Setting up a company in Switzerland: different types of companies

Founders

At least one founder (either individual or legal entity) is necessary to form a corporation. Founders and shareholders are not subject to any nationality or residence requirements. Directors must be shareholders and at least one director must be resident in Switzerland. Another restriction relates to the acquisition by non-resident aliens of shares in a Swiss company whose assets consist mainly of Swiss real estate: these transactions are subject to prior authorization. Prior authorization is further required for non-residents to own and operate a Swiss bank, or to acquire an existing Swiss bank.

Articles of incorporation

Articles of incorporation must have the following minimum content:

• the company name and address;
• the business purpose of the company;
• the amount of share capital and the contributions made thereto;
• the number, par value and type of shares;
• the calling of the general meeting of shareholders and the voting rights of the shareholders;
• the naming of the bodies which take care of the management and the auditing of the company;
• the form in which the company must publish its notices.

Optional clauses are those which must only be listed if founders intend to adopt additional provisions, such as the directors’ participation in the net profits, the issue of preferred shares, the delegation of directors’ authority, the issue of authorized capital or conditional capital.

Founders report

The founders must provide a written statement giving particulars of the nature and condition of contributions in kind or proposed acquisitions of assets, and the appropriateness of their valuation. A founders’ statement is also required when the capital of a company shall be contributed by conversion of shareholder loans and advances. The auditors have to review the founders report and confirm in writing that it is complete and truthful.

Raising of Funds

After subscription to all shares of capital stock, a minimum of 20% of the par value but not less than CHF 50,000 must be placed in escrow with a bank. The funds may only be released to the management after the company has been registered in the Commercial Register.

Incorporation Meeting

The corporation is formed at the incorporation meeting, which is held in the presence of all the shareholders and a public notary. This latter declares that the capital stock is fully subscribed and that the minimum payments have been made. Thereafter, the shareholders adopt the articles of incorporation and appoint the bodies corporate (board of directors, auditors etc.). Finally, a notarised deed must be drawn up recording the resolutions of the general meeting.

Registration

After incorporation, the company must be registered with the Commercial Register. This registration is published in the Swiss Official Gazette of Commerce. It discloses details such as the purpose of the company, its seat, the names of the shareholders (unless they opted for issuing bearer shares) and the names of the directors. Only at the time of registration the company acquires legal entity status. Shares may not be issued prior to registration.

Upon formation, a one-time federal stamp duty of 3% is due on the capitalisation of the company. This stamp duty is assessed on the price at which the shareholder buys the shares. Any premium above par value is also subject to this duty. Furthermore, there are registration and notary fees and, generally, fees due to agents who act as founders to the new entity.

Corporate Name

The corporation is registered under a firm name, which must be distinguished from those of all other corporations already existing in Switzerland. In principle, the corporation is free to choose any kind of name. The name may not however be misleading or otherwise untruthful. The use of national or territorial designations is not permitted unless specifically authorized by the Federal and Cantonal Registers of Commerce. If a personal name is used, a designation showing the corporate nature must be added.

Share Capital

A public company is required to have a minimum capital of CHF 100,000 divided into shares with a minimum face value of CHF 0,01, while a limited liability company is required to have a minimum capital of CHF 20,000.  In the case of a public company, all shares must be subscribed at the time of formation. Capital contributions may be in cash or in kind. If the contribution is made in kind, the company must have access to such assets immediately after registration in the Commercial Register. The articles must describe the property, its value, the shareholder from whom it is received and the number of shares issued in return. The acceptance by the company of contributions in kind requires the approval of at least two thirds of the shares represented at the incorporation meeting.

The general meeting of shareholders may authorize the board to increase the share capital within a period of 2 years. It is within the competence of the Board to decide if, when, and to what extent, the capital should be increased.

The general meeting may provide in the articles for a conditional capital increase. The purpose of issuing conditional capital is, alternatively, to secure options and conversion rights in connection with warrant issues or convertible bonds, or to create employee shares. The increase of capital takes place at the same time, and to the same extent, as the exercise of the respective rights.

Different Types of Shares

Swiss corporation law distinguishes between the following categories of shares:

• Bearer shares – Bearer shares may not be issued until the full issue price has been paid in. They are transferable by delivery and the corporation cannot restrict their transfer. Bearer shares are very popular in Switzerland because many owners prefer to protect their identity.

