Want to start a business, but the question of legal form is getting in the way? You are not alone. Choosing between a sole proprietorship and a GmbH is the most common incorporation decision in Switzerland. Both have clear advantages, but they suit different situations. In this comparison, we look at the seven most important differences. By the end, you will know which legal form is right for you.
1. Liability: the risk you bear personally
Takeaway: A GmbH protects your private assets, while a sole proprietorship does not.
This is the difference that carries the most weight. As the owner of a sole proprietorship, you have unlimited personal liability with all your private and business assets. If something goes wrong, creditors can access your savings account, your car and, in extreme cases, your home.
With a GmbH, liability is limited to the company’s assets in accordance with Art. 794 of the Swiss Code of Obligations. Your private assets are generally protected. Important: managing directors can still be held personally liable if they breach their duty of care under Art. 827 in conjunction with Art. 754 of the Swiss Code of Obligations, for example by reporting overindebtedness too late or committing tax fraud. However, you do not bear the ordinary business risk privately.
Rule of thumb from the federal SME portal (SECO): The higher the business risk or financial investment, the stronger the case for a limited liability company.
2. Formation costs: what you invest at the beginning
Takeaway: A sole proprietorship costs almost nothing to establish, while a GmbH requires several thousand francs plus CHF 20,000 in share capital.
A sole proprietorship is established without formal incorporation as soon as you begin your business activity. Costs arise only if you register voluntarily in the commercial register, or if registration becomes compulsory once annual turnover reaches CHF 100,000. Expect around CHF 120 for the entry plus CHF 20 to CHF 50 for certification of your signature.
To establish a GmbH, you need at least CHF 20,000 in share capital under Art. 773 of the Swiss Code of Obligations, which must be paid in full. You will also incur notary fees of CHF 700 to CHF 2,000, a CHF 600 commercial register fee and potentially the cost of incorporation advice. Realistically, one-off formation costs amount to CHF 2,500 to CHF 5,000, plus the share capital. That capital is not lost; it remains in the company as working capital.
You can find detailed information about formation costs in our guides to setting up a sole proprietorship and a GmbH.
3. Ongoing costs: what is added during operation
Takeaway: A GmbH typically costs around CHF 2,000 to CHF 4,000 more per year to run than a sole proprietorship, mainly because of its accounting obligations.
A sole proprietorship with annual turnover below CHF 500,000 can use simplified accounting based on income, expenses and its financial position under Art. 957 para. 2 of the Swiss Code of Obligations. Many self-employed people handle this themselves or pay a fiduciary around CHF 500 to CHF 1,500 per year.
A GmbH, by contrast, must use double-entry accounting from day one under Art. 957 para. 1 of the Swiss Code of Obligations, including a balance sheet, income statement and notes. It also needs annual financial statements. Compared with a sole proprietorship, the additional cost of accounting and fiduciary services is typically CHF 2,000 to CHF 4,000 per year.
However, this cost advantage of a sole proprietorship shrinks when you use a modern tool such as Infinity. With Infinity, double-entry accounting is just as straightforward as simplified accounting. The traditional debit and credit logic runs entirely in the background, while AI suggests the appropriate entries for you. This makes the additional cost associated with double-entry accounting significantly smaller.
4. Taxes: how your profit is taxed
Takeaway: Up to around CHF 100,000 to CHF 150,000 in profit, a sole proprietorship is often more tax-efficient. Above that level, the GmbH’s salary and dividend split can become worthwhile.
There is no double taxation with a sole proprietorship. Your business profit flows directly into your personal tax return and is taxed as income. This is simple, but progressive tax rates can make it expensive as profits rise.
With a GmbH, profit is first taxed at company level. Depending on the canton, profit tax is around 12% to 21%, including the 8.5% direct federal tax on net profit. If you then distribute the remaining profit as a dividend, it is taxed again at personal level, but at a preferential rate. For a qualified participation of at least 10%, only 70% of the dividend is treated as income at federal level, while the cantonal share ranges from 50% to 80%.
The advantage of a GmbH is that you can pay yourself a salary, which reduces the company’s profit, and distribute the remainder as a dividend. From a certain profit level, this salary and dividend split can create noticeable tax savings. Depending on the canton and your personal circumstances, the threshold is roughly CHF 100,000 to CHF 150,000 in annual profit. There is no universal answer, so a brief comparison with a fiduciary is worthwhile.
5. Social insurance: OASI, occupational pensions and unemployment insurance
Takeaway: As the managing director of a GmbH, you have broader social insurance coverage than the owner of a sole proprietorship.
This point is often overlooked. As the owner of a sole proprietorship, you are considered self-employed. This means:
- You pay your OASI, disability insurance and income compensation contributions yourself, amounting to around 5.4% to 10% of net profit
- Joining an occupational pension scheme is voluntary
- You are not insured against unemployment, so there is no unemployment benefit if the business fails
As the managing director of a GmbH, however, you are formally employed, even if you are the sole shareholder. This means you are compulsorily insured under OASI, occupational pension, accident and unemployment insurance, like any other employee. This involves payroll-related costs, but it also provides much broader social protection.
You can find detailed information from the OASI/DI Information Centre.
6. Company name: how much freedom you have
Takeaway: A sole proprietorship must include your surname, while the name of a GmbH can be chosen freely.
The name of a sole proprietorship must contain the owner’s surname, for example “Meier Consulting” or “Anna Meier Web Design”. Invented names without the surname are not permitted. Name protection also applies only at the place where the business is registered.
With a GmbH, you can choose the company name freely. It only needs to include the suffix “GmbH” and must not be misleading under Art. 950 of the Swiss Code of Obligations. The name is protected throughout Switzerland. For many founders who want to build their own brand, this is a relevant advantage. You can check whether your preferred name is available through Zefix.
7. Conversion: switching from a sole proprietorship to a GmbH
Takeaway: You can switch at any time, but the process takes effort. It is best to start with the right legal form from the outset.
Many self-employed people begin with a sole proprietorship and later switch to a GmbH as the business grows. This is possible by establishing a new GmbH and transferring the assets and liabilities through a transfer of assets under Art. 69 et seq. of the Swiss Merger Act. The process typically costs CHF 3,000 to CHF 6,000 excluding share capital and takes two to four months.
The conversion is tax-neutral only if the book values are carried over and you do not sell the GmbH shares during a five-year lock-up period. Otherwise, hidden reserves may be taxed retroactively.
If you already know that your business is intended to grow, or if your work involves significant risks, starting directly as a GmbH is often more worthwhile than switching later.
Conclusion: which legal form is right for you?
A sole proprietorship is the better choice if you:
- are starting with limited risk and a small budget
- work alone or initially want to test your idea as a side business
- value simplicity and expect to remain below CHF 100,000 in profit
- do not need limited liability, for example because you provide consulting or freelance services without physical products
A GmbH is the better choice if you:
- want to protect your private assets
- want to optimise taxes once annual profit reaches around CHF 100,000 to CHF 150,000
- want to build a brand without using your surname
- plan to hire employees or bring partners into the company
- work in an area with higher liability risk
If you are still unsure, our guide to legal forms gives you a broader overview of all the options.
Accounting, whatever your legal form
Whether you choose a sole proprietorship or a GmbH, accounting is part of running the business from day one. With Infinity, both are straightforward: simplified accounting for a sole proprietorship or double-entry accounting for a GmbH. AI suggests the appropriate entries and you simply confirm them. If you later change legal form, you already know the system.
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