The limited partnership: Legal foundations

The limited partnership is an ideal legal structure for small businesses. This type of company does not require any start-up capital.


2. Ideal for/main purpose

The legal structure of a limited partnership is particularly suited to small private businesses. External investors with various liabilities (general partners answering jointly and severally and on an unlimited basis, limited partners, on a limited basis) can also be involved.

The limited partnership is a legal structure often chosen when a general partnership needs to extend the base of its financing. It is also ideal for the limited interest of creditors in the administrative management of the company.

3. Economic importance

With approximately 1,236 companies, the limited partnership plays only a secondary role in Switzerland. This form of company is chosen when a sole proprietorship or general partnership needs additional equity, without broadening company management.

4. Advantages

  • The establishment of a limited partnership does not require any start-up capital
  • The company assets answer for the obligations of the limited partnership.
  • Limited partners (investors and creditors) assume subsidiary and joint and several liability, up to the total amount of their share.
  • Operational management is clearly separated from financial investors.

5. Disadvantages

  • General partner-managers assume unlimited, subsidiary and joint and several liability.
  • Once the company is dissolved, both general partners and limited partners remain liable for five years.
  • General partners are subject to debt collection under bankruptcy proceedings.

6. Legal nature

The limited partnership falls under the category of partnerships.

7. Creating the company name

In addition to the essential elements required by the law, any company name may contain details about the persons involved, indications on the company activities, or any creative name, provided that it is in line with the truth, is not misleading, and does not harm the public interest (Art. 944 (1) CO). 

Apart from this core part of the name, which may be freely chosen, an indication of legal structure is added to the company name. (Art. 950 CO). This may be written in full or in abbreviated form. The list of abbreviations is set by the Swiss Federal Council (the list can be found at: http://www.ejpd.admin.ch/dam/data/bj/aktuell/news/2016/2016-05-18/vo-hregv-d.pdf). 

The chosen company name must also be clearly differentiated from any other company name already registered in Switzerland (Art. 951 CO).

8. Establishment

The limited partnership begins with registration in the trade register and the making of a partnership agreement, although the latter is optional (but strongly recommended), governing both company shares and shares in profits (Art. 594 CO). 

9. Registration in the trade register

Limited partnerships, operated in the form of a commercial company, must be registered with the trade register (Art. 594 CO). 

10. Number of owners or partners required

The limited partnership is a partnership which contracts at least one natural person as an indefinitely liable partner (general partner) and at least one natural person, legal entity or commercial company as a partner with limited liability (limited partner) (Art. 594 CO).

Natural persons must be authorized to work as self-employed persons by the social insurance agencies. To do this, they must register with the relevant compensation fund corresponding to the company’s registered office. 

11. Capital requirement

There is no minimum equity requirement for a limited partnership. The share capital amount and shares are fixed (preferably) in the partnership agreement (Art. 557 COArt. 598 CO).

However, the partnership share of each limited partner must be registered in the trade register (Art. 596 II (2) CO). 

12. Contributions in kind to replace cash

Each partner must make a contribution to the limited partnership, which may consist of cash, securities, other assets, or work (Art. 598 COArt. 557 COArt. 531 CO). 

13. Organization and corporate bodies

The limited partnership does not provide for the constitution of corporate bodies. However, limited partnerships are strongly recommended to draw up a partnership agreement between partners. They may, if they wish, use a fiduciary or audit body for this purpose.

14. Powers of the management/corporate bodies

-

15. Liability/obligation for additional payments

In the first instance (primarily), the company assets answer for the obligations of the limited partnership.

In the second instance (on a subsidiary basis), there are two categories of persons liable.

  1. general partners assume unlimited joint and several liability for the obligations of a general partnership with their personal assets (Art. 604 CO).
  2. financial backers and/or junior partners (limited partners) assume subsidiary and joint and several liability for the obligations of the company (that is, joint liability vis-à-vis  third parties). However, the liability of limited partners is limited to the share registered in the trade register (Art. 608 CO). 

16. Use of investors or foreign funds

The possibilities of financing a limited partnership using foreign funds depend largely on the partners’ assets. In limited partnerships, holdings of third parties can only be acquired using their own equity. To do this, they must be integrated into the company as a limited partner or general partner (Art. 612 CO). 

17. Allocation of profits/liability for losses

In a limited partnership, allocation of profits and losses is fixed contractually (Art. 601 CO). However, the limited partner is liable for losses only up to the amount of its partnership share. 

18. Formation of reserves

No specific regulation.

19. Accounting obligations

Limited partnerships with turnover not exceeding CHF 500,000 must at a minimum keep simplified accounts which comprise only receipts, expenses and assets.

Limited partnerships which have realized turnover greater than or equal to CHF 500,000 in the last fiscal year must keep accounts and submit accounts in accordance with the rules established in the Swiss Code of Obligations (Art. 957 et seq.). 

20. Taxation

Each partner is taxed on its share of income and assets in the company and on its personal income and assets.

Tax planning may be applied whether the business and the home address are on the same premises or in different places. In situations where the registered office and home address are not in the same place, the owner of the limited partnership pays, overall, less tax.

Sometimes, the head office is located in a place which is more advantageous in terms of tax rate. In this case, the sole proprietorship offers better advantages (see example below).

Comparison of limited partnership taxation versus sole proprietorship taxation (company in city, home in suburbs)

(Values in CHF)

 

Limited partnership

Sole proprietorship

Profit rec. in annual accounts

52,000

300,000

Limited partnership: rec. in partnership agreement, 6% of equity of CHF 800,000 is entered into accounts as expenses:

 

48,000

-

Entrepreneur's salary

200,000

-

Total deductions/profits

300,000

300,000

Registered office tax
Limited part.:

rate of 25%

rate of 25%

on profit and
interest on equity

25,000

-

Sole prop.: on profit

-

75,000

Tax on use of residence

rate of 18%

rate of 18%

Limited part.: on entrepreneur’s salary

36,000

-

Total tax

61,000

75,000

General remark: calculation exclusive of OASI (AHV), with notional interest rates; no general return, to be assessed on a case-by-case basis.

Source: KMUinfo, 1/2010 (Only in German)

21. Start-up costs

The start-up costs of a limited partnership include fees for advice on start-up procedures, which total between CHF 0 and 1,000, notary’s fees for the partnership agreement of between CHF 2,000 and 40,000, plus costs of registration in the trade register of CHF 600.

For more information:

22. Management and representation

Management of the limited partnership is the responsibility of all partners, provided it is not governed differently under a decision made by the partners.

At least one partner must be authorized to represent the company. If the partnership agreement does not stipulate otherwise, any partner is entitled to represent the company provided this measure is documented, in accordance with the partners’ decision (Art. 599 CO, Art. 603 CO, Art. 563 CO). 

23. Termination/transfer

A limited partnership may not be transferred by one partner without the consent of the other partners (Art. 557 CO, Art. 542 CO).

In material terms, the full or partial transfer of the business activity is carried out through the transfer of assets and liabilities. The transfer of the assets or business activities of a limited partnership is governed by the provisions of the Law on Mergers (Art. 181 IV CO). For the transfer of employees, Art. 333 CO shall apply.

The chosen company name can be kept indefinitely. In the case of partnerships, a change of partner shall have no impact on the company name and the choice of another legal structure shall, ideally, affect only the indication in the name of said legal structure (Art. 954 CO).

24. Provisions relating to nationality and domicile

In a limited partnership, the owner does not need to have an address established in Switzerland, but he or she must present a work permit and a residence permit.

You can find additional information about this at:


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Last modification 27.08.2018

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