You know your future business partner, your skills complement each other and you want to start a business together. A Swiss general partnership (SNC/Kollektivgesellschaft) looks simple and inexpensive. A limited liability company (Sàrl/GmbH, or LLC) requires capital and more formalities, but separates the business’s assets from your personal assets.
The choice is about more than trust. Look at the contracts you will sign, the debts you may incur and what happens if one of you leaves.
At a glance
- A general partnership requires at least two individuals and has no minimum capital requirement.
- Partners have unlimited, joint and several personal liability. This liability is subsidiary and can be enforced subject to the statutory conditions.
- An LLC is a legal entity with at least CHF 20,000 in fully paid-in capital. In principle, its own assets cover its debts.
- Personal guarantees, obligations under the articles of association and liability for breaches of management duties can still expose LLC owners or managers.
- Compare formation and running costs, contractual risks, insurance and exit arrangements before deciding.
General partnership or LLC: the differences
| Criterion | General partnership | LLC (Sàrl/GmbH) |
|---|---|---|
| Founders | At least two individuals | One or more individuals or legal entities |
| Minimum capital | None | CHF 20,000, fully paid in |
| Legal personality | No, but it can act under its business name | Yes |
| Commercial register | Registration is mandatory | Registration brings the company into legal existence |
| Formation | A written agreement is recommended; no public deed is ordinarily needed to form the partnership | Public deed and articles of association |
| Business debts | Partners’ liability is joint and several, unlimited and subsidiary | In principle, covered by the company’s assets |
| Social insurance for working owners | Partners pay contributions as self-employed persons and must register accordingly | Working managers are treated as employees for their remuneration |
| Direct taxes | Profit or loss is attributed to the partners | The company is taxed; remuneration and distributions are taxed in the hands of their recipients |
The general partnership and its risks
A general partnership allows several individuals to run a business together under a business name. It is not a legal entity, but it can acquire rights and enter into contracts in its own name.
A partnership carrying on commercial activities can come into existence before registration; the partners must still register it. For a non-commercial general partnership, registration is what brings it into existence. In either case, draw up an agreement suited to your circumstances.
Practical advantages
With no minimum capital requirement, you can start without committing an amount fixed by law. The organisation can be tailored to the partners, and formation involves fewer formalities than setting up a company.
This does not mean the business can operate without funding. Prepare a cash flow budget for purchases, operating costs and initial losses. A general partnership with turnover below CHF 500,000 in the previous financial year may keep simplified records of receipts, expenditure and assets. From that threshold, the SECO SME Portal indicates that full accounting under the Code of Obligations is required. An LLC is subject to the accounting rules for legal entities regardless of this threshold.
What joint and several liability means
Each partner may have to answer for an entire partnership debt with their personal assets. An internal agreement stating “we each pay half” does not restrict third parties’ rights.
This liability is subsidiary. Article 568 CO (in French) specifies when a partner may be pursued personally: if that partner is bankrupt, if the partnership has been dissolved or if enforcement against the partnership has been unsuccessful. The article reserves liability arising from a joint and several guarantee given for the partnership. These conditions matter: creditors must meet the legal requirements before pursuing a partner personally.
The risk remains substantial. If one partner cannot pay, the burden may fall on the other. Leaving the partnership does not automatically release you from all previous obligations.
Example: debts exceed the partnership’s assets
In this illustrative example, a partnership with two partners owes creditors CHF 80,000, but its available assets cover only CHF 30,000. That leaves CHF 50,000. Once the legal conditions for pursuing the partners are met, one partner may have to bear the entire balance, even if their internal agreement allocates CHF 25,000 to each.
The right to seek a contribution from the other partner afterwards is only useful to the extent that they can pay. Before choosing a general partnership, review the commitments you could realistically face: a lease, borrowing, liability to customers and warranties for your work. Having no minimum capital requirement removes none of these risks.
Preparing to form the partnership
Start by identifying the partners, business name, registered office, address and activities. Decide on contributions, authority to represent the partnership and decision-making rules. The registration documents must reflect those choices. Follow the commercial register’s instructions for the canton of the registered office and arrange the required signatures.
For example, the procedure in the canton of Vaud (in French) distinguishes the preliminary questionnaire from the registration application, which all partners must sign with their signatures authenticated. Check the documents required by your own canton.
A written agreement is particularly useful for managing drawings. Monthly advances to partners are not necessarily their final share of the year’s profit. Provide for a year-end adjustment, reserves for taxes and social security contributions, and a rule for when cash flow no longer supports the usual drawings.
