simplicity and low cost of formation. The bylaws can be freely drafted by the partners without specific formalities.
Benefiting from the skills and resources of all partners, which can be a considerable advantage for small businesses lacking the necessary means for development.
Partners’ involvement in management and decision-making can foster greater engagement in the business’s development.
Flexibility in terms of business management, as the bylaws can be easily modified to adapt the business to its evolving environment.
Disadvantages of the general partnership
Despite its advantages, the general partnership also has significant drawbacks. The most notable is the unlimited liability of partners. Each partner is personally liable for the company’s debts and obligations, regardless of their initial financial contribution.
Transferring ownership shares in a general partnership is often difficult. The partners have specific rights linked to their participation, such as voting rights and a share of profits, which cannot be easily transferred.
Moreover, partners must exercise caution when seeking investors, as they may demand a more significant stake in the company or require guarantees from the partners to cover their investments.
Establishing a general partnership
Establishing a general partnership is relatively straightforward, though it requires adherence to legal formalities:
The bylaws define the partnership’s operating rules, including the trade name, capital amount, partners’ names and contributions, profit and loss distribution, etc. The bylaws must be signed by all partners.
A notice of establishment must be published in the Swiss Official Gazette of Commerce (FOSC) to inform third parties of the company’s creation, including the trade name, identity of the partners, and capital amount.
Finally, the company must be registered with the competent commercial register where it is headquartered (art. 554 CO).
Dissolution and liquidation
The dissolution of a general partnership can occur for various reasons (art. 545 et seq. CO): the term specified in the bylaws is reached, a unanimous decision of the partners is made, a partner commits a serious fault, etc.
Subsequently, the partnership undergoes liquidation (art. 548 et seq. CO), involving the realization of assets, debt settlement, and distribution of the remaining balance among partners.
The general partnership is suitable for entrepreneurs wishing to conduct business together. It offers numerous benefits, such as management simplicity, flexible bylaws, and limited partners’ liability. However, it’s crucial to carefully assess its disadvantages, especially the unlimited liability of partners, before establishing one.
It is advisable to seek counsel from a corporate law attorney to ensure compliance with all legal formalities and receive personalized guidance throughout the company’s lifespan.