• Registered shares – Registered shares are subscribed as called by the corporation and do not need to be fully paid in on issue. They are transferable by endorsement or assignment, generally without restriction. The company must keep a share ledger listing the owners’ names and places of residence. The entry must be certified on the share certificate by the Board. The buyer of incorrectly transferred registered shares cannot exercise personal membership rights. The articles may provide for subsequent conversion of registered shares into bearer shares and vice versa.

• Restricted transferability of registered shares – To prevent unfriendly takeovers, the articles may provide for restrictions on the free transferability of shares. By law those restrictions are however limited.

• Preferred shares – The general meeting of shareholders is entitled to issue preferred shares or to convert existing common shares into preferred shares. The holders of preferred shares enjoy certain preferences such as cumulative or non-cumulative dividends, priority in the proceeds of liquidation and a preferential right to subscribe to new shares. This preferential treatment must be provided for by the articles or be adopted by the votes of at least two thirds of all shares represented.

• Voting shares – In general, each share is entitled to one vote. Since shares of differing value may be issued, each vote may not represent the same amount of capital contribution. Voting shares, therefore, provide those shareholders who represent a financial minority with the decision making power within the corporation. The issue of voting shares is permitted in the ratio of 1 : 10 to ordinary shares.

• Profit sharing certificates – The general meeting of shareholders can issue profit sharing certificates in favour of persons who have an interest in the company through previous capital contributions, shareholdings, creditors’ claims, employees, or similar relationships. Profit sharing certificates may grant rights to a share in profits, a share in the liquidation proceeds or rights to subscribe to new shares. They do not procure any membership rights. By law, profit sharing certificates must not have a par value nor be issued in exchange for contributions characterized as assets.

• Certificates of participation – The certificate of participation is a non-voting share, with the holder of such certificates having basically the same status as shareholders apart from the right to vote. The participation capital must not exceed double the share capital. Companies have until June 30, 1997 to comply with this requirement unless their participation capital was more than double the share capital on January l, 1985.

Under the freedom of trade and industry, every person in Switzerland (including foreigners, provided that they have a regular work and residence permit) may exercise any industrial or commercial activity, without any special official authorisation.

Swiss civil law distinguishes between partnerships (sole proprietorship, limited partnership, general partnership) and legal entities (public company and limited liability companies). A foreign investor can chose the most appropriate type of company, according to her or his activities and strategic objectives. She or he may also establish a branch in Switzerland, as well as establish a joint venture or a strategic alliance. An interesting possibility for venture capital is also the new limited partnership for collective investments and capital.

The time required for setting up a company is different, but it usually does not take more than three weeks and the procedure can often be performed via the Internet.

Sole Proprietor

This type of business is carried out by a sole proprietor and has to be registered in the commercial register if it produces at least CHF 100,000 gross income per year. It is not a legal entity (i.e. the proprietor is personally liable for his/her business without any limitation) and the proprietor is subject to taxation. This form of business organisation is commonly used for smaller enterprises.

Simple Partnership (Einfache Gesellschaft)

An ordinary partnership is based on a contract of association between two or more partners and is a very loose formation without being a legal entity. Each partner is individually subject to taxation rather than the partnership itself. For business debts, each partner is personally liable with his/her own private assets. An ordinary partnership cannot be entered into the commercial register. This form of business organisation is often used for activities of short duration or for specific projects only (consortia or joint ventures).

Main use: joint ventures; consortiums in the construction or banking industry; shareholders under a shareholders’ agreement; founders of a company until the company has been duly established.

General partnership (Kollektivgesellschaft KG)

To form a general partnership, two or more individuals enter into a contract of association in order to operate an enterprise based on commercial principles. A general partnership has a trade name and must be registered in the commercial register.

Although it can acquire rights, incur liabilities, take legal action and be sued, the general partnership is not in itself a legal entity. Liability for debts is not limited to the capital of the partnership but is extended to the private assets of the partners in the form of joint and several liabilities.  Only individuals can set up this form of business organisation and liability is limited to the capital of the company. Especially used for small family businesses or businesses run by a few trusted partners (might achieve better credit-worthiness than legal persons due to partners’ liability).

Limited partnership (Kommanditgesellschaft)

A limited partnership has two kinds of partners. One must be liable for the business without any limitation, while others are only liable to the extent of their capital contribution. Only individuals can be partners with unlimited liability, whereas partners with limited liability may also be legal entities, such as corporations. Since the limited partnership is derived from the general partnership, other characteristics (such as rights and duties) are the same as described in the section above.

