An individual business, known as “raison individuelle” in Switzerland, is a common legal structure for businesses. Unlike other legal forms such as a corporation or a limited liability company, an individual business is run by a single person, the sole proprietor, who is responsible for all business decisions and legal obligations. The Swiss Code of Obligations does not specifically regulate individual businesses.
Creation and management
Creating an individual business in Switzerland is straightforward and does not require a minimum capital investment or written bylaws. However, if the business generates annual revenue exceeding CHF 100,000, the sole proprietor must register with the Commercial Register.
Setting up an individual business incurs minimal costs. Consultation fees for the setup, such as hiring a fiduciary, typically range around CHF 1,500. Additionally, registering the business with the Commercial Register costs a few hundred francs.
The sole proprietor is personally liable for all business debts with their private assets. This means it’s crucial to consider the financial risks before starting an individual business, as personal assets can be at risk in case of business difficulties.
The sole proprietor is solely responsible for all business decisions and for maintaining the company’s accounts and filing tax returns. However, they can seek assistance from accountants or tax advisors for administrative tasks.
Taxation and taxes
In Switzerland, individual businesses are subject to income and wealth taxes directly on the business’s profits and the proprietor’s personal wealth. The professional income of a sole proprietor is closely linked to their private income for tax purposes, requiring only one tax return. Taxes are collected at the federal, cantonal, and municipal levels.
Tax amounts vary based on the proprietor’s personal circumstances, business location, and annual revenue. If the business location differs from the private residence, the proprietor may engage in tax planning.
Additionally, other taxes and fees apply. For example, individual businesses must pay VAT if annual revenue exceeds CHF 100,000. Social security contributions for AHV, IV, and AC are also significant expenses. Wealth tax is calculated based on the proprietor’s total assets.
Advantages of an individual business
Individual businesses offer numerous advantages in Switzerland. Firstly, setting up an individual business is relatively simple, involving minimal administrative procedures. Entrepreneurs can start their businesses quickly and easily without extensive bureaucracy.
Another advantage is the complete control over the business. As the sole owner, the entrepreneur can make all major decisions without needing approval from shareholders or a board of directors, allowing for swift decision-making and responsiveness to market changes.
The individual business also provides management flexibility. The proprietor can manage the business according to their needs and vision.
Moreover, individual businesses are often less costly to operate compared to other business forms like limited liability companies (LLCs) or corporations. This is partly because there is no minimum capital requirement and administrative costs are relatively low. Entrepreneurs may also benefit from favorable tax treatment through deductions for self-employed individuals.
Disadvantages of an individual business
The proprietor is personally liable for all business debts without any limit, meaning personal assets can be seized if the business faces financial difficulties. Transferring ownership shares is more complex compared to capital companies. Since there is no distinct legal entity, transferring an individual business involves transferring the business’s assets and liabilities. Access to capital markets can be challenging for partnerships, including individual businesses, as they do not offer the same guarantees as capital companies. Business protection is limited to the territory. Expansion abroad may present obstacles for an individual business. Registering with the Commercial Register under the proprietor’s name means anonymity is not protected. Third parties can easily access information about the business and its owner, posing privacy and security risks. In conclusion, an individual business under Swiss law is an attractive option for entrepreneurs looking to run a commercial, artisanal, or freelance business independently, due to the simplicity of administrative procedures and management flexibility. However, it’s important to consider the disadvantages. Consulting a lawyer is highly recommended.
