The sole proprietorship, also known as an individual enterprise, is a very common form of business in Switzerland, differing from other legal forms such as the corporation or the limited liability company. Indeed, a sole proprietorship is operated by a single individual, the sole entrepreneur, who assumes responsibility for all business decisions and legal obligations of the business. Unlike other legal forms, there is no specific regulation in the Swiss Code of Obligations regarding the legal form of the sole proprietorship.
Creation and management of the sole proprietorship
To create a sole proprietorship in Switzerland, there is no need to meet strict requirements such as having a minimum share capital or drafting written statutes. The creation process is relatively simple. However, if the sole entrepreneur carries out a commercial activity and their annual turnover exceeds 100,000 CHF, they must register with the commercial register.
Setting up a sole proprietorship in Switzerland incurs low costs. The fees related to advice for the establishment formalities generally range between CHF 0 and 1,000. Moreover, registering the business with the commercial register represents a minimal cost of CHF 120.
By opting for a sole proprietorship in Switzerland, the entrepreneur assumes full responsibility for the business’s debts with their personal assets. Therefore, it is important to carefully consider this venture, as financial risks can be high in case of business difficulties. As the sole owner of the business, the sole entrepreneur must make all important business decisions and manage the accounting and tax declarations of the business. However, they can seek assistance from accountants or tax advisors to help with administrative tasks.
Taxation of the sole proprietorship
Sole proprietorships in Switzerland are subject to income tax and wealth tax, which are directly levied on the business’s profits and the sole entrepreneur’s personal wealth. The entrepreneur’s professional income is linked to their private income in terms of tax liability, meaning they must fill out a single tax declaration. Taxes are collected at three different levels: federal, cantonal, and communal, in accordance with the tax regulations applicable to all businesses in Switzerland.
The tax level for sole proprietorships in Switzerland depends on various factors such as the entrepreneur’s personal situation, the location of the business, and the annual turnover. Taxes are levied at three different levels: federal, cantonal, and communal. If the sole entrepreneur has their business headquarters in a different location from their personal residence, they can choose tax planning to optimize their taxes.
Sole proprietorships in Switzerland must also take into account other taxes and duties. If their annual turnover exceeds CHF 100,000, they must pay VAT. Social contributions, such as AVS, AI, and AC, are also a significant tax burden for sole proprietorships. In addition, sole proprietorships are required to pay wealth tax, which is generally calculated based on the value of their assets.
In Switzerland, the sole proprietorship offers several advantages, including the simplicity of creating an individual enterprise with few administrative formalities to complete. Entrepreneurs can thus launch their business quickly and easily, without facing complicated and time-consuming administrative processes.
In Switzerland, the sole proprietorship also has the advantage of giving entrepreneurs total control over their business. Being the sole owner, the entrepreneur has the freedom to make all important decisions without having to obtain the approval of other shareholders or a board of directors. This autonomy allows entrepreneurs to react quickly to market changes and make strategic decisions quickly and efficiently.
Furthermore, the sole proprietorship offers great flexibility in terms of management. The entrepreneur can choose how to manage their business according to their needs and vision. This allows the entrepreneur to make strategic decisions tailored to their specific situation, without being limited by the procedures and policies of a larger organization.
Generally, the individual enterprise is perceived as having lower operating costs compared to other types of businesses, such as LLCs or corporations, due to the absence of a minimum capital requirement and relatively low administrative costs. Moreover, entrepreneurs can benefit from tax advantages such as tax deductions for self-employed workers.
The most significant disadvantage is the unlimited liability of the owner. Indeed, the owner is responsible for all the debts of the business, meaning their personal assets can be seized in case of financial difficulties of the business, thus representing a significant risk to the owner’s financial security.
Moreover, it is difficult to transfer ownership shares in a sole proprietorship, unlike capital companies. In the absence of a distinct legal personality, transferring the business can only be done by selling the assets and liabilities of the business.
In addition, access to capital markets can be limited for sole proprietorships, as they cannot offer the same guarantees as a capital company.
Also, the protection of the sole proprietorship is limited to the territory, which can pose problems in case of expansion abroad.
Finally, the personal registration in the commercial register means that anonymity is not protected, which can present risks to the privacy and security of the business owner.
The sole proprietorship: An interesting alternative
In summary, the sole proprietorship is an interesting alternative for entrepreneurs looking to engage in commercial, craft, or freelance activities independently, thus benefiting from flexible management and simplified administrative procedures. However, it is important to consider the disadvantages. It is therefore recommended to seek the advice of a lawyer.