Sole proprietorship, LLC or stock corporation? The best legal form in comparison
Jul 22, 2025
The choice of the appropriate legal form is a crucial decision for the long-term success of your company. This decision influences key aspects such as:
Personal liability
Capital requirements
Tax burden
Administrative obligations
Growth opportunities
In Switzerland, entrepreneurs have various options available - from the straightforward sole proprietorship to the structured stock corporation. This article highlights the characteristics of the three most common legal forms: sole proprietorship, LLC, and stock corporation. You will receive practical decision-making aids for choosing the optimal legal form for your company.
The most common legal forms in Switzerland in detail
The Swiss corporate landscape offers different legal forms that vary in their legal, tax, and organizational aspects. Each legal form brings specific characteristics that are suitable for different business models and company goals.
1. Sole Proprietorship
The sole proprietorship represents the simplest business form in Switzerland. This legal form is particularly suitable for self-employed small entrepreneurs.
Key characteristics:
A natural person as the sole owner
No legal separation between private and business assets
Formation of the sole proprietorship is already possible from the commencement of business activity (however, compulsory commercial register entry from CHF 100'000 annual turnover)
Free choice of company name including the family name and already registered companies within the same political municipality
Advantages
The formation of a sole proprietorship is particularly cost-effective and efficient. Only minimal formation costs are incurred, and the entire process can be carried out quickly and easily since the sole proprietorship already exists from the commencement of business activities. Another essential advantage lies in the flexible decision-making processes because the owner can make all decisions independently. As there are no minimum capital requirements, financial entry is considerably eased. Additionally, sole proprietorships benefit from simplified accounting as long as the annual turnover is below CHF 500'000, significantly reducing administrative burden.
Disadvantages
The unlimited personal liability with private assets constitutes a significant disadvantage of the sole proprietorship. The owner is liable with their entire assets for business obligations, which represents a significant personal risk. Financing options are also significantly limited, as no additional partners can be accepted, and capital procurement must primarily occur through equity or loans. Additionally, a potential sale of the company is often difficult because potential buyers often prefer another legal form. The lack of an option to involve additional partners can restrict the growth and development of the company.
Tax aspects:
Taxation of business profits by the owner as income from self-employment
Social security contribution obligation on the business income
VAT obligation from CHF 100'000 annual turnover
This legal form is particularly recommended for:
Freelancers
Small service companies
Start-ups in the initial phase
Part-time activities
2. Limited Liability Company (LLC)
The LLC is a popular legal form for small and medium-sized companies in Switzerland. This corporate form requires a minimum capital contribution of CHF 20'000, which must be fully paid up at the time of formation.
Key characteristics of the LLC:
Legally independent legal entity
Liability limited to the company's assets
At least one partner required
Formation with commercial register entry
In principle, there is an audit requirement (with the option to waive the limited audit, so-called opting-out)
Advantages:
The LLC offers a clear separation between private and business assets, which is an important advantage for many entrepreneurs. The flexible design of the corporate structure allows the organization to be optimally adapted to the company's needs. Outwardly, an LLC appears professional and trustworthy, which can be particularly advantageous in business dealings. Compared to a sole proprietorship, capital procurement is significantly easier with an LLC, as additional partners can be accepted or various financing instruments can be utilized.
Disadvantages:
The formation and management of an LLC is associated with higher costs than a sole proprietorship. The organizational structure is more complex than with other legal forms, which entails increased administrative effort and requires more time for administrative tasks. Another disadvantage is the tax double burden, as both the company's profit and the distributed dividends are taxed. However, the advantage is that capital companies are subject to a flat tax rate. Unlike natural persons, they thus benefit from non-progressive taxation, which can have a positive effect especially with high profits—despite the overall higher complexity and formalities associated with this legal form.
3. Stock Corporation (AG)
The stock corporation is the most complex legal form in Swiss company law. The legally required minimum capital is CHF 100'000, of which at least CHF 50'000 must be paid up at the time of formation.
