What is a LLC?
In short: the LLC is a separate company with its own legal personality. It can enter into contracts, hire staff, have debts, and appear in court. In principle, only the company assets are liable for its obligations (Art. 772 Abs. 1 OR, Art. 794 OR).
The law describes the LLC as a person-related capital company. This is important. It is not just a capital vehicle like a classic stock corporation, but also contains personal elements. The shareholders are more in the foreground. By default, all shareholders even manage the business jointly, unless the articles of association state otherwise (Art. 809 Abs. 1 OR).
This mixture is one of the big advantages of a LLC. It is a good fit if a few people want to build a business together and maintain control. At the same time, however, it can become a hurdle if shares are to be sold quickly later or new investors are to be taken on easily.
What advantages does a LLC have?
The main advantages of a LLC are limited liability, the comparatively low minimum capital, the professional image on the market, and the flexible design via the articles of association.
1. Limited liability protects private assets
The strongest advantage is the limitation of liability. In principle, only the assets of the company are liable for the debts of the LLC (Art. 794 OR). The private assets of the shareholders are thus better protected than in the case of a sole proprietorship.
However, this does not mean that no one bears personal risks anymore. Anyone who signs private guarantees, provides personal security, or violates duties as a managing director can still be personally affected. The LLC therefore protects against normal business risk, but not against every misconduct and not against privately assumed obligations.
It is also important to note: the limitation of liability does not apply because the company is not liable at all. On the contrary. The LLC is liable with all of its company assets. Only the shareholders are, in principle, not additionally liable privately.
2. Incorporation starting from just CHF 20'000 nominal capital
A LLC requires a nominal capital of at least CHF 20'000 (Art. 773 Abs. 1 OR). Compared to the stock corporation, this is low. A stock corporation requires at least CHF 100'000 share capital (Art. 621 Abs. 1 OR).
The nominal capital is the sum of the shares of the shareholders. It forms a minimum financial basis for the company. In other words, the LLC does not start completely without capital, but with a legally prescribed foundation.
It should be noted, however, that the contribution must be fully paid up upon incorporation (Art. 777c Abs. 1 OR). Anyone who founds a LLC therefore actually needs the CHF 20'000. In return, this money is basically available to the company after incorporation and is not simply "gone".
3. One person is enough for incorporation
A LLC can be supported by one or more persons or commercial companies (Art. 772 Abs. 1 OR). This also makes a single-person LLC possible.
This is practical for solo founders who do not want to act as a sole proprietorship. They can spin off their business into a separate legal entity without needing a co-founder.
Especially for consulting activities, agencies, IT services, craft businesses, or small trading companies, this can be a good middle ground: more structure and liability protection than with a sole proprietorship, but less capital required than with a stock corporation.
4. Professional appearance and clear structure
A LLC often appears more professional to banks, customers, suppliers, and business partners than a sole proprietorship. It is registered in the commercial register, has articles of association, bodies, and a defined nominal capital.
The company legally comes into existence with its entry in the commercial register (Art. 779 Abs. 1 OR). The incorporation itself takes place by public deed, in which the founders declare that they are establishing a LLC, define the articles of association, and appoint the bodies (Art. 777 Abs. 1 OR).
These formalities seem complex at first glance. However, they also create clarity. Anyone doing business with a LLC can track important information in the commercial register.
5. Free choice of company name with legal form suffix
A LLC can basically choose its company name freely, as long as the general rules are respected and the legal form is indicated (Art. 950 Abs. 1 OR). The company name must not be misleading and must not contradict any public interest (Art. 944 Abs. 1 OR).
This is an advantage over the sole proprietorship, where the surname of the owner plays a larger role. With the LLC, the brand can move more into the foreground. For companies with growth plans, online business, or a clear brand strategy, this is valuable.
6. Articles of association allow for tailor-made rules
The LLC can be structured relatively flexibly through the articles of association. The articles of association must contain, among other things, the company name, registered office, purpose, nominal capital, as well as the number and nominal value of the shares (Art. 776 OR). In addition, they can provide for extra rules.
