Launching a start-up is a journey filled with excitement and opportunities that requires one early decision, which is critical for the legal framework and scalability of the business model: Choosing the right legal structure.
Switzerland, renowned for its business-friendly environment and reputable legal system, offers two key legal forms suitable for start-up founders: The Company Limited by Shares (Aktiengesellschaft; AG) and the Limited Liability Company (Gesellschaft mit beschränkter Haftung; GmbH).
This blog aims to provide an overview of the differences between these legal forms, the incorporation process, and related formalities.
Why Choosing the Right Legal Form Matters for Start-ups
When building a new business, founders often focus on the product, team, and capital needs. However, ensuring that the company has the appropriate legal form and corporate structure early on is equally important, especially when approaching professional investors. In Switzerland, the two main legal forms for start-ups are the Company Limited by Shares (AG) and the Limited Liability Company (GmbH). These forms offer slightly different frameworks with respect to governance flexibility and future growth potential.
Both legal forms provide a critical safeguard for entrepreneurs: A clear separation between personal liability and liabilities associated with the business. By incorporating an AG or GmbH, founders ensure that their personal assets (other than their stake in the company) are not at risk if their business encounters financial challenges or otherwise fails, provided that certain fundamental duties are observed (e.g. when serving as a board member).
Company Limited by Shares (AG): The Preferred Legal Structure for High-Growth Start-ups
The Company Limited by Shares (AG) is the most popular legal structure for start-ups typically looking to grow quickly and attract professional investors such as angel investors or venture capital. This legal form is the preferred choice for start-ups in a variety of fields (including tech, life sciences, and fintech), as its flexible shareholding structure is ideal for securing multiple rounds of funding.
Key Benefits for Founders:
- Attracting Investors: The corporate structure of an AG is highly regarded by investors, as it offers flexibility in issuing and transferring shares.
- Professional Image: Incorporating an AG enhances the business' credibility, signaling to potential investors and business partners that the company is reputable and well-structured.
- Privacy: Unlike other legal forms, the shareholding is not publicly disclosed, ensuring a certain level of privacy for investors and other shareholders. In contrast to the GmbH, transferring shares in an AG does not require any registration with the Commercial Register, saving time and administrative effort.
- Corporate Flexibility: The sole obligation of shareholders is to pay in the subscription amount for their shares. There are no further shareholder obligations stipulated by law, allowing for maximum flexibility to stipulate such obligations as well as corporate governance matters contractually (e.g. in a shareholders' agreement).
Requirements:
- Minimum Share Capital: To incorporate an AG, a minimum share capital of CHF 100'000 is required, of which at least CHF 50'000 must be paid in and deposited with a Swiss bank before completing the incorporation. The share capital may be split in any way as long as the nominal value of one share is greater than zero (e.g. CHF 0.001). If only the minimum amount is paid in at incorporation, shareholders remain liable to pay in the remaining CHF 50'000.
- At least one shareholder: An AG can be incorporated with just one founder being the sole shareholder upon incorporation.
- Corporate Governance: The corporate bodies of an AG include the board of directors, the meeting of shareholders, and, if a certain size is reached, the statutory auditor. At an early stage, the auditor requirement is typically waived. At least one signatory with full signing authority or two signatories with joint signature must be residing in Switzerland.
Limited Liability Company (GmbH): An Alternative for Smaller or Owner-Managed Start-ups
If the start-up is intended to maintain a small shareholding structure or operate in an owner-managed structure over a longer period, the Limited Liability Company (GmbH) can be a suitable choice. The GmbH offers similar liability protection as the AG, but with a more personalized touch, making it ideal for smaller or family-run businesses.
Key Features:
- Lower Capital Requirements: The share capital for a GmbH needs to be at least CHF 20'000, making it a more accessible option for early-stage founders with limited initial capital. The GmbH may be converted into an AG at a later stage. The CHF 20'000 need to be fully paid in at incorporation.
- Public Disclosure of Shareholders: One the key difference to the AG is that the name, place of residence, and shareholding of all shareholders are recorded in the Commercial Register and are therefore publicly available.
- Duty of Loyalty: GmbH shareholders have a general duty of loyalty towards the company and additional obligations may be stipulated in the articles of association, allowing for more control over shareholders and governance of the company.
