Choosing Between Sole Proprietorship and Limited Liability Company (LLC)
Many entrepreneurs face the decision of whether to become self-employed by setting up a sole proprietorship or a limited liability company (LLC). This decision involves considering various factors such as accounting, liability, company name, and social insurance status.
Choosing Between Sole Proprietorship and Limited Liability Company (LLC)
Many entrepreneurs face the decision of whether to become self-employed by setting up a sole proprietorship or a limited liability company (LLC). This decision involves considering various factors such as accounting, liability, company name, and social insurance status.
Sole Proprietorship
A sole proprietorship is owned by a single individual who conducts business independently. One significant advantage of a sole proprietorship is its low administrative costs. For turnovers up to CHF 500,000, simplified accounting is permissible, with profit tax based on income, expenses, and assets, all declared in the owner’s personal tax return. Registration in the commercial register is mandatory only if turnover exceeds CHF 100,000. The owner must also register with the compensation fund to pay contributions on profits.
The primary disadvantage is the owner’s personal liability for all business obligations. Additionally, the company name must include the owner’s surname, and third-party participation is not allowed.
Limited Liability Company (LLC)
An LLC is a legal entity that can include multiple partners and/or managers. The main advantage of an LLC is the limited liability of its partners. Another benefit is the freedom to choose the company name without including the owner’s surname.
However, establishing an LLC requires a minimum capital stock of CHF 20,000, deposited in a blocked account. Administrative costs are generally higher, and double-entry bookkeeping is mandatory, requiring a balance sheet and profit and loss account in annual financial statements, along with a separate tax return. Founders who pay themselves salaries must also cover all social security contributions (1st pillar, 2nd pillar, and accident insurance).
Conclusion
While the sole proprietorship has lower costs, it involves higher risk due to personal liability. It is ideal for testing business ideas independently. On the other hand, an LLC offers legal protection, allows third-party participation, and is generally preferable due to limited liability.
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