The limited company (SA): legal foundations

The limited company is the most common legal structure for capital companies. It corresponds to companies that have significant capital requirements.


2. Ideal/main reason for use

The limited company is a capital company and, in principle, entails running a business. This is the typical form of business associated with significant capital requirements. This legal structure is ideal for any business focused on profit.

3. Economic importance

The limited company (SA) is the most common capital company structure in Switzerland, with 112,518 companies of this type. It owes its favored position to the advantages it offers in terms of liability and regulation of capital, including for small enterprises.

4. Advantages

  • Private wealth and commercial wealth are separate. Shareholders’ liability is limited to the share capital.
  • Company shares (equity) are easily negotiable.
  • There is an active possibility of regulating commercial, contractual and/or statutory restrictions.
  • The reputation of a limited company tends to be good.
  • The owner’s legal status may be anonymous.

5. Disadvantages

  • Persons who define the decisions taken by the employer (a Sàrl or SA limited company) or persons who may have considerable influence over those decisions, such as a shareholder, member of a management body or holder of a financial interest in the business, are not in principle entitled to unemployment benefits. (See the article entitled “Unemployment Insurance and position comparable to that of an employer”.)

6. Legal nature

The limited company (SA) is a trading company enjoying its own legal personality (legal entity).

7. Formation of the company name

As well as the essential elements required by law, any company name may contain details about the persons involved, information about the company activities, or any creative name, provided it is in keeping 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 can be chosen freely, an indication of legal structure is added to the company name. (Art. 950, CO). This can be added in full or in abbreviated form. The list of authorized abbreviations is drawn up by the 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). 

It is also compulsory for the chosen company name to be clearly differentiated from any other company name already registered in Switzerland. (Art. 951 CO).

8. Establishment

A limited company is established by its registration on the trade register, notarized authentication of foundation, approval of the by-laws, selection of the Board of Directors and (provided that the company has not waived the restricted audit, in accordance with the Art. 727a II CO) the certificate of verification by the auditors (Art. 629–635a640 and 643 CO).

9. Registration on the commercial register

As a legal entity, a limited company is only founded once it is registered on the commercial register.
Art. 643 CO

10. Required number of owners or shareholders

An SA can be established and run by one shareholder as a minimum. This can mean individuals as well as legal entities or trading companies (Art. 625 CO).

11. Mandatory capital

The company's mandatory capital (share capital) is CHF 100,000 as a minimum, divided up into registered or bearer shares of a nominal value of one centime or more, and must be paid (paid-up) on the basis of at least 20% or covered by contributions in kind, but a minimum of CHF 50,000 (Art. 621–622 CO).

12. Contributions in kind to replace money

In an SA, capital may be paid in the form of contributions in kind. However, a specific procedure must be followed (Art. 628 and 634 CO).

13. Organization and organs

The organs of a limited company are the general meeting, the board of directors, comprising at least one member, and the auditor, providing that the company has not waived the restricted audit (Art. 698 s. and 727a II CO).

14. Powers of the administration/organs

The shareholders’ general meeting, the SA’s supreme power, appoints, among others, the members of the board of directors, adopts the by-laws and approves the annual report (Art. 698 CO).

Members of the board of directors have some non-transferable powers, notably, powers to carry out senior management of the company, to fix the organization, to appoint and exercise supervision of persons responsible for management, to draw up the management report, etc. (Art. 716a CO).

The SA’s third organ is the auditor, an independent body. Every year, the auditor checks the accuracy of the accounts and draws up a report on this, for the general meeting.

Since July 1, 2015, all limited companies must be represented by one person 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.

15. Liability/Obligation of additional payment

Only the company's assets meet the obligations of the limited company. In the event of bankruptcy, shareholders therefore only lose their share capital.

Shareholders are only required to make payment (pay up) of capital corresponding to the shares to which they have subscribed (Art. 630 CO).

16. Use of investors or external funds

A limited company may increase its share capital following a decision by the general meeting and/or by delegation to the board of directors (Art. 650 s. CO). Increases in capital are carried out when the capital is necessary in the long-term and when the general situation of the market is unfavorable for external funds (loans, credit facilities and obligations).

The increase in share capital and therefore in equity presents various advantages:

  • No interest is collected on capital; there is less strain on liquid assets.
  • Unlike external funds, share capital does not have to be reimbursed. It is retained by the company for an unspecified period.

Third-party financing via credit facilities and loans is in principle possible for a capital company, as long as the necessary guarantees are provided. The reputation of the business determines the interest rate which the borrower has to pay.

Apart from the aforementioned options in company law to use external investors, it is also possible to adopt financing solutions combining external funds and equity. These mezzanine funds are allocated in the form of convertible bonds or bond options, with an interest rate depending on the success of the company (related-party loan).

17. Distribution of profits/liability for losses

Shareholders’ share in profits is the dividend. Under the CO, dividends can only be deducted from the profit resulting from the balance sheet and from the reserves set up for this purpose. Shareholders have no claim on the interest on their share capital (Art. 660 CO).