Precisely because the LLC is person-related, the parties involved can consciously control many things. The articles of association can, for example, provide for duty to make additional contributions or ancillary service obligations (Art. 772 Abs. 2 OR). Such obligations can make sense if the shareholders are to contribute more than just capital, such as know-how, cooperation, or additional financing.
This flexibility is an advantage if the rules are consciously designed. However, it can become a disadvantage if articles of association are adopted without review and do not fit the company later.
7. Control over the composition of the shareholders
Another advantage is control over new shareholders. The assignment of shares requires written form (Art. 785 Abs. 1 OR). In addition, it generally requires the approval of the shareholders' meeting, unless the articles of association state otherwise (Art. 786 Abs. 1 OR).
This is particularly important for small teams. Not just any person should be able to enter the company. The LLC is therefore well suited for companies where trust, active cooperation, and personal collaboration are central.
What disadvantages does a LLC have?
The disadvantages of a LLC lie mainly in the incorporation costs, administration, publicity, double taxation, and lower flexibility in share transfers.
1. Higher incorporation and administration costs than for a sole proprietorship
A LLC is significantly more formal than a sole proprietorship. The incorporation must be publicly authenticated (Art. 777 Abs. 1 OR). In addition, articles of association, commercial register registration, capital payment, and usually professional support are required.
Even after incorporation, the LLC remains administratively more demanding. As a legal entity, it is subject to bookkeeping and accounting requirements (Art. 957 Abs. 1 Ziff. 2 OR). A sole proprietorship with small turnover can be organized more simply. Anyone running a LLC should therefore plan accounting, annual financial statements, tax returns, and corporate resolutions cleanly from the start.
2. CHF 20'000 must be fully paid in
The low minimum capital is an advantage compared to the stock corporation. However, compared to the sole proprietorship, it is a disadvantage. A sole proprietorship can be started without a legal minimum capital. In the case of the LLC, a contribution corresponding to the issue price must be fully paid up for each share (Art. 777c Abs. 1 OR).
For many founders, this is manageable. For very small projects, side-line activities, or initial tests on the market, however, it may be too early.
3. Details are public in the commercial register
The LLC brings transparency. In the case of companies with limited liability, the company name, registered office, purpose, nominal capital, shareholders, number and nominal value of shares, managing directors, and persons authorized to represent the company, among other things, are entered in the commercial register (Art. 73 Abs. 1 HRegV).
This creates trust, but also means less privacy. Unlike a stock corporation with shareholders who are not publicly visible, the shareholders of a LLC are visible in the commercial register.
4. Bookkeeping and auditing cause effort
The LLC must keep accounts and present financial statements (Art. 957 Abs. 1 Ziff. 2 OR). Depending on the size, there is also an auditing obligation. For the auditors, the provisions of stock corporation law apply accordingly to the LLC (Art. 818 Abs. 1 OR).
Larger companies must have an ordinary audit carried out if certain requirements are met. These include public companies, group account obligations, or the exceeding of two threshold values in two consecutive financial years, namely CHF 20 million balance sheet total, CHF 40 million sales revenue, or 250 full-time positions on annual average (Art. 727 Abs. 1 OR).
Smaller LLCs are basically subject to a limited audit. With the consent of all parties involved, this can be waived if the company does not have more than ten full-time positions on an annual average (Art. 727a Abs. 2 OR in connection with Art. 818 Abs. 1 OR).
5. Double burden with taxes
A practical disadvantage is the economic double taxation. The LLC is taxed as a company on its profits. If profits are later distributed as dividends, these are also subject to tax for the shareholders.
The specific tax burden depends heavily on the canton, municipality, holding level, and personal situation. Therefore, it cannot be said across the board whether the LLC is always better or worse from a tax perspective than a sole proprietorship. The important point is: the liability and structural advantages of the LLC can be associated with additional tax complexity.
6. Share transfers are less flexible
Control over the shareholder circle is an advantage, but can also become a disadvantage. Anyone wishing to sell their shares needs a written assignment contract (Art. 785 Abs. 1 OR). In principle, the approval of the shareholders' meeting is also required (Art. 786 Abs. 1 OR).