Key characteristics of the AG:
Legally independent legal entity
Liability limited to the company's assets
At least one shareholder required
Professional organizational structure with board of directors and (optional) audit office
Advantages
The stock corporation enjoys high esteem in the business world and is perceived as a particularly trustworthy corporate form, not least due to the high company capital. A major advantage lies in the easy transferability of stocks, which significantly eases the tradability of company shares. The AG also offers great flexibility in capital procurement through various financing instruments such as stock issues or bonds. Another significant aspect is the principle of shareholder anonymity: unlike the owners of an LLC, the identity of shareholders is not published in the commercial register entry.
Disadvantages
The formation and management of an AG involve considerable costs. In addition to the initial formation costs, regular administrative expenses occur that can strain the budget. The complex corporate governance requirements mean additional administrative efforts and necessitate a professional organizational structure with appropriate control mechanisms. Another financial disadvantage arises from double taxation: initially, the company's profit is taxed at the company level, subsequently, the distributed dividends are also taxed for the shareholders. However, it also holds here that the stock corporation is not subject to progressive tax, but rather to a flat tax rate. The AG is particularly suitable for growth-oriented companies with increased capital needs and the desire for professional structures.
Criteria for choosing the appropriate legal form for your company
The selection of the optimal legal form is based on specific criteria that must be weighted individually for each company:
Business risk and liability scope
The business risk and liability are crucial for the choice of legal form. The protection of personal assets is particularly important. Industry-specific risks due to product defects, deficiencies, or accidents must be assessed. The extent of possible damage determines whether a liability-limited legal form such as LLC or AG is necessary. Insurance options must also be examined.
Capital needs and financing
The capital needs and financing options are crucial in choosing the business form. The startup capital and ongoing investments must be realistically assessed. Sole proprietorships can be established without minimum capital, while LLC and AG require minimum deposits. Access to external capital varies depending on the legal form; banks often show more trust in corporations. The procurement of equity differs: for sole proprietorships, it's the private means of the owner, for corporations, it's the acceptance of new partners or the issuance of stocks.
Tax aspects
The tax treatment varies depending on the legal form and influences the financial position of the company. With sole proprietorships, profit is taxed as income, while corporations are subject to profit tax. Social security contributions must be borne solely by sole proprietors, while they are shared in corporations. There are no significant differences in VAT, but administrative requirements may vary. A careful analysis of tax consequences is essential.
Administrative requirements
The administrative duties vary according to the legal form. Corporations like AG and LLC have more extensive bookkeeping obligations than sole proprietorships. Small sole proprietorships with a turnover of less than CHF 500'000 can use simplified bookkeeping, while AG and LLC must maintain regular accounts in accordance with the Code of Obligations. The audit requirement mainly affects corporations but can be waived under certain conditions; sole proprietorships are exempt. The commercial register entry is mandatory for AG and LLC; sole proprietorships are required to register from CHF 100'000 turnover. These requirements influence administrative effort and costs.
Corporate structure
The number of business partners significantly influences decision-making processes in the company. More partners mean more complex coordination, so clear structures are needed. Early succession planning ensures the continuity of the company, considering legal and tax aspects.
These criteria should be carefully analyzed in coordination with qualified legal advisors to make an informed decision on the appropriate legal form.
Flexibility and growth opportunities with different legal forms
The choice of legal form directly affects the growth opportunities of your company. Each legal form offers different options for corporate development:
Sole proprietorship
Limited growth opportunities due to personal structure
Obstructed access to external capital
Complex conversion to corporation when expanding
LLC
Flexible adjustment of partner structure
Easy capital increase possible
Uncomplicated conversion to stock corporation when growing
AG
Maximum flexibility in capital procurement
Extensive opportunities for participation models
Optimal structure for international expansion
The AG offers the greatest growth perspectives through:
IPO option
Attractiveness for investors
Professional external appearance
The LLC represents a balanced middle way - it enables substantial growth with manageable administrative effort. For start-ups and innovative companies with growth ambitions, early selection of a stock corporation is recommended.
Conclusion: Choosing the best legal form for your company
Choosing the optimal legal form is an individual decision based on your specific company situation. Professional advice helps you identify the appropriate legal form for your company. The chosen structure should support your business goals and provide legal certainty.
Contact us for individual advice on choosing the optimal legal form for your company.
