A simple partnership in Switzerland is the most basic form of partnership, governed by the Swiss Code of Obligations (articles 530-551 CO). It is formed through an agreement between two or more individuals who pool their resources and skills to achieve a common objective (article 530 para. 1 CO). Unlike other types of partnerships, a simple partnership is considered a contract rather than a formal company, although it is the foundation for all other partnership forms. Notably, an entity can only be considered a simple partnership if it does not meet the conditions of another partnership type (article 530 para. 2 CO).
Advantages of a simple partnership
A simple partnership offers considerable freedom for partners to determine the terms of their collaboration and the distribution of profits and losses. Unlike other forms of partnerships, establishing a simple partnership is straightforward and low-cost. It does not require registration with the Commercial Register, allowing the partners to maintain confidentiality.
Disadvantages of a simple partnership
Partners in a simple partnership are jointly and severally liable for the partnership’s debts without limitation. This means each partner is responsible for the entire debt of the partnership, and creditors can demand payment from any or all partners. Additionally, a simple partnership lacks legal personality, meaning the partners are personally identified with the partnership. This can create challenges for succession or transferring ownership interests. Furthermore, a simple partnership may struggle to secure significant financing as it cannot issue equity securities.
Formation and management of a simple partnership
Generally, simple partnerships have a limited lifespan, such as construction consortia that dissolve once a project is completed. They are perceived externally as economic communities of interest and lack legal personality and an official name, often forming without the participants’ explicit awareness, which is known as a “de facto partnership.”
Forming a simple partnership in Switzerland does not require specific formalities. It cannot be registered with the Commercial Register. However, it is advisable to draft a partnership agreement signed by all partners, which can outline the partnership’s management rules, task distribution, and responsibilities.
Each partner must contribute to the simple partnership, which can be in the form of cash, a claim, or an asset (article 531 para. 1 CO). Unless otherwise specified in the partnership agreement, each partner has an equal right to profits and an equal responsibility for losses, regardless of the nature and value of their contribution (article 533 para. 1 CO).
Management of a simple partnership is conducted by the partners, with decisions made by mutual consent (article 534 para. 1 CO). However, partners can appoint one or more managers to run the partnership on their behalf, who may be partners or third parties. The appointment and removal of managers must be decided by the partners. Managers are responsible for the day-to-day operations of the simple partnership, must act in the partnership’s and partners’ best interests, comply with legal requirements, and keep partners informed of the partnership’s financial status.
Partners are prohibited from engaging in activities that conflict with or are detrimental to the partnership’s objectives for their own benefit (article 536 CO).
Taxation
In Switzerland, simple partnerships are subject to income and capital taxes, similar to other forms of partnerships. Since a simple partnership does not have a separate legal personality, its profits are taxed directly at the partners’ level based on their respective shares. Additionally, partners are subject to wealth tax, which is calculated on their total assets, including their share in the simple partnership.
A simple partnership is easy to establish and offers tax benefits but also carries significant risks of liability and potential conflicts between partners. Prospective partners should fully understand the advantages and disadvantages of a simple partnership. It is advisable to consult a lawyer to ensure compliance with all legal requirements when forming a simple partnership.