This protects the existing company, but can slow down transactions. For startups with frequent financing rounds or many investors, the stock corporation may therefore be more suitable.
7. Shareholder conflicts can be stressful
Because the LLC is person-related, conflicts between shareholders can affect the company particularly strongly. For serious cases, the law provides that a shareholder can request the dissolution from court for important reasons. Instead of dissolution, the court can also order another appropriate and reasonable solution, in particular a settlement at the real value of the shares (Art. 821 Abs. 3 OR).
This shows: the LLC is ideal when the parties involved work well together. If trust is lacking or roles are unclear, the articles of association and shareholder agreement should be designed particularly carefully.
LLC, sole proprietorship or stock corporation: When does which legal form fit?
The LLC is often the middle ground between a sole proprietorship and a stock corporation. It offers liability protection and a professional structure, but remains significantly below the stock corporation in terms of capital requirements.
Criterion | LLC | Sole proprietorship | Stock corporation |
|---|---|---|---|
Minimum capital | CHF 20'000 (Art. 773 Abs. 1 OR) | no legal minimum capital | CHF 100'000 (Art. 621 Abs. 1 OR) |
Liability | basically only company assets (Art. 794 OR) | owner is personally liable | basically company assets |
Incorporation | public deed and commercial register entry (Art. 777 Abs. 1 OR, Art. 779 Abs. 1 OR) | simpler | more formal and capital-intensive |
Publicity | shareholders publicly visible (Art. 73 Abs. 1 HRegV) | owner visible | shareholders usually not publicly visible |
Flexibility in equity participations | controlled, but more formal (Art. 785 Abs. 1 OR, Art. 786 Abs. 1 OR) | no shares | usually more investor-friendly |
If you want to appear serious, protect your private assets, and start with manageable capital, there are many reasons in favor of the LLC. If you only want to test a small activity, a sole proprietorship can be simpler. If you want to take on investors or structure shareholdings very flexibly, a stock corporation may be more suitable.
For whom is a LLC particularly worthwhile?
A LLC is particularly worthwhile for founders who want to build a long-term business and at the same time limit their private risk.
Typical cases are:
Consulting companies with a growing client base
Craft and service businesses
Agencies, IT companies, and online shops
Family businesses and small teams
Companies with several shareholders
Projects where a professional appearance is important
On the other hand, for very small side-line activities, pure test projects, or activities without significant liability risk, the LLC may be too complex.
If you want to found a LLC, a clean preparation of the articles of association, the shares, and the signing authorizations is worthwhile. Especially here, a good structure prevents later conflicts. If you need support with the topic of incorporation, Jurata is always happy to help you at any time.
Conclusion: The advantages of a LLC are strong, but not free
The advantages of a LLC are obvious: limited liability, professional appearance, separate legal personality, clear structure, and a minimum capital that is significantly lower than that of the stock corporation. For many SMEs, the LLC is therefore the most practical legal form.
But the disadvantages are just as real. A LLC costs more to set up than a sole proprietorship, requires bookkeeping and corporate law formalities, makes shareholder details public, and can be more complex in terms of tax.
The best rule of thumb is therefore: a LLC makes sense if your business is to be more than a short-term test and if liability protection, clear structure, and market presence justify the extra effort.
Frequently asked questions about the advantages of a LLC
Are you never personally liable with a LLC?
In principle, only the company assets are liable for the debts of the LLC (Art. 794 OR). However, private liability risks can arise if shareholders assume personal security or managing directors violate legal duties.
Can I found a LLC alone?
Yes. A LLC can be founded by one or more persons or commercial companies (Art. 772 Abs. 1 OR). A single-person LLC is therefore possible.
Is the nominal capital blocked after incorporation?
No. The contribution must be fully paid up upon incorporation (Art. 777c Abs. 1 OR). After incorporation, the capital belongs to the company and can basically be used for its business activities.
Can a LLC be converted into a stock corporation later?
Yes. A capital company can convert into a capital company with another legal form (Art. 54 Abs. 1 lit. a FusG). A LLC can therefore basically be converted into a stock corporation later.
