GmbH: Advantages & disadvantages of the legal form in Switzerland

The limited liability company is one of the most popular legal forms, along with the sole proprietorship and the public limited company. In 2023, almost 50% of all founders in Switzerland opted for a limited liability company, as it offers numerous advantages that make it attractive to entrepreneurs and investors.

From the limited liability for shareholders to the comparatively low capital requirements and tax advantages – the GmbH is a flexible and secure option for companies.

Nevertheless, there are disadvantages, such as the comparatively high administrative costs and the disclosure obligations, which must be carefully weighed up.

This article provides an overview of the most important advantages and disadvantages of the GmbH and highlights for whom this legal form is particularly suitable.

Advantages of a limited liability company

Limited liability

A major advantage of a GmbH is the limited liability. The shareholders are only liable with the capital they have contributed and not with their private assets. This offers considerable protection against financial risks.

Capital requirements

The minimum capital requirement for establishing a GmbH in Switzerland is CHF 20,000. This capital can be paid in cash into a so-called capital contribution account or deposited in kind.

Compared to other legal forms such as the stock corporation (AG), the required share capital is relatively low, which makes the establishment of a GmbH easier for smaller companies and start-ups.

Flexibility in structuring

The GmbH offers flexibility in the internal organization. The shareholders can take over the management or appoint an external managing director. They can also individually organize the distribution of profits; this is determined in the statutes and/or the partnership agreement.

This flexibility enables the shareholders to adapt the structure of the GmbH to their specific needs at any time.

Tax benefits

In Switzerland, GmbHs can benefit from various tax advantages, such as the possibility of claiming business expenses for tax purposes and the use of tax planning options to optimize the tax burden.

In addition, tax rates in Switzerland are low compared to other countries, which increases the attractiveness of the location.

Possibility of converting a GmbH into a stock corporation (AG)

A key advantage of founding a GmbH is the flexible option of converting it into a stock corporation (AG) without liquidation. This means that the company can change its legal form without having to cease operations or dissolve the company.

This offers the opportunity to flexibly adapt a company’s business structure to changing needs and growth plans.

Transparency in the commercial register vs. anonymity of shareholders

In Switzerland, the bodies, capital and company shares are publicly visible in the commercial register. This transparency can have both advantages and disadvantages. On the one hand, it promotes the trust of business partners, investors and customers by disclosing the company structure and financial circumstances.

On the other hand, this openness can also be seen as a disadvantage, as sensitive information is accessible to everyone, which is at the expense of the shareholders’ privacy. As a company, you should be aware of this transparency and adapt your information policy accordingly.

Disadvantages of a GmbH

Formation and administration costs

The formation costs of a GmbH include notary fees, fees for entry in the commercial register and possibly legal fees. Ongoing administrative costs, such as bookkeeping and annual financial statements, can also be considerable.

These financial expenses should be taken into account when deciding in favor of the GmbH.

Publicity obligations

In Switzerland, limited liability companies are subject to certain disclosure requirements for transparency and traceability. These include entry in the commercial register, which makes basic information such as the company name, registered office, purpose and share capital publicly accessible.

Capital commitment

The required share capital of CHF 20,000 must be contributed in full at the time of formation and deposited in a capital contribution account. This minimum capital requirement can be a challenge for some founders, especially if the capital is needed for other purposes.

Limited capital procurement

Compared to a stock corporation (AG), the GmbH has limited options for raising capital. Issuing new shares is costly and requires the approval of the shareholders. In addition, GmbH shares are less attractive for investors as they cannot be traded on the stock exchange.

Change of shareholders

Changing shareholders in a GmbH can be complicated and time-consuming. Each change must be entered in the commercial register, which causes additional costs and administrative work. This can limit the flexibility of the GmbH and reduce its attractiveness for potential investors.

Restrictions on unemployment benefits for managing directors

Managing directors are not entitled to unemployment benefit unless they leave the company or their job permanently. This regulation also applies to spouses who work for the GmbH.

This restriction can lead to financial uncertainty, particularly in difficult economic times or in the event of unforeseen corporate crises. As the managing director of a GmbH, you should therefore take precautionary measures and protect yourself.

For whom is it worth setting up a limited liability company (GmbH)?

New entrepreneurs and start-ups

For entrepreneurs starting a new business, the GmbH legal form offers numerous advantages, especially the limitation of liability and flexibility in company management. The GmbH can also be a suitable legal form for start-ups with low start-up capital.

SMEs and family businesses

Small and medium-sized companies as well as family businesses benefit from the structure and tax advantages of the GmbH. The option of taking over the management of the company yourself or delegating it to trustworthy persons makes the GmbH particularly attractive for these types of companies.

Foreign investors

The GmbH is a suitable legal form for foreign investors who want to gain a foothold in Switzerland. It offers a clear legal framework and protection against personal liability risks.

In general, the GmbH is attractive for companies that plan for the long term and want to build a stable business structure.

Would you like to find out more about the differences between a GmbH, AG and sole proprietorship? Read this article.

What are the arguments against a limited liability company (GmbH)?

High start-up and administrative costs

The costs associated with founding and managing a GmbH can be a decisive disadvantage for some entrepreneurs.

The financial burden can be too high, particularly for very small companies or companies with low turnover, making other legal forms such as sole proprietorships or general partnerships more attractive.

Capital commitment and limited capital procurement

The required capital commitment and the limited options for raising capital can also be seen as disadvantages. Companies that rely on flexible and fast capital procurement could be restricted by the structure of the GmbH.

Administrative expenses and disclosure obligations

The increased administrative burden and disclosure requirements pose further challenges. Careful accounting and compliance with legal requirements require time and resources that could otherwise be used for the operating business.