Associations must pursue a non-profit purpose, but the law allows them to engage in commercial activities to finance their operations. However, this legal form prohibits a profit motive. How can one define the limit between resources necessary for the functioning of an association and profits?
Switzerland has nearly 100,000 associations. These legal entities are created by at least two partners, who can be both legal and natural persons but, unlike capital companies, have "no economic goals," according to Article 60, paragraph 1 of the Civil Code.
However, if its ideal purpose is proven, and its statutes are well-established, any association has the right to conduct commercial activities, provided that these activities exclusively serve to finance activities that contribute to non-profit objectives.
To clearly separate authorized commercial activities from abusive ones, "it is necessary to distinguish between goals and means, explains Loïc Pfister, a lawyer specializing in association and foundation law at LPPV Avocats in Lausanne. The most typical example is probably an association that sells T-shirts, with the profits from sales going into the association's coffers."
Balance between means and goals
The association must limit itself to reasonable means that do not cause conflicts of interest between income sources and the pursued goal. "According to jurisprudence, in principle, means should not take precedence over objectives," says Loïc Pfister.
For example, the Swiss Cleantech Association, founded in 2009 and based in Zurich, advocates for creating conditions for an economy that addresses climate issues and facilitates dialogue among member companies on this subject.
The association organizes its activities mainly around think tanks and events - sometimes in partnership with companies and in discussions with scientific communities - to find business models compatible with carbon neutrality and promote them to political actors. Its co-director, Christian Zeyer, acknowledges that the balance between means and goals sometimes requires discussion. "We have a charter that defines the objectives we pursue (e.g., the implementation of the Paris Agreement but also the defense of the market economy), and we refer to it to define the limit of conceivable commercial activities."
Importance of contributions
For Christian Zeyer, the financial participation of the 600 member companies - active in fields such as civil engineering, recycling, banking, electricity production, and bicycle delivery services - remains crucial. Their contribution lies primarily in dues. "Some of them sometimes participate in the financing of more specific projects. For example, we recently conducted a study on financing guarantees for building renovation works, to which several of our members contributed," adds Christian Zeyer.
Registration in the commercial register
Every association must have statutes, but its structure is distinguished by its great flexibility compared to other forms of companies. "It is enough for two people to sign statutes that they have written themselves," summarizes Loïc Pfister.
In the case of commercial activity, registration in the commercial register is mandatory. From a certain volume of activity, the association is obliged to submit its accounts to an accredited audit body. This is the case when at least two of the following three criteria are met: balance sheet total of CHF 10 million, turnover of CHF 20 million, and 50 full-time equivalent jobs.
In some cases, committees decide to create salaried positions when volunteer work is no longer sufficient to manage and operate the association. Like other companies, the association must then observe labor laws.
Tax exemptions
Recognized public utility associations can benefit from tax exemptions. This exemption can be granted even in the case of commercial activity, provided that committee members work voluntarily within the association.
Since 2023, tax exemptions apply only to non-profit organizations active locally in Switzerland or physically present in the foreign region where they conduct their statutory activities. Simply providing financial support from Swiss entities to foreign institutions is no longer sufficient to justify a tax exemption.
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Association or foundation
Organizing a company around an ideal purpose may lead to the creation of a foundation. However, in terms of governance, the two entities are very different: "While the association allows democratic management that gives each member a voice, the foundation is organized around assets governed exclusively by a foundation council, which is often re-elected," explains Loïc Pfister. Having this capital provides a certain advantage to the foundation: "In general, this legal form has better credibility than the association."
Can these two legal forms work in symbiosis? "A typical example is a museum managed by a foundation and supported by an association - often titled 'friends of.' This combination allows optimal capital management while allowing the non-profit cultural aspect to play a decisive role in the museum's operation."
Last modification 04.10.2023
