Sole proprietorship

The legal form of the sole proprietorship, also known as the individual enterprise, is very common in Switzerland.
Unlike other legal forms, such as the corporation or limited liability company, a sole proprietorship is operated by a single natural person, known as the sole trader, who is responsible for all business decisions and legal obligations relating to the business.
The Swiss Code of Obligations does not contain any specific regulations concerning the legal form of sole proprietorship.

Setting up and managing a sole proprietorship

Setting up a sole proprietorship in Switzerland is a fairly straightforward procedure, requiring no minimum share capital or written articles of association.
However, if the sole proprietor runs a commercial enterprise and annual sales exceed CHF 100,000, he or she is required to register in the Commercial Register.

You can set up a sole proprietorship in Switzerland at low cost.
Consultancy fees for the formalities involved in setting up a company, such as consulting a trustee, are generally low, ranging from CHF 0 to 1,000.
In addition, registration of the company in the Commercial Register costs just CHF 120.

When choosing the legal form of a sole proprietorship in Switzerland, the individual entrepreneur must be aware that all responsibility for the business rests on his or her shoulders.
Indeed, all the company’s debts will be borne personally, which can represent a major financial risk in the event of commercial difficulties.
That’s why it’s essential to think carefully before setting up a sole proprietorship.
Furthermore, the sole trader is responsible for all commercial and administrative decisions relating to the business.
This includes accounting, tax returns and strategic choices.
He can, however, call on accountants or tax advisors to help him with these tasks.

Taxes

Sole proprietorships in Switzerland are subject to income and wealth taxes, which are levied directly on the company’s profits and the sole proprietor’s personal wealth.
A sole trader’s business income is closely linked to his private income for tax purposes, and he is therefore required to file a single tax return.
Taxes are collected at three different levels: federal, cantonal and communal, as is the case for all companies in Switzerland.

The amount of tax levied on a sole proprietorship in Switzerland depends on a number of factors, including the entrepreneur’s personal situation, the location of the business and annual sales.
Taxes are levied directly on business profits and the entrepreneur’s personal assets, and are collected at three different levels: federal, cantonal and communal.
If the company’s registered office is different from the entrepreneur’s private domicile, he can opt for tax planning to optimize his tax situation.

Sole traders must also take into account other taxes.
If their annual sales exceed CHF 100,000, they have to pay VAT.
Social security contributions are also a major tax burden for sole traders, who have to pay contributions for AHV, IV and IV.
In addition, sole proprietorships are subject to wealth tax, which is generally calculated according to the value of their assets.

Advantages of sole proprietorship

In Switzerland, the sole proprietorship offers a number of advantages, not least the simplicity of setting up a business, with few administrative formalities to complete.
As a result, entrepreneurs can launch their business quickly and easily, without having to contend with numerous complex administrative procedures.

An additional advantage of the sole proprietorship in Switzerland is that entrepreneurs have total control over their business.
As sole owner, the entrepreneur can make all major business decisions without needing the approval of other shareholders or a board of directors.
This autonomy enables entrepreneurs to make decisions quickly and adapt quickly to market changes.

The sole proprietorship also offers great management flexibility.
Entrepreneurs are free to define the way they want to run their business, according to their own needs and vision.

Finally, the sole proprietorship is often considered less expensive to run than other forms of business, such as the limited liability company (SARL) or the public limited company (SA).
This is partly because sole proprietorships require no minimum capital, and administrative costs are relatively low.
Entrepreneurs can also benefit from more favorable tax treatment, thanks to tax deductions for the self-employed.

In short, the nature of the sole proprietorship is often perceived as being more economical than other types of business, such as the SARL or SA, mainly due to its lack of minimum capital and reduced administrative costs.
What’s more, entrepreneurs who opt for sole proprietorship can benefit from tax advantages such as self-employment tax deductions.

Disadvantages of sole proprietorship

The sole proprietorship has a number of important disadvantages.
The owner is fully liable for the company’s debts, with no limits.
If the company runs into financial difficulties, the owner’s personal assets can be seized.

What’s more, the transfer of ownership shares in a sole proprietorship is complex and difficult to implement, in contrast to corporations, which benefit from a separate legal personality.
In the absence of this legal personality, the transfer of a sole proprietorship can only take place by transferring the company’s assets and liabilities.

On the other hand, access to the capital market can be difficult for partnerships, which include sole proprietorships.
They cannot offer the same guarantees as a corporation.

What’s more, protection for sole proprietorships is limited to the territory, which can pose problems when expanding abroad.

Last but not least, nominative registration means that anonymity is not protected.
Third parties can easily gain access to information about the company and its owner, which can present privacy and security risks.

An attractive option thanks to simple administrative procedures

For entrepreneurs wishing to run their own business, the sole proprietorship under Swiss law can be an attractive option, thanks to its simplicity of administration and flexibility of management.
However, it is important to take into account the disadvantages and to consult a lawyer for personalized advice.