Unlimited partners with unlimited liability (at least one) and limited partners with limited liability up to the fixed amount as registered in the commercial register (at least one).

Unlimited partners must be individuals, limited partners may be individuals, legal entities or general or limited partnerships Also similar use as with general partnerships, used in situations where not all partners are willing or able to be actively involved in business or for small businesses in the form of general partnerships looking for private investors.

Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)

A limited liability company is a legal entity with fixed capital. The minimum capital is CHF 20,000 and this has to be fully paid in cash or in-kind. For the formation of a limited liability company, at least one founder is required. Each partner (individual or company) participates with a capital contribution (minimum CHF 100 per share) and must have a name and domicile registered in the commercial register. The management and representation of the company may be transferred to people who are not partners, but at least one of the managing officers must be domiciled in Switzerland. All partners and managers may be non-Swiss citizens.

The legal form of a limited liability company is especially intended for small and medium sized companies and so requires an equity capital of only CHF 20.000 for its formation.

As is the case with joint stock companies, the limited liability company has sole liability for its debts; recourse against the equity holders is not possible. Unlike a joint stock company, however, the articles of incorporation can impose obligations requiring the equity holders to pay in additional ancillary obligations. If the limited liability company is unable to continue to function without an injection of capital or new equity capital is required for specific activities, the equity holders are obliged, if such an obligation was agreed upon, to provide the new capital (to a maximum of twice the value of the existing capital). Typical examples of ancillary obligations set out in the articles of incorporation are the obligation to supply or purchase goods and the obligation to perform certain services for the benefit of the company.

In the absence of any rules to the contrary, the general management of a limited liability company is delegated to all of its members. By contrast, shareholders of a joint stock company are not automatically empowered to act in the name of the company and require separate authorization to function as a member of the board of directors or a duly authorized signatory.

The law allows comprehensive restrictions on the transferability of quota shares. Unlike a restriction on transferability contained in a shareholders’ agreement, a restriction on transferability provided for in the articles of incorporation of a limited liability company is also binding on the company and can therefore be more easily enforced. In addition, the articles of incorporation of a limited liability company can impose a non-competition clause on to its members.

In a limited liability company resolutions of both the general meeting and of the general management can be adopted by written consent.

Only individuals may be elected as members of the board of directors. The board of directors has to include at least one member resident in Switzerland.  Shareholders are entitled and obliged to manage the company without being appointed (principle of self-management). The articles of association may provide that the managers are appointed and dismissed from office at the shareholders’ meeting.

The board of directors/management of limited liability companies has the same non-delegable and inalienable duties as the directors/management of a corporation except for the appointment and dismissal of management.

The principle of non-delegable duties of the management may be overridden as the articles of association may provide for a mandatory or optional presentation of certain decisions for the approval of the shareholders’ meeting.

A shareholder may for valid reasons bring an action in court for permission to withdraw from the company. The articles of association may also grant shareholders a right to withdraw and may make this dependent upon certain conditions.  The law provides for a mandatory right of expulsion by way of the company bringing an action in court. The articles of association may go further and permit the shareholders’ meeting to expel shareholders for valid reasons.  The special squeeze-out provisions of the Merger Act also apply to limited liability companies.

Public Company (Aktiengesellschaft, AG)

The most common form of a company in Switzerland is the public company. The minimum capital is CHF 100,000 and at the time of incorporation the founders must pay at least the 20% of the nominal value of the capital (with a minimum of CHF 50,000). The capital of the company is represented by shares. Each share must have a minimum nominal value of CHF 0.01.

Shares can be either registered or bearer. Whereas the former have the name of the shareholder, the latter protect the confidentiality of the investor and can be freely transferred. In order to issue bearer shares all minimum capital must be paid.

Capital contribution can also be in kind. In this case, the following items can be contributed:

• Goods;
• Equipment and machinery;
• Assets;
• Real estate;
• Participations and interest in other companies;
• Patents and trademarks.

The public company is a very flexible form of business organisation and it is often chosen by foreign investors because of the ease in which shares can be transferred.  For the formation of a public company at least one founder is required, which can be either an individual or a company. The management and representation of the company may be carried out by people who are not shareholders, but at least one of the managing officers must be domiciled in Switzerland. Shareholders and managers may be non-Swiss citizens.