Entrepreneurship in the Alps: What Does It Cost to Start a Company in Switzerland?

Starting your own company can be one of the most exciting and rewarding endeavours! However, before diving in headfirst, it is vital to understand the financial implications, and how to navigate them. In this article, we will explore the various costs associated with starting a company in Switzerland and how different legal forms can affect these costs. We will also discuss some of the common ways to finance a new business.

How does the legal form affect startup costs?

The legal form you choose for your company has a significant impact on the costs involved. In Switzerland, the three most common legal forms for businesses are sole proprietorship, limited liability company (GmbH), and stock corporation (AG). Each come with their own relative advantages and uses.

In this article, we will focus on how these three types of corporate entities differ in terms of the startup costs. For a more in-depth comparison between these three types of legal forms, read more here.

The main cost differences arise from the variations in initial capital requirements, registration costs, administration fees, and various other expenses which are generally incurred during the early phases of starting a business. We will look at each of these categories of costs later, and how they vary for each of the corporate entities mentioned.

Sole proprietorship

A sole proprietorship is the simplest (and default) legal form for a startup where there is a single owner. In this case, the business is not considered a separate legal entity from the owner. As a result, the costs associated with establishing a sole proprietorship are relatively low, as there is no incorporation process. There is also no minimum initial capital required for a sole proprietorship, which makes it the preferred choice for smaller businesses with limited access to funding.

A sole proprietorship may be subject to limited registration fees if it has a high enough turnover to warrant mandatory VAT registration and entry into the commercial register. There are also costs involved in reserving a name for the business. Aside from these costs, there are typical starting costs such as accounting and legal fees, purchasing initial inventory and supplies if applicable, hiring staff, buying equipment and office space, etc.

One other crucial expense that a sole proprietorship may have to consider is liability insurance as there is no legal separation between the owner and the business, which exposes personal assets to potential risks.

Limited liability company (GmbH)

A limited liability company (GmbH) is a popular legal form in Switzerland that offers liability protection to its owners. Forming a GmbH involves more complex processes and therefore higher associated costs compared to a sole proprietorship. Expenses include legal fees for drafting the operating agreement and other official documents, notarisation costs, and registration fees with the appropriate government agencies, along with all other ordinary expenses which come with starting a new business. A GmbH is also subject to initial capital requirements of CHF 20,000, of which 100% must be paid up. 

Stock corporation (AG)

A stock corporation (AG) is a legal form often chosen by larger businesses aiming to raise capital by issuing shares. Although there are a few additional regulatory and administrative requirements involved in establishing and maintaining an AG, the fee for incorporating is similar to that of a GmbH. The governance fee is also the same for both types of entities. However, an AG does have a larger minimum initial capital requirement of CHF 100,000 (of which at least 50% must be paid up). It is also likely that other business costs may be higher due to the larger scale of the business.

Typical startup costs include legal fees for drafting the articles of incorporation, registration fees, notarisation expenses, and costs associated with issuing shares. It is worth noting that ongoing compliance and reporting requirements for AGs can be more demanding and, therefore, potentially more expensive. However, this is highly dependant on the nature of the business, where it is incorporated, its annual turnover, and various other factors.

What types of costs do you need to consider?

We have briefly touched on the types of costs you may encounter when setting up a new business. We will now expand on each of these and discuss their relevance for the different legal forms:

Initial capital requirements

Depending on the legal form, you may need put forward a minimum amount of initial capital to incorporate your company (aka “share capital”). Initial capital is not an “expense” per se, as it is money that is invested into your business. However, it still means you need to be able to produce the required funds before you can even register your business entity.

