Simple partnership

A simple partnership in Switzerland is considered the most basic form of partnership, governed by the Swiss Code of Obligations (art. 530-551 CO).

This partnership is formed through a contract between two or more people who agree to pool their resources and skills to achieve a common goal (art. 530 para. 1 CO). It stands out from other business forms as it’s seen more as a contract than a company, even though it is the basis of all other company forms. It’s important to note that an entity can only be classified as a simple partnership when it doesn’t meet the conditions of any other form of company (art. 530 para. 2 CO).

Advantages of a simple partnership

A simple partnership allows partners significant freedom to determine collaboration terms and profit and loss sharing. Unlike other company forms, setting up a simple partnership is straightforward and inexpensive. It doesn’t require registration in the commercial register, which helps maintain the partners’ confidentiality.

Disadvantages of a simple partnership

Partners in a simple partnership are jointly and unlimitedly liable for the partnership’s debts, meaning each partner is responsible for the entire debt, and creditors can claim payment from any or all partners. Additionally, a simple partnership lacks legal personality, which can create difficulties in succession or transferring partnership shares. It may also face challenges in obtaining significant financing, as it cannot issue participation securities.

Formation and management of a simple partnership

Simple partnerships generally have a limited lifespan, such as construction consortia that dissolve once the building is completed. They are perceived externally as economic interest communities without legal personality or an official name. Thus, they often form without participants realizing it, known as a “de facto partnership.”
In Switzerland, forming a simple partnership does not require a specific format. It’s not possible to register a simple partnership with the commercial register. However, drafting a partnership agreement signed by all partners is recommended. This contract may include management rules, task distribution, competencies, etc.

Each partner must contribute to the simple partnership, which may be in the form of money, a claim, or property (art. 531 para. 1 CO). Unless otherwise stipulated in the partnership agreement, each partner has equal rights to profits and equally shares losses, regardless of their contribution’s nature and value (art. 533 para. 1 CO).

Management of a simple partnership is entrusted to the partners. Decisions are made with the consent of all partners (art. 534 para. 1 CO). Partners can appoint one or more managers to manage the partnership on their behalf. Managers, who can be partners or third parties, are responsible for day-to-day management and must act in the partnership’s and partners’ best interests, adhering to legal requirements. They must also keep partners informed about the partnership’s financial status.

Partners are prohibited from engaging in activities contrary to or detrimental to the partnership’s objective for their own account (art. 536 CO).

Taxation

In Switzerland, simple partnerships are taxed on income and capital, like other company forms. Since they don’t have a separate legal personality from their partners, profits made by the simple partnership are taxed directly at the partner level, based on their respective share of the profits. Partners are also subject to wealth tax, calculated on their total assets, including their share in the simple partnership.
In conclusion, while easy to set up and tax-efficient, a simple partnership also poses liability risks and potential conflicts among partners. Potential partners should fully understand the advantages and disadvantages of a simple partnership. It’s advisable to consult a lawyer to ensure all legal requirements are met when forming a simple partnership.