The individual business, also known as a sole proprietorship, is a widely used business structure in Switzerland. Unlike other forms such as a corporation (SA) or a limited liability company (Sàrl), an individual business is operated by a single physical person who is responsible for all business decisions and legal obligations related to the enterprise. The Swiss Code of Obligations does not provide specific regulations for the individual business legal form.
Creation and management
Setting up an individual business in Switzerland is relatively simple, requiring no minimum capital or written bylaws. However, the sole proprietor must register in the commercial register if running a commercial business and if the annual turnover exceeds 100,000 CHF.
The cost of establishing an individual business in Switzerland is minimal. The advisory fees for setting up formalities, such as consulting a fiduciary, are usually around CHF 1,500. Additionally, registering the business in the commercial register incurs a minor cost of a few hundred francs.
On the other hand, the sole proprietor is personally liable for all business debts with their private assets. Therefore, careful consideration is crucial before starting an individual business, as financial risks can be high in the case of business difficulties.
The sole proprietor is solely responsible for all business-related decisions. They are also responsible for the business’s accounting and tax declarations. However, they can hire accountants or tax advisors for administrative assistance.
Taxation and taxes
In Switzerland, individual businesses are subject to income and wealth taxes directly levied on the business’s profits and the sole proprietor’s personal assets. The professional income of a sole proprietor is closely linked to their private income in terms of tax liability. Thus, they complete a single tax return. As with any business in Switzerland, taxes are collected at three different levels: federal, cantonal, and communal.
The tax amount varies based on the sole proprietor’s personal situation, the business location, and the annual turnover. If the business headquarters differ from the sole proprietor’s private residence, tax planning may be an option.
In addition, there are other taxes and levies that an individual business must consider. For example, individual businesses must pay VAT if their annual turnover exceeds CHF 100’000. Social contributions are another significant fiscal burden for individual businesses, which must pay contributions for OASI (Old Age and Survivors Insurance), DI (Disability Insurance), and UI (Unemployment Insurance). Individual businesses are also required to pay wealth tax, usually calculated based on the value of their assets.
Advantages of individual business
An individual business in Switzerland offers several advantages. Firstly, the creation process is relatively simple, with few administrative formalities to complete. This means entrepreneurs can quickly and easily start their business without dealing with many complex administrative procedures.
Another advantage is total control over the business. As the sole owner, the entrepreneur can make all significant business decisions without seeking approval from other shareholders or a board of directors. This allows for quick decision-making and responsiveness to market changes.
Additionally, individual businesses offer significant management flexibility. The entrepreneur can decide how to manage the business based on their needs and vision.
Finally, individual businesses are often seen as less costly to operate than other business forms, such as a limited liability company (Sàrl) or a corporation (SA). This is partly because they do not require minimum capital, and administrative costs are relatively low. Entrepreneurs can also benefit from more favorable tax treatment through self-employed tax deductions.
Disadvantages of individual business
- The owner is personally liable for all business debts, without limitation. This means their personal assets can be seized in case of financial difficulties of the business.
- Transferring ownership shares is more challenging compared to those of capital companies. In the absence of a distinct legal personality, transferring an individual business can only be done by selling its assets and liabilities.
- Access to capital markets can be challenging for partnerships, including individual businesses, as they do not offer the same guarantees as a capital company.
- Business protection is limited to the territory. In case of international expansion, the individual business might face obstacles.
- Nominative registration in the commercial register means that anonymity is not protected. Third parties can easily access information about the business and its owner, posing risks to privacy and security.
In conclusion, the individual business in Swiss law is an attractive option for entrepreneurs wishing to carry out commercial, craft, or liberal activities autonomously, thanks to the simplicity of administrative procedures and management flexibility. However, it is important to consider the disadvantages. It is strongly recommended to consult a lawyer.