Limited company

A limited company (Art. 620–763, Swiss Code of Obligations) may be formed by one or more natural or legal persons. These persons contribute a certain amount of capital that is divided into fractional amounts (the shares).

Together with the limited liability company (SARL), the limited company (SA) is the most common legal form in Switzerland, since it also offers small businesses many benefits in terms of liability, regulation of capital, etc. Only the corporate assets are liable in a limited company. In the event of bankruptcy, therefore, the shareholders do not lose their share capital.

The shareholders’ agreement clarifies the situation when multiple parties are involved in the company. At least one shareholder is required when establishing a limited company. This may be a natural person or a legal person, or another trading company. The creation process is lengthy, and the costs are higher than those involved in setting up a partnership.

A limited company is founded by the registration of the company on the trade register, the notarial authentication of the establishment, the approval of the articles of association, the appointment of the board of directors and the verification certificate from the supervisory body.

There are a number of legal provisions which must be complied with when forming a company. For example, the company name must include the suffix SA or the company name may not be purely descriptive and may not contain place names that do not correspond to the company’s place of business (cf. Instruction and directive to the Commercial Register authorities regarding formation and auditing of companies and names, dated 1 April 2021 – only in German).

Unfavorable double taxation regime

In the case of an SA, the tax authorities differentiate between private and commercial. The SA is a legal person and is taxed separately, as any other person would be. This is inconvenient for shareholders: if the company is making a profit, it must pay corporate income tax. And if it then pays a dividend to its shareholders from these earnings, the shareholders themselves must declare this dividend as income. This is known as double taxation.

The share capital is also taxed twice over: the company must pay tax on the share capital, and on top of this, the shares must be declared as personal wealth by the shareholder.

Thanks to the second corporate tax reform, the inconvenience of double taxation has been reduced. The partial taxation of dividends at 60% on private wealth and 50% on business assets for shareholders has readjusted the tax burden. Companies that obtain financing via loans no longer have an advantage over those that seek engaged shareholders.

Share capital

The company's capital requirement (share capital) must amount to at least CHF 100,000 (Art. 621–622, Swiss Code of Obligations). It must be at least 20% paid-up (discharged), but at a minimum of CHF 50,000 (Art. 632 Swiss Code of Obligations). This share capital does not necessarily need to be paid in cash. It can be paid in the form of benefits in kind (e.g. real property, machines, etc.).

The share capital can also be denominated in the foreign currency in which the company mostly conducts its business. This must have a minimum equivalent value of at least CHF 100,000 at the time of formation. If the share capital is denominated in a foreign currency, the same currency must be used for both commercial accounting and financial reporting. Permitted currencies (along with the Swiss franc) are the euro, US dollar, pound sterling, and the yen. Cryptocurrencies are not permitted (Art. 621, Swiss Code of Obligations).

On creation of a limited company, the founder or founders must open a deposit account with a banking institution. This should be a bank account in which the share capital of the company being formed is deposited pending registration on the trade register. A declaration of deposit is submitted in exchange for the payment of the funds, which remain frozen in the deposit account until the creation of the company is published in the trade register. In order to open a deposit account with a banking institution, you need to send a certified copy of the identification of the person signing the application, or a certified signature of the applicant.

After the creation of the company is published in the Swiss Official Gazette of Commerce, the funds are paid into the company's current account and the deposit account is closed. The transfer is made at the earliest on the first business day after publication in the Swiss Official Gazette of Commerce. The settlement of the funds by the bank is completed on presentation of a certified extract of the trade register showing the company's registration.

Any number of shareholders may hold a share of the share capital. The face value of the shares may be less than 1 rappen but more than zero.

In the case of registered shares, the share is registered in the name of the owner. Moreover, this person must be registered on the company's share register. Registered shares change ownership by virtue of the signature of the party selling the share (the “endorsement”) and registration on the company's share register.

The founders may also influence the SA by issuing shares carrying extended voting rights. These are shares held in the name of the founder, with a lower nominal value but a full voting right. This implies that a shareholder who holds 1,000 shares with nominal value of CHF 10 may have more voting rights at the General Meeting than 100 shareholders who each hold shares worth CHF 100, even though the same sum (CHF 10,000) has been paid out in each case.

The latest revision of the law on anonymous companies introduced a new provision, the capital fluctuation range: within this predetermined range, the board of directors is authorized to increase or decrease the company's capital for a maximum period of five years.

The Board of Directors

The Board of Directors represents the company to third parties. Unless otherwise provided for in the articles of association or the regulations of the organization, each member of the Board of Directors has the power to represent the company.

The Board of Directors may, however, delegate the power of representation to one or more of its members (officers) or to third parties (directors). All Swiss limited companies must be represented by someone whose place of residence is Switzerland. This person must have access to the share register, the list of reported holders of bearer shares, and the list of beneficial owners.

This requirement can also be met by a member of the Board or a director (Art. 718 Swiss Code of Obligations).

The Board of Directors is the primary management and organizational body of the SA. According to the Swiss Code of Obligations, the Board of Directors itself manages the company, or delegates the management to a third party (which is generally the case). However, in accordance with the law, the Board of Directors has several main non-transferrable and inalienable duties (Article 716a OR).

The names of the members of the Board of Directors are registered in the trade register. They are personally liable in the event of damages arising from dereliction of duty, whether this be intentional or due to negligence.

In recent years, corporate governance is a subject that has become increasingly important, even for SMEs. It relates to the way in which a company is managed – or the way in which it should be managed.

The statutory auditor and the management report

A limited company must appoint an accredited external auditor when the company is formed. Each year, it must submit a report to the Board of Directors relating to the management of the company.

Each public limited company must, every year, establish a management report that includes the annual report and financial statements. The annual financial statements consist of the income statement, the balance sheet, and the notes to the accounts, which include additional information that must correspond with the minimum legal requirements.

The company’s financial statements must undergo a full audit if two of the amounts considered to be threshold values have been exceeded in two consecutive years:

Balance sheet total of CHF 20 million
Revenue of CHF 40 million
250 full-time positions

Most SMEs in Switzerland do not meet these criteria and therefore do not have to perform a full audit. Their financial statements must be reviewed by a limited audit. With the approval of all shareholders/partners, a company may dispense with a limited audit if it has no more than 10 full-time positions on average per year (Art. 727a, Swiss Code of Obligations).

The General Meeting

The Annual General Meeting of Shareholders is the primary body of an SA. The General Meeting determines the articles of association, elects the Board of Directors and the statutory auditor, accepts or rejects the annual report, and rules on the use of the company earnings. In the occurrence of a capital loss, the Board of Directors may take measures itself or may convene a General Meeting of Shareholders (Art. 725a CO). If the company is insolvent, the Board of Directors – or the statutory auditor – must inform the court.

The Board of Directors can make arrangements to allow shareholders who do not attend the GV in person to exercise their rights electronically. In this case, speeches and interventions are broadcast live to all meeting venues via audio-visual media.

A General Meeting can be held electronically without a physical venue if the articles of association allow this and the Board of Directors designates an independent proxy when convening the meeting (Art. 702, Swiss Code of Obligations). Articles of association of companies not listed on the stock exchange may include provisions waiving the requirement for an independent proxy.