Some profit shares for members of the board of directors (percentage shares in profits) are also deducted from the profits resulting from the balance sheet, only when the dividends paid are at least 5%.

Only the share capital answers for losses. 

18. Constitution of reserves

Five percent (5%) of a limited company's annual profit is allocated to the general reserve until this reaches 20% of the paid-up share capital. If the financial year shows a loss, the allocation of 5% of the general reserve is abolished. Moreover, the limited company may constitute special reserves (Art. 671 and 672 CO).

Five percent (5%) of share capital is reserved for payment of dividends. Exceptional allocations exceeding this 5% and the variable total are called super dividends. Consequently, 10% of super dividends are allocated to the general reserve.

The share in profits of members of the board of directors (percentage shares in profits) is variable and only distributed when the basic dividends have been paid. In that case, 10% of the percentage shares in profits is allocated to the general reserve. 

19. Obligation to keep accounts

Limited companies (SA) have an obligation to keep accounts and to submit accounts, in accordance with the rules established in the Code of Obligations (Art. 957 et seq.).

SAs which exceed two of the following limits during two successive financial years are subject to the ordinary audit (Art. 727 CO):

  • Balance sheet total: CHF 20 million
  • Turnover: CHF 40 million
  • Number of employees: 250

Furthermore, public companies and companies with an obligation to draw up group accounts must, in all cases, carry out an ordinary audit.

Other companies are subject to a restricted audit. They can also waive this last audit if they employ fewer than 10 people as an annual average.

20. Taxation

The SA is a legal person and is taxed separately, as any other person would be. This situation proves to be a disadvantage for shareholders: if the company generates profits, it pays a tax on profits. If it also pays shareholders a dividend resulting from the profit, those dividends are liable to income tax. This entails double taxation.

As for share capital, the tax authority also counts this twice: the company pays tax on capital for the share capital, as shares, considered the shareholders’ private wealth, are also taxable.

For the taxation of a limited company compared to the taxation of a sole proprietorship, please see the table below:

Comparison of sole proprietorship with an SA or a Sàrl

(Values in CHF)

 

Sole proprietorship

SA/Sàrl

Profit according to annual accounts (before tax)

300,000

50,000

Payment of dividends

-

(50,000 pro memoria)

Also posted as expenses in an SA/Sàrl, according to the employment contract:

Director’s salary

-

250,000

Total Deductions/Profits

300,000

300,000

Tax on business site (after tax)

rate of 25%

rate of 25%

Sole prop.: on owner’s profit

75,000

-

SA/Sàrl: on profit

-

10,000

Taxes on private address

rate of 18%

rate of 18%

SA/Sàrl: on owner’s salary

-

45,000

SA/Sàrl: on owner’s dividends

-

4,500**

Total tax

75,000

59,500

(** Taxation of dividends at reduced rate; rate of taxation reduced by half due to the second reform of company taxation. General remark: calculation excluding AVS, with constructive interest rates; no general declaration, to be assessed on a case-by-case basis.)

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

21. Establishment costs

The creation of a limited company (SA) requires a contribution of 20% of the envisaged share capital, which totals a minimum of CHF 100,000. However, this initial contribution must total a minimum of CHF 50,000. Added to this are the advisory costs concerning setting up procedures, which total between CHF 1,000 and 4,000; notary costs relating to founding documents and share certificates, of between CHF 800 and 2,500; and costs of registering with the commercial register, of CHF 600 (on the condition that the envisaged share capital does not exceed CHF 200,000). In addition, the entrepreneur must pay a tax called “stamp duty” totaling 1% of the share capital if the latter is more than CHF 1,000,000.

For more detailed information:

22. Management and representation

Overall, management of a limited company is the responsibility of the board of directors, provided it has not delegated management to one or more of its members or to third parties, in accordance with the organization rules (Art. 716b CO).

Each member of the board of directors has authority to represent the company, provided the power of representation has not been delegated to one or more members of the board of directors or to third parties, in accordance with the by-laws, the organization rules or a board decision (Art. 718 I, II CO).

At least one member of the board of directors must be authorized to represent the company (Art. 718 III CO).

23. Exit/transfer

A limited company may in principle freely prescribe the transfer of shares, provided there is no restriction on legal or statutory transferability (Art. 685 s. CO).

In material terms, the partial or full transfer of the business is carried out by means of the transfer of assets and liabilities. The sale of the assets or activities of a limited company is governed by the provisions of the law on mergers (Art. 181 IV CO). For the transfer of working relations, Art. 333 CO is binding.

The chosen trading name may be kept indefinitely. In the case of private companies, a change of shareholder shall not have any impact on the trading name and the choice of another legal structure shall ideally only affect the indication of said legal structure (Art. 954, CO).

24. Provisions relating to nationality and registered address

It must be possible for the company to be represented by a person with an address in Switzerland. This may be a member of the board of directors or a director (Art. 718 IV CO).

You can find further information about this matter at the following address: 


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Last modification 27.09.2019

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