Initial capital requirements for the three types of legal forms mentioned are:

• Sole proprietorship: 0
• GmbH: CHF 20,000 (100% paid up)
• AG: CHF 100,000 (minimum 50% paid up)

Registration costs

If you want to incorporate an AG or GmbH, you will have to pay the required fees to enter it into the Commercial Register. Sole proprietorships with an annual turnover of more than CHF 100,000 will also need to register themselves. The expected fees are as follows:

• Sole proprietorship: CHF 120
• AG and GmbH: CHF 600

Administration and professional fees

In setting up a company in Switzerland, there are several administrative requirements which come with their associated costs. Some of these include:

• Trustee advice
• Notary fee for the incorporation process (not applicable for sole proprietorship)
• Accounting and legal fees
• Setting up a physical or virtual office
• Hiring employees or contractors

It is difficult to quantify these costs, as they can vary substantially based on numerous factors, such as the legal form of the business, its size and scope, the type of business activities, where it is incorporated, and much more. Naturally the costs increase with the size and complexity of the business entity in question.

To get a better understanding of how these costs might affect you and how much they would come to, it is recommended to work closely with a startup expert like Nexova AG.

Other initial expenses

There are various additional costs you may encounter when starting a new business. It would be impossible to list every foreseeable expense, but some of the major costs to be prepared for include:

• Branding and marketing expenses
• Website development
• Product development
• Physical offices and manufacturing facilities if required
• Initial inventory and supplies
• Business equipment
• Insurance

Once again, one cannot put a definite number on these costs. It all comes down to the situation of the individual business, its activities, and objectives.

How do you cover these costs as a startup?

When one adds up all the costs and capital requirements, starting a new business is usually not cheap. It is important to understand and estimate the costs involved, and to then have a clear plan of where you will access the capital needed to cover these costs. There are a few options when it comes to raising capital for your startup:

1. Personal savings / self-investment

Many entrepreneurs use their personal savings to finance the initial costs of starting a company. Perhaps you have had a plan to start your business venture for many years and have been saving diligently for this exact purpose. The benefit of such a situation is that it provides greater personal control over your business’ direction and avoids incurring any debt or giving up any equity at the beginning. However, it’s important to assess whether the amount you have saved will be sufficient to cover all the necessary costs, and if you are willing to take on so much personal risk.

2. Friends and family

If you do not have the money available yourself to start your new business, the next common option is to turn to close friends and family for support. Friends and family know you personally and may have a better idea of your character, be more confident in your business’ success, and trust you to repay them when it comes time. While this approach can provide an easier initial source of capital, it’s essential to establish clear expectations and agreements to avoid potential strain on personal relationships.

3. Loans and credit

One of the most widely used sources of capital for starting a business is to apply for a loan from a bank or other traditional financial institution. Potential options include specialised small business and startup loans, or traditional bank loans.

That said, it is not always easy to obtain the kind of credit required from these institutions. Swiss banks are quite restrictive about lending large sums to startups, due to the higher risks involved. Securing a loan would most likely require a strong business plan, collateral, and a good credit history. Even then, the terms may be unfavourable, and you may be subject to high interest rates and restrictions on how the funds can be used.

4. Venture capital

Due to the difficulties and restrictions of traditional debt financing, funding your business with the help of venture capitalists and/or angel investors can be a great alternative. These individuals or firms provide capital in exchange for equity in the company.

Venture capitalists know they are taking on higher risk when they invest in your company, but they do so if they also see that there is the opportunity for greater returns. For this to work, you will need to pitch your business idea well and demonstrate its potential for high returns. One downside with this method of raising capital is that you give up part of the equity in your company, and possibly a level of control too.

Planning for the future

While the initial phases of starting a business are generally the most expensive, they are not the only costs that you need to consider. It is also equally important to plan for future expenses which you will undoubtedly face as you continue to operate and expand your business. These include costs such as salaries, taxes, production expenses, insurance, interest in the case of debt, and many more.

As you navigate the startup phase, aim to develop a comprehensive financial plan that includes projected revenues, operating expenses, and potential expansion costs. It is also important to be realistic and not necessarily expect to turn much of a profit in the initial years of your business. Businesses who have additional funds available and are prepared for such eventualities are the ones who have the chance to go on and be successful in the long run, having come through the challenges of the startup stage.