How to set up a sole proprietorship in Switzerland: the complete checklist
Among the most popular legal forms in Switzerland, the sole proprietorship does not go unnoticed! It is the most common, and it continues to attract more and more entrepreneurs every year. If you want to set up your own business and are interested in this legal status, here's a short guide to help you understand its benefits and drawbacks, and make your choice in any case.
Why set up a sole proprietorship?
This legal form is advisable when only one natural person carries out commercial activity. Since it is simple to set up a sole proprietorship, which does not require any initial investment, this status is popular, to say the least.
The liberal professions, craftsmen, consultants, architects, doctors, lawyers, or traders often use this type of status, since they often carry out their activity alone.
To set up a sole proprietorship, it is not necessary to be Swiss. However, you do need a work permit and a residence card.
If you match this profile, then this legal form may well be the one that suits you best! But before making up your mind, consider the strengths and weaknesses of this status.
The advantages of a sole proprietorship
This legal form is convincing more and more entrepreneurs in a variety of sectors because of its many advantages.
First of all, as already mentioned, to set up a sole proprietorship, you do not need any initial capital, unlike LLC and Corporation companies. Its creation is simple since it requires very few administrative formalities. The only requirement is registration in the commercial register if the company is operated in a commercial form and the annual income exceeds CHF 100'000.-. This is a big advantage since it enables you to set up your business quickly, without a maze of administrative steps to be validated beforehand.
As he is the sole decision-maker, whoever sets up a sole proprietorship can carry out his/her business wherever he wishes! This status offers total independence because no shareholder or investor can enter the business and only the founder deploys the strategic axes to develop the company.
Since his room for maneuver is unlimited, he is the only decision-maker: a point that should not be disregarded when setting up a business.
Another great advantage of sole proprietorships is that they do not have to deal with the double taxation incurred by corporations and limited liability companies, among others. Finally, they are not subject to any compulsory controls and can act as a body themselves.
Drawbacks of a sole proprietorship
While there are many advantages to setting up a sole proprietorship, there are some downsides.
Perhaps the biggest is the responsibility that comes with this status. Your personal liability is unlimited. This means that if you have to deal with debts in the course of your business, then you have to commit your business and private assets to cover them. And if you run into debt, your sole proprietorship can be sued in bankruptcy. It is therefore essential to assess the financial risk represented by your line of business before you start. In order to measure them properly, don't neglect the market analysis and business plan stages, which are essential when it comes to understanding the opportunities and risks your industry is subject to.
Among the disadvantages of a sole proprietorship, it is also necessary to talk about unemployment benefits, which are not collectible.
In addition, this status leads to difficulties in accessing credit. It does not enjoy good credibility with financial institutions. It should also be noted that ownership shares are more difficult to transfer than those of a corporation, which can be a major obstacle.
Beware also of the accounting side. Even though this status enjoys greater flexibility than other legal forms, there are a few points that should not be overlooked. A sole proprietorship still requires you to keep simplified accounts (income, expenses, and assets) if your turnover is less than CHF 500'000.-.
And if it is equal to or greater than CHF 500'000.-, you will be obliged to keep rigorous accounts, draw up annual balance sheets, and present accounts in accordance with Articles 957 et seq. of the Swiss Code of Obligations.
Finally, since you have to register your company in the commercial register with your name, anonymity is not guaranteed.
Checklist to set up a sole proprietorship
To form your sole proprietorship, there are several points to consider. Once you have fully integrated the advantages and disadvantages of this status, it is time to dwell on the following 7 topics so you can set up your business without omitting any details.
1. Budgeting for start-up costs
First, consider budgeting your creation costs. Nothing should be left to chance, and you should be as exhaustive as possible during this phase. The objective is to avoid being caught unawares: you must anticipate, so as not to have any unpleasant surprises, and not to be hindered in your development.
2. Tax advice and tax calculation
The owner of a sole proprietorship is taxable on all his professional and private income. However, it is possible to use tax planning. It is essential to note that in cases where the registered office and private residence are not in the same place, you will pay less overall. Some companies also choose to set up their head offices in a more advantageous location in terms of the tax rate. So find out beforehand what you can and cannot do, depending on your particular situation. So find out beforehand what you can and cannot do, depending on your sector!
3. Determining the company name
When you create a sole proprietorship, the business name must contain your last name. For example, you can opt for "Dupont Consulting" or "Nicolas Peinture".
4. Registration in the commercial register
Not all sole proprietorships have to be entered into the commercial register. It is indeed optional until you reach CHF 100'000.- turnover.
On the other hand, registration in the commercial register is always advisable. Why? Quite simply because it can support your credibility and promote your company's image, especially if you wish to open a bank account, a business telephone line, or a post office box.
5. Registration with the AVS (old age and survivors' insurance)
Applicants who wish to become self-employed must have their new status recognized by the compensation fund. The Compensation Fund will check whether or not your status can be granted.
Therefore, when you register with the compensation fund, there are several essential points that must be taken into consideration: first of all, you will have to prove to the compensation fund that you are indeed professionally active as a self-employed. To do so, you will have to fill out the AHV form.
In order to support this registration, you will be requested to provide several credentials, such as :
At least three offers made to potential customers;
At least three billings to customers;
A description of your project;
A business plan of your project;
Signed rental contracts;
Third-Party Liability Insurance (TPL).
In addition, if you are hiring someone, you will also have to take care of registering him/her with the compensation fund and take out compulsory contracts for the BVG/LPP (Occupational Benefit Act) and the UVG/LAA (Federal Law on Accident Insurance).
When you set up your sole proprietorship, the next thing you have to think about is insurance. Apart from health insurance, which is obviously compulsory, self-employed persons can choose whether or not to cover themselves against the risk of loss of earnings in the event of illness and accident. This insurance will also allow you to receive a salary in case of illness. It is also used by the employer to offer all or part of the salary that he has to pay to his employees in case of sick leave.
We also advise you to take out accident insurance, which covers you against occupational and non-occupational accidents, as well as occupational diseases.
Then come the issues concerning the risks surrounding the company. Some insurances are therefore entirely compulsory and you will not be able to avoid them. This is particularly the case for civil liability insurance and fire insurance. Others, on the other hand, are optional and may be more or less useful depending on the sector of activity in which you wish to operate: legal protection, theft, etc.
Depending on your sector and turnover, it will be essential to clarify the concepts of VAT liability.
If you are subject to VAT, you will have to file a declaration with the Federal Tax Administration. Self-employed persons with more than CHF 100'000.- turnover are subject to VAT. There are, however, exceptions to this rule in a number of business areas. This is the case, for example, in insurance, agriculture, and health care.
Depending on the criteria set out above, you can register for VAT or simply determine whether you meet the conditions for VAT liability by going directly to the website of the Federal Tax Administration.
As you can see, if you opt for a sole proprietorship, there are a number of points to consider. However, there is a reason why this legal form is so popular. Indeed, even if a few small formalities and criteria must be fulfilled, the sole proprietorship remains one of the simplest legal forms to create. And it is not just when you set up your business that it will make your life easier: management is also made easier, with fewer accounting constraints and double taxation on profits avoided...
In short, the sole proprietorship has it all!