General Partnership

A general partnership, regulated by the Swiss Code of Obligations (articles 552-593 CO), is a type of business entity where two or more individuals collaborate to run a business under a common name (article 552 para. 1 CO). This form of partnership is characterized by the active participation of all partners in the management and administration of the business. Each partner in a general partnership is considered a co-entrepreneur and is expected to contribute financial resources, skills, or other necessary means to the business. They are jointly and severally liable for the debts of the partnership. Management of the general partnership is carried out by all partners, each having the authority to make business decisions. However, the partnership agreement may appoint a manager to oversee the business operations.

Taxation

Although the general partnership itself is not taxable, its partners are subject to direct taxation on their earnings, share of profits, interest on capital, and their wealth. Each partner is taxed based on their share of income and wealth from the partnership as well as their private income and assets. Tax planning can be beneficial; generally, a partner pays less tax if the business headquarters and their private residence are not in the same location.

Advantages of a general partnership

A general partnership offers several advantages for entrepreneurs:

1. Ease of Formation: Creating a general partnership is relatively simple and inexpensive. The partnership agreement can be freely drafted by the partners without specific formalities.

2. Shared Resources and Expertise: The partnership allows for pooling of resources and expertise from all partners, which can be particularly advantageous for small businesses lacking sufficient resources for growth.

3. Active Participation: Partners can be actively involved in managing and making decisions for the business, fostering greater commitment and involvement in the business’s development.

4. Flexibility: The partnership agreement can be easily modified to adapt to changing business environments.

Disadvantages of a general partnership

However, there are also significant disadvantages:

1. Unlimited Liability: One of the most significant drawbacks is the unlimited liability of partners. Each partner is personally liable for the business’s debts and obligations, regardless of their initial financial contribution.

2. Transferability Issues: Unlike corporate shares, transferring ownership in a general partnership is often difficult. Partners have specific rights related to their participation in the business, such as voting rights and profit shares, which are not easily transferable.

3. Challenges with Investors: Partners must be cautious when seeking investors, as they may demand a larger stake in the business or require guarantees from the partners to secure their investments.

Formation of a general partnership

Forming a general partnership involves several legal steps:

1. Partnership Agreement: The agreement should outline the operational rules of the partnership, including the business name, capital contributions, names and contributions of the partners, profit and loss distribution, and more. It must be signed by all partners.

2. Publication: A notice of formation must be published in the Swiss Official Gazette of Commerce (SOGC) to inform third parties of the partnership’s creation. This notice should include the business name, identity of the partners, and the capital amount.

3. Registration: The partnership must be registered with the relevant commercial register where it is based (article 554 CO).

Dissolution and liquidation

A general partnership can be dissolved for various reasons (articles 545 ff. CO): the term specified in the agreement is reached, a unanimous decision by the partners, a serious breach by a partner, etc. Liquidation follows dissolution (articles 548 ff. CO), involving the realization of the partnership’s assets, payment of debts, and distribution of the remaining assets among the partners.

The general partnership is a suitable legal form for entrepreneurs wishing to operate a business jointly. It offers many advantages, such as simple management, flexible agreements, and shared responsibility. However, the unlimited liability of partners is a significant drawback that needs careful consideration. Consulting a lawyer specialized in corporate law is recommended to ensure compliance with all legal requirements and to receive personalized support throughout the partnership’s lifecycle.