For direct tax purposes, the partnership is not taxed on its own profit in the same way as an LLC: the relevant amounts are attributed to the partners under the applicable rules. It can nevertheless have obligations of its own, including VAT and employer duties. Tax transparency does not mean there is no shared administration.
The protection offered by an LLC
An LLC has its own rights, debts and assets. It signs contracts, employs staff and owns property in its own name. Its minimum CHF 20,000 share capital must be fully paid in, either in cash or through eligible contributions in kind.
After registration and release of the funds by the bank, cash capital can be used for business needs. It is neither a tax paid to the state nor money that must remain blocked forever. The rules on capital protection and company management still apply.
Meaningful protection, with limits
In principle, company creditors look to the LLC’s assets. You may lose your contribution if the business fails, without automatically becoming personally responsible for all its debts.
However, a bank may require a personal guarantee. The articles of association may impose additional payment obligations, and a manager can incur liability for breaching their duties. The protection therefore cannot be summed up as “no risk beyond CHF 20,000”.
Additional costs and administration
An LLC requires incorporation by public deed, commercial registration and accounting that complies with the rules for legal entities. Audit requirements and the possibility of opting out are subject to separate conditions. Include payroll administration in your budget if the owners are paid for their work.
Membership interests provide a framework for owners joining or leaving, but their transfer involves formalities and may require approval. An LLC does not eliminate disagreements; it provides a structure for handling them. Our article on forming a Swiss LLC explains how it works.
Three practical examples
Two people open a bicycle repair workshop
They already own the equipment, keep commitments limited and know their trade well. A general partnership may be an option after reviewing the lease, potential damage claims and insurance. A small business can still face substantial liability: a faulty repair may have serious consequences.
Two specialists start a marketing agency
Initial investment is low, but client contracts may involve liability, advertising budgets or commitments to achieve specific results. The choice should reflect those contracts, not just the cost of computers. An LLC can make sense even without machines or inventory.
Three founders set up a brewery
Equipment, premises, inventory and financing create larger commitments. An LLC may be better suited to organising ownership and separating personal and business assets. However, check any personal guarantees required by the landlord or bank before assessing how much protection it actually provides.
Agreeing with your co-founders
Define what each person contributes, the work expected and how they will be paid. Someone contributing more money does not necessarily work more hours; distinguish these contributions.
Next, agree on major decisions: borrowing, hiring, new premises and spending commitments. Signing authority must fit this arrangement, while distinguishing internal limits from the authority to represent the business towards third parties.
Finally, discuss departures before they happen. How will an ownership interest be valued? Who can take over the business? What happens in the event of illness, death or a lasting deadlock? A well-prepared partnership or members’ agreement avoids having to negotiate everything at the worst possible moment.
| Issue to settle | Decision to record together |
|---|---|
| Contributions and work | Who contributes what, by when and with what working commitment? |
| Drawings | How much can be withdrawn each month, and when must it be reduced? |
| Commitments | Who signs, who approves borrowing and which decisions require everyone’s agreement? |
| Departure or incapacity | How will the business continue, the settlement be calculated and the exit be funded? |
What about a simple partnership?
For a limited or preparatory collaboration, a simple partnership (in French) may be relevant. It cannot be entered in the commercial register as such and should not be confused with a general partnership. The legal classification depends on the actual arrangement.
Conclusion
A general partnership can suit a clearly defined collaboration between individuals. Its simplicity nevertheless calls for a solid agreement and a shared understanding of liability. If commitments are substantial, or changes in ownership are already part of your plans, compare an LLC before signing the contracts that will determine your actual exposure.
Frequently asked questions
Can you set up a Swiss general partnership alone?
No. It requires at least two individuals. A person starting alone can consider a sole proprietorship or an LLC, among other options.
Is the LLC’s capital lost when the company is formed?
No. It belongs to the company and can be used for its business needs after incorporation. It remains exposed to the risks of the business.
Does an LLC automatically find it easier to obtain a loan?
No. The bank assesses the business, cash flows and security. The legal form may matter, but it does not replace a sound financing application.
Can you change legal form later?
Yes, but a change involves legal, accounting and tax procedures. Choosing a general partnership solely to avoid initial costs may postpone expenses if a move to an LLC is already planned in the near future.
Sources
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Romain Prieur is a Swiss certified public accountant and the founder of Entreprendre.ch. With more than ten years of experience in auditing and supporting businesses in Switzerland, he advises entrepreneurs on company formation, accounting and taxation.
