Limited liability company (Sàrl)

The Sàrl is a combination of a limited company and a joint partnership. It lends itself to family businesses or small and medium-sized enterprises.

2. Ideal/main reason for use

The Sàrl is a private capital company set up by one or more persons or trading companies. This legal structure is ideal for any business focused on profit. It is mainly aimed at SMEs and family businesses.

3. Economic importance

An Sàrl is a combination of a limited company and a joint partnership. With more than 92,000 Sàrl companies, this legal structure is the third largest business category in Switzerland, after sole proprietorships and limited companies.

4. Advantages

  • Establishment of an Sàrl requires a relatively low minimum capital (CHF 20,000) and just one person.
  • Liability is limited to the share capital (fully paid up).
  • Any company name may be chosen, but the qualification “Sàrl” must be added after it.
  • An Sàrl can be transformed into a limited company without liquidation.
  • Splitting the profits (the salary of a partner is considered as an expense for the Sàrl) could tip the point of progressive taxation into a higher tax bracket
  • Profits originating from the sale of company shares are not taxable.

5. Disadvantages

  • The managers of an Sàrl are not entitled to collect unemployment benefits, unless they leave the company or their position permanently. This also applies to spouses working for the Sàrl. (See the article in French entitled “Unemployment Insurance and position comparable to that of an employer")
  • Double taxation on the Sàrl’s yield and capital as well as on the partner’s income and assets.
  • Establishment costs are higher than for a sole proprietorship.
  • The public can freely consult the makeup of corporate bodies, capital and shares in the trade register.
  • Management costs (memorandums of understanding, shareholders’ meetings, tax forms, etc.) are relatively high.

6. Legal nature

The limited liability company (Sàrl) is a trading company with its own legal personality (legal entity).

7. Formation of the company name

In addition to 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 accurate, is not misleading and does not harm the public interest (Art. 944 (1) CO). 

On top of 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 here (only in French)). 

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 liability company is established by its registration in the trade register, notarized authentication of establishment, approval of the articles of association, selection of the board of directors and (when the company has not waived the restricted audit, in accordance with Art. 727a II CO) the certificate of verification by the auditors (Art. 777-779 CO).

The articles of association must include, at a minimum, the company name, purpose, head office, share capital and sum paid up by each shareholder. It is also recommended that they include other items such as management, representation, contributions in kind, procedures for increasing the company stock, rights of pre-emption, etc. The articles of association must be drawn up in a notarized document. 

9. Registration in the trade register

As a legal entity, a limited liability company is only established once it is registered in the trade register (Art. 779 CO).

10. Required number of owners or shareholders

An Sàrl can be established and run by one shareholder as a minimum. This can mean natural persons as well as legal entities or trading companies (Art. 775 CO).

11. Mandatory capital

The share capital must be at least CHF 20,000, divided up into company shares of a nominal value of CHF 100 at a minimum, and must be fully paid (paid-up) or covered by contributions in kind. Each shareholder must contribute to the share capital with at least one company share. The owner of the contribution must be registered by name in the trade register (Art. 774 and 777c I CO).

If the share in the initial capital reaches or exceeds 25%, buyers or holders must advise the company of the beneficial owner of the share. The list of beneficial owners must be kept up-to-date.

12. Contributions in kind to replace money

In an Sàrl, capital may be paid in the form of contributions in kind. However, a specific procedure must be followed (Art. 777 II628 and 634 CO).

13. Organization and bodies

The bodies of a limited liability company are the shareholders’ meeting, the board of directors, comprising at least one member, and the auditor, as long as the company has not waived the restricted audit (Art. 727a II and 809 CO).

14. Powers of the administration/bodies

The shareholders’ meeting is the highest body of the Sàrl and approves, among other things, the annual report, appoints the management body and determines the use of profits or losses.

Each shareholder may assume a management position (an Sàrl’s second highest body).

