A sole proprietorship is the simplest form of business in Switzerland. It requires no minimum capital, no notarial deed and adapts to all self-employed activities, from liberal professions to trade and crafts. Governed principally by the Commercial Register Ordinance (CRCR) and the Code of Obligations, it is intimately linked to the person of its owner. PBM Avocats advises individual entrepreneurs in Geneva and Lausanne on the advantages and limits of this structure, as well as on the conditions under which a GmbH or an AG would be preferable.
What Is a Sole Proprietorship?
A sole proprietorship is a business operated by a natural person in their own name. It has no legal personality distinct from that of its owner. This means that the business and its owner form legally one and the same legal subject: the owner is personally the holder of all rights and obligations arising from the activity. This merger of assets is both the strength and the weakness of this structure.
- No minimum capital: a sole proprietorship can start without any prior financial contribution
- No notarial deed: no complex formation formalities
- Commercial register registration: mandatory from CHF 100,000 in annual turnover (art. 36 CRCR)
- Business name: must necessarily include the owner's surname
- Single owner: a sole proprietorship may only belong to one natural person
- Unlimited liability: the owner is liable out of their entire personal assets
Registration in the Commercial Register
Registration in the commercial register is mandatory once the annual turnover of the business reaches CHF 100,000. This obligation must be fulfilled within three months of exceeding the threshold. Below this threshold, registration remains optional and may be requested voluntarily. Voluntary registration has several practical advantages: the possibility of using a business name, publicity vis-à-vis third parties, and better commercial credibility.
| Situation | Commercial Register Registration | Note |
|---|---|---|
| Annual turnover < CHF 100,000 | Optional | Recommended for credibility |
| Annual turnover ≥ CHF 100,000 | Mandatory (art. 36 CRCR) | Deadline: 3 months from exceeding the threshold |
| Regulated professions | Depending on specific regulations | E.g.: doctors, lawyers, architects |
Unlimited Liability: Practical Implications
Unlimited liability is the most important legal characteristic of a sole proprietorship and the main source of risk for its owner. In the event of financial difficulties for the business, creditors may assert their claims against all of the owner's assets: personal savings, vehicle, pension fund shares (within certain limits), future inheritance rights. The spouse may also be exposed if the matrimonial regime does not provide for separation of assets.
This asset exposure is the main reason why many self-employed persons whose activity grows choose to convert their sole proprietorship into a GmbH or an AG. PBM Avocats assists with this conversion, which requires a contribution balance sheet and registration in the commercial register.
The OASI Regime and Social Insurance
The owner of a sole proprietorship has the status of self-employed person under Swiss social insurance law. This status has important particularities:
- OASI/DI/income replacement: contributions of 10% on net income (art. 8 OASIA); an allowance of CHF 9,800 is applicable
- Unemployment: no unemployment insurance for self-employed persons
- Accidents: AAIA insurance mandatory for employees, optional for the self-employed person themselves
- OPA (2nd pillar): optional for the self-employed person, but recommended for pension purposes
- Affiliation: with the cantonal OASI fund or a professional fund
- Professional expenses: deductible from taxable income under cantonal and federal tax rules
Tax Regime of the Sole Proprietorship
From a tax perspective, the owner of a sole proprietorship is not a separate taxable entity. Their self-employment income is integrated into their personal tax return and subject to personal income tax, whose rates are progressive. In Geneva, the marginal tax rate for high incomes may exceed 45% (federal, cantonal and municipal combined). In the canton of Vaud, the tax burden is comparable.
Admissible professional deductions include notably commercial premises, professional vehicles, tools and equipment, professional insurance premiums and contributions to pension institutions (pillar 3a and 3b). Rigorous bookkeeping is essential to document these deductions, even though a sole proprietorship with turnover below CHF 500,000 may keep simplified accounts (art. 957 para. 2 CO). Our tax law specialists can assist you in optimising your situation.
Comparison: Sole Proprietorship vs. GmbH
| Criterion | Sole Proprietorship | GmbH |
|---|---|---|
| Minimum capital | None | CHF 20,000 |
| Liability | Unlimited (personal assets) | Limited to share capital |
| Legal personality | No | Yes |
| Taxation | Income tax (progressive) | Corporate income tax (~14% GE/VD) |
| Formation formalities | Very light | Notarial deed, commercial register |
| Members | 1 sole owner | 1 to 100 |
Frequently Asked Questions on Sole Proprietorships in Switzerland
When is registration in the commercial register mandatory for a sole proprietorship?
Art. 36 para. 1 CRCR provides that natural persons who operate a sole proprietorship on a commercial basis with an annual turnover of at least CHF 100,000 are required to register in the commercial register. Below this threshold, registration is optional but remains possible and may be useful for establishing the credibility of the business. The registration obligation arises during the course of activity as soon as this threshold is permanently exceeded.
Is a self-employed person operating a sole proprietorship liable on their personal assets?
Yes, fully and without limit. Unlike a GmbH or an AG, a sole proprietorship is not a separate legal entity from its owner. The owner is therefore liable for all the debts of their business out of their entire personal assets, present and future. Commercial creditors may seize their private savings, home, vehicles, etc. This is the fundamental difference from companies with share capital. This unlimited liability is the main reason why many self-employed persons choose to form a GmbH or AG once their activity grows.
How is a self-employed person operating a sole proprietorship affiliated to social insurance?
The owner of a sole proprietorship has the status of self-employed person under Swiss social insurance law. They must affiliate with an OASI compensation fund (or a professional fund as the case may be) and pay OASI/DI/income replacement contributions on their self-employment income. The contribution rate is 10% of net income (art. 8 OASIA), after deduction of the contributions themselves. There is no unemployment insurance (UI) for self-employed persons. Occupational pension (OPA, 2nd pillar) is optional but strongly recommended, via a collective foundation or pension institution.
Can employees be hired in a sole proprietorship?
Yes, without particular legal restriction. The owner of a sole proprietorship may hire as many employees as necessary, subject to ordinary employment law (CO, Employment Act). Employees must be affiliated to social insurance (OASI, UI, OPA) by the employer, who bears the employer's share of contributions. As employer, the owner is personally liable for these obligations. PBM Avocats can advise on the <a href='/droit-travail/'>employment law</a> aspects related to this situation.
What are the tax advantages of a sole proprietorship compared to a GmbH?
The main tax advantage of a sole proprietorship is simplicity: business income is directly integrated into the owner's personal taxable income and subject to personal income tax. There is no economic double taxation (corporate tax + dividend tax). However, once business income exceeds a certain threshold, the progressive personal income tax rates may exceed the effective rate applicable to companies with share capital. A numerical comparison should be carried out with the support of our <a href='/droit-fiscal/'>tax law</a> team before choosing the legal form.