The conversion of a sole proprietorship into an LLC is an important step in the development of a company. This strategic decision opens up new opportunities for business development for entrepreneurs. Limited liability protects personal assets, while improved capital procurement enables growth opportunities.
In this article, we will explain the key aspects of the conversion process. You will receive practical information on the legal requirements, the tax implications and the necessary preparation steps.
Legal Basics of the Conversion
The sole proprietorship represents the simplest business form - a company with a sole owner who has unlimited liability with their personal assets. The LLC (Gesellschaft mit beschränkter Haftung) is a legal entity where liability is limited to the company's assets.
The direct conversion of a sole proprietorship into an LLC is not possible under the Reorganization Act. However, there are two viable ways to achieve the desired goal:
Contribution in kind:
Formation of a new LLC
The existing sole proprietorship is contributed as a contribution in kind into the LLC
Valuation of the sole proprietorship by an approved auditor
Assumption of all assets and liabilities of the sole proprietorship
After successful transfer, the sole proprietorship is deleted
It should be noted here that the contribution in kind can only take place if the asset surplus of the sole proprietorship is higher than the required minimum capital of the corporation to be formed, which is CHF 20'000 in the case of an LLC.
Practical example:
Mr. Müller has successfully operated his printing press as a sole proprietorship for 15 years. With growing business success and an increasing number of employees, he decides to convert into an LLC.
Initial situation:
Annual turnover: 500'000 CHF
8 employees
Asset surplus: 40'000 CHF
Various machinery and operating equipment
Conversion process:
At the beginning of the conversion process, a current interim balance sheet was prepared in order to determine the exact value of the company. The annual financial statements or the interim balance sheet must not be older than 6 months. An auditor then carried out a detailed valuation of the entire business assets. With these basics, the incorporation of "Müller Druckerei LLC" took place, whereby a share capital of 25'000 CHF was determined. The existing sole proprietorship was contributed as a contribution in kind to the new LLC, whereby all assets were transferred. With the difference to the asset surplus of 15'000 CHF, there is still a claim in this amount against the LLC. In this course, all existing contracts and employment relationships also had to be transferred to the new company. The official entry of the new LLC in the commercial register completed the conversion process.
After successful conversion, Mr. Müller benefits from limited liability and better tax planning opportunities.
New formation with liquidation (alternative):
Dissolution of the existing sole proprietorship
Parallel new formation of an LLC
Transfer of the desired assets
No obligation to assume all assets and liabilities
More flexible design options
The choice of the appropriate method depends on the individual circumstances and goals. Professional advice is recommended to determine the optimal path.
Advantages of Switching to an LLC
The limitation of liability represents a central advantage of the LLC. The personal assets of the shareholders remain protected, as only the company's assets are liable for business liabilities. This clear separation between personal and business assets offers entrepreneurs a secure basis for business decisions.
The LLC structure facilitates capital procurement through:
Admission of new shareholders
Sale of company shares
Increased creditworthiness with banks
The professional image of an LLC can have a positive effect on business relationships. Customers and business partners often perceive the legal form as a sign of seriousness and sustainable corporate management.
The position as a legal entity opens up additional options for business expansion and simplifies long-term succession planning.
Preparation for the Conversion
The conversion balance sheet forms the foundation for the conversion of a sole proprietorship into an LLC. This balance sheet documents:
All assets
All liabilities
The current business value
Silent reserves
Important: The balance sheet must be a maximum of 6 months old.
The commercial register entry takes place through:
Submission of all certified documents
Presentation of the conversion balance sheet
Proof of share capital
Signatures of the managing directors
The notarization of the documents is mandatory.
The correct preparation of these documents ensures a smooth conversion process.
Required Documents for the Conversion
The conversion of a sole proprietorship into an LLC requires careful documentation. The following documents are mandatory:
Conversion balance sheet (maximum 6 months old)
Current commercial register extract of the sole proprietorship
Detailed bank statements of all business accounts
List of outstanding claims and liabilities
The costs for the conversion consist of:
Auditor fees: CHF 600-900
Notary fees: CHF 500-1'000
Commercial register fees: CHF 600-900
Consulting costs: depending on complexity
The exact amount of the costs varies depending on the canton and individual situation of the company.
Time Frame of the Conversion Process
The conversion of a sole proprietorship into an LLC takes on average 1-3 months. This time can vary depending on the following factors:
The complexity of the company plays an essential role here, as the scope of business activity, the number of assets to be valued and the existing contractual relationships can prolong the process. External factors also have a significant influence on the schedule, such as the review by the auditor. Likewise, the subsequent review by the commercial register office can vary greatly and should therefore be taken into account during planning.
Tax Aspects of the Conversion
The tax consequences of converting a sole proprietorship into an LLC require special attention. The silent reserves remain tax-free during the conversion, provided that tax liability remains in Switzerland and the book values are continued. In addition, the owner of the LLC is not allowed to sell their shares in the next five years, otherwise a subsequent taxation of the silent reserves takes place.
The LLC assumes the tax responsibility of the sole proprietorship seamlessly. This means:
Retention of book values from the sole proprietorship
Assumption of loss carryforwards
Continuation of depreciation methods
Regarding VAT, it should be emphasized that the VAT reporting procedure requires special handling. The VAT number of the sole proprietorship must be deregistered and applied for anew for the LLC. The tax administration checks the correct transfer of assets as part of the restructuring.
Conclusion
The conversion of a sole proprietorship into an LLC requires careful planning and professional support. Limited liability, tax advantages and improved capital procurement opportunities make this step attractive for many entrepreneurs.
Professional guidance minimizes risks and ensures a legally secure conversion. The investment in expert support pays off through a smooth process and long-term planning security.
The conversion of your sole proprietorship into an LLC is an important milestone for your company - take this opportunity for sustainable growth. We are happy to support you in this next big step as an entrepreneur.