The third body is represented by the independent auditor. Every year, the auditor checks the accuracy of the accounts and draws up a report on this for the shareholders’ meeting.

Since July 1, 2015, all limited liability companies must be represented by one person whose place of residence is in Switzerland. This person must have access to the register of shareholders and beneficial owners.

15. Liability/obligation of additional payment

The company's debts are guaranteed only by the company assets (Art. 794 CO).

However, the articles of association may require shareholders to make additional payments. Such payments are only due with a view to covering losses resulting from the balance sheet, allowing diligent continuation of business or for reasons provided for in the articles of association. Such payments must also total a maximum of twice the nominal value of a company share (Art. 795a CO).

16. Using investors or external funds

In an Sàrl, all shareholders may decide to increase the share capital. To do this, new shareholders must be integrated. An amendment to the articles of association and registration in the trade register are then required (Art. 781 CO).

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

Apart from the aforementioned options in company law for using 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 loans or options loans, with an interest rate depending on the success of the company (related-party loan).

17. Distribution of profits/liability for losses

In an Sàrl, shareholders may claim profits based on their holding in the company, insofar as the articles of association do not provide for another method of determining these (Art. 798801 - in conjunction with Art. 660 CO - and 804 I CO). However, interest on the share capital cannot be paid as this amount is considered investment capital. (Art. 804 II CO).

In the case of a loss, shareholders lose only the share capital, but may be required to make additional payments, if provided for in the articles of association. Such payments are only due with a view to covering losses resulting from the balance sheet, allowing diligent continuation of business or for reasons provided for in the articles of association. Such payments must also total a maximum of twice the nominal value of a company share (Art. 795a CO). 

18. Building up reserves

Five percent (5%) of a limited liability 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% to the general reserve is abolished. The Sàrl is also authorized to build up special reserves. (Art. 671 and 672 CO).

Five percent (5%) of share capital is reserved for payment of dividends. Exceptional distributions 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 this case, 10% of the percentage shares in profits is allocated to the general reserve.

19. Obligation to keep accounts

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

Sàrls 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

Taxation of an Sàrl is identical to taxation of a limited company. As a legal entity, the Sàrl is taxed on profits, capital, wealth (shareholders’ holdings) and on the income forming part of the distribution of profits (dividends).

21. Establishment costs

The establishment costs of an Sàrl are a little lower than for a limited company, but are higher than for partnerships.

Setting up an Sàrl requires an equity contribution of a minimum of CHF 20,000. Added to this are the costs of advice on set-up procedures, which total between CHF 600 and CHF 2,000, notary costs relating to establishment documents of between CHF 700 and CHF 2,000, along with costs of registering in the trade register of CHF 600 (provided 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.

22. Management and representation

The management of the Sàrl is the responsibility of all shareholders, provided the articles of association do not stipulate another form of management (Art. 809 CO).

Each shareholder is authorized to represent the company. The articles of association may stipulate another form of representation; however, at least one person responsible for management must be appointed for representation (Art. 814 s. CO).

23. Exit/transfer

The transfer of an Sàrl’s company shares must take written form (Art. 785 CO). For this, the approval of the shareholders’ meeting is necessary. Provided the articles of association do not include stipulations providing otherwise, approval is achieved according to a quorum of at least two-thirds of votes represented and the absolute majority of the share capital for which the right to vote may be exercised (Art. 786 and 808b I., figure 4, CO).

In material terms, the partial or full transfer of the business is carried out by the transfer of assets and liabilities. The sale of the assets or activities of a limited liability 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 company name can be kept indefinitely. In the case of partnerships, a change of partner does not impact the company name and the choice of another legal structure only affects the indication of said legal structure (Art. 954 CO).

24. Provisions relating to nationality and registered address

It must be possible for the limited liability company to be represented by a person with an address in Switzerland. This may be a manager or a director (Art. 814 III CO).

For additional information about this subject, see: 


Last modification 29.06.2020

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