- Higher Share Transfer Requirements: Transferring shares in a GmbH involves additional formalities, as all transfers must be filed with the Commercial Register.
Why Founders Should Incorporate Early
Many start-up founders delay the incorporation, believing that such formalities will not be necessary until their business reaches a point where it needs to enter into certain contracts, starts generating revenue, or needs to raise capital. However, incorporating early can protect founders from potential legal complications down the road. Here are a few reasons why founders should consider incorporating their start-up sooner rather than later:
- Asset Protection: By incorporating early, founders ensure that any liabilities incurred by the business are be separated from their personal assets.
- Clear Ownership Structure: The incorporation helps determine and formalize the roles of founders, investors, and other stakeholders involved (e.g. early employees). The incorporation further clarifies ownership and reduces the potential for internal disputes.
- Assignment of Intellectual Property: If intellectual property (IP) relevant for the business is created by the founders or others involved, such IP should be assigned to the company early on to avoid later IP disputes. If IP is assigned to and owned by the company from the very beginning, the individuals cannot raise any direct commercial claims towards such IP (only indirectly via their stake in the company).
- Investor Confidence: Professional investors are more likely to trust and invest in a company with a solid legal structure and suitable by-laws in place. Having a legal entity incorporated early on demonstrates that the founders are committed to the long-term success of the business and believe in their business themselves.
- Tax Advantages: Depending on the timing, early incorporation can reduce the potential tax burden. In Switzerland, capital gains on privately held assets are generally tax-free. However, it is important to ensure that no self-employed activity is deemed to exist before the legal entity is established. Under certain circumstances, this may be the case when a planned and systematic development of an idea is initiated in view of subsequent commercialization. Early incorporation of a start-up reduces the risk that the founders will have to pay income tax and social security contributions on the value of their ideas and intellectual property developed before the incorporation and brought into the start-up at incorporation.
Steps to Incorporating Your Start-up in Switzerland
Incorporating your start-up in Switzerland is a straightforward process that involves the following steps:
- Choose the Right Legal Form: Depending on a start-up's growth plans, founders either incorporate an AG or a GmbH.
- Blocked Capital Account: A blocked capital account needs to be opened with a Swiss bank in the company's name, where the initial capital (e.g. at least CHF 50'000 for incorporating an AG) needs to be paid in. This amount only remains blocked until incorporation is completed and can thereafter be used for the company's business.
- Required Documents: Essential documents include the articles of association, deed of incorporation, bank confirmation of capital deposit, notarized signatures of board members and filing to the Commercial Register (as well as other supporting documents that may be required). The articles of association determine the company's name, purpose, share capital, governance structure, and other fundamental provisions. Legal support is essential to ensure compliance with Swiss laws. Additional duties for shareholders and more detailed governance matters are typically governed by a shareholders' agreement, which may be executed at incorporation or any time thereafter.
- Notarial Meeting: A physical meeting with a Swiss public notary is required to complete the incorporation process. At this meeting, the founders sign the incorporation documents, and the company is then registered with the Commercial Register.
- Post-Incorporation Tasks: After registration with the Commercial Register, the board of directors must prepare a share register and a register of beneficial owners. It is further recommended to implement a shareholders' agreement together with organizational rules.
Once the incorporation documents have been submitted to the Commercial Register, the incorporation process generally takes about 10-14 business days, with the entire process typically completing within 3-4 weeks.
How VISCHER Can Help
VISCHER offers specialized services for start-ups, from incorporation to ongoing legal support. Our dedicated Start-up Desk provides comprehensive assistance.
- Legal Advice for Start-ups: We offer tailored solutions for start-ups, helping you choose the right legal form (including incorporation), draft all corporate documents, and navigate through legal requirements.
- Notarial Services: Our experienced notaries are available on short notice, enabling us to expedite and finalize the incorporation process quickly and efficiently.
- Transparent Pricing: Our comprehensive Start-up Package includes all notarial fees and initial documentation, offered at competitive rates tailored for start-ups
- Ongoing Support: Whether you are negotiating a license agreement, raising your first round of capital or expanding your business internationally, our team is here to provide ongoing legal support to secure and boost your company's success.
Ready to take the next step and move your business idea from concept into reality? Contact VISCHER today to schedule a free consultation and find out how our expertise can assist in driving your start-up's path to success.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
