Personal liability in company law
Depending on the form of business entity that has been chosen different stipulations of company law govern the level of liability. Because of this it’s important to consider during the course of a business start exactly who might be liable in case of a insolvency.
Considerable differences in personal liability
The choice of business entity type has a significant impact on the level of liability of the business owner. In a sole proprietorship there is unlimited personal liability for all obligations of the business. As the sole owner of the business the sole proprietor is liable for any debt of the company that cannot be repaid.
In the case of a partnership, all partners share liability for the obligations of their company. Liability is subsidiary, unlimited and solidary. Subsidiary, because the partnership is the first instance of prosecution in the case of unmet obligations; unlimited, because the amount of liability of a partner is not limited by the entity and solidary, because the amount of the obligation vis-à-vis the creditor is not split among the partners, rather it is possible to demand the total amount from each individual partner. In other words, should one partner not be able to pay, this obligation falls on the other partners.
In the case of a limited liability company (GmbH), only the company is liable to the creditors, not the individual business owners. In accordance with Art. 772 Para. 1 and Art. 794 OR (Swiss Code of Obligations), liability for obligations is only carried by the company assets.
In the case of a public limited company (AG), the situation is similar. Also here only the legal entity of the firm carries the liability and not the individual shareholders. In accordance with Art. 680 Para. 1 OR, the shareholder is only liable for the payment in full of his or her shares.
Stricter regulations for management
Insofar that one has management responsibilities in a limited liability company or a public limited company, one may eventually be liable This liability arises out of Art. 752 ff. OR which has been put into place particularly to deal with mismanagement within the board of directors. In the case of a limited liability company, responsibility for mismanagement arises out of Art. 827 OR, which refers to stock corporation law.
