Sole Proprietorship vs LLC: Which Legal Form for Your Business?
Choosing your legal status is one of the first decisions you must make when you start as a self-employed person in Switzerland. It is not just an administrative form: this decision directly impacts your taxation, personal liability, accounting obligations, and even your credibility with clients.
In Switzerland, the vast majority of business founders choose between two forms: the sole proprietorship (RI) and the limited liability company (LLC / Sarl). This guide helps you make the right choice based on your specific situation, with detailed tax simulations and examples by profession.
Comparison Table: Sole Proprietorship vs LLC
| Criterion | Sole Proprietorship | LLC |
|---|---|---|
| Minimum capital | CHF 0 | CHF 20,000 |
| Liability | Unlimited (personal assets) | Limited to share capital |
| Legal personality | No (merged with the owner) | Yes (distinct legal entity) |
| Trade register | Optional if turnover < CHF 100,000 | Mandatory |
| Accounting | Simplified if turnover < CHF 500,000 | Double-entry mandatory |
| Creation cost | CHF 0 to 150 | CHF 1,500 to 3,500 |
| Social contributions | AVS/AI/APG (~10% of net income) | AVS/AI/APG on salary + LPP mandatory |
| Taxation | Progressive scale (personal income) | Corporate tax + dividend tax |
| Number of founders | 1 person | 1 or more partners |
| Audit body | No | Yes (if thresholds exceeded) |
| Transfer / sale | Difficult | Easier (share transfer) |
Sole Proprietorship in Detail
Advantages
- Immediate and free creation. You can start your activity today without any formalities if your projected turnover stays below CHF 100,000.
- No capital to tie up. Unlike the LLC, you do not need to deposit CHF 20,000 in an escrow account.
- Simplified accounting. Below CHF 500,000 in turnover, simple income-expense accounting is sufficient. No formal balance sheet or income statement required.
- Total flexibility. You make all decisions alone, without minutes or assemblies. Day-to-day management is lightweight.
- Direct access to profits. No need to pay yourself a formal salary: you draw freely from the business profits.
Disadvantages
- Unlimited liability. This is the most critical point. If your business incurs debts or faces a dispute, your personal assets (savings, home, vehicle) are at stake.
- No legal separation. Legally, you and your business are the same entity. This can complicate matters in case of divorce, inheritance, or litigation.
- Progressive taxation. The higher your income, the higher your marginal tax rate (up to approximately 40% depending on the canton). At high income levels, this can become penalizing.
- Perceived credibility. Some large clients or partners prefer to work with a company (LLC or SA), especially in B2B or international contexts.
Step-by-Step Creation Process
- Choose your business name. It must include your surname (e.g., "Martin Consulting," "Dupont Electrical").
- Register with the AVS fund as self-employed (detailed procedure in our guide to becoming self-employed).
- Register with the trade register if your turnover exceeds CHF 100,000 (cost: approximately CHF 120-150).
- Open a professional bank account (recommended but not mandatory).
- Declare your activity to the cantonal tax office.
Total timeframe: 1 to 3 weeks.
LLC in Detail
Advantages
- Limited liability. Your personal assets are protected. In case of bankruptcy, only the share capital is at stake (except in cases of gross misconduct by the manager).
- Own legal personality. The LLC is a distinct entity from you. It has its own name, its own assets, its own contracts.
- Enhanced credibility. The "Sarl" or "GmbH" suffix inspires trust, especially with large companies, banks, and international partners.
- Possible tax optimization. By combining a reasonable salary and dividends, you can reduce your overall tax burden (see simulations below).
- Facilitated transfer. You can sell or transfer company shares, which makes business succession easier.
Disadvantages
- CHF 20,000 capital to release. This amount must be deposited in an escrow account before registration with the trade register. It is then released for business operations.
- Higher creation costs. Budget between CHF 1,500 and 3,500 for notary fees, trade register inscription, and account opening.
- Mandatory double-entry accounting. You will need accounting software or a fiduciary from the start.
- Administrative formalism. Assembly minutes, share register, potentially an audit body.
- Partial double taxation. Profits are taxed at the company level, then dividends are taxed again at the personal level (with a tax privilege of approximately 30-50% depending on the canton).
Step-by-Step Creation Process
- Draft the company's articles of association. You can use a standard template or engage a legal professional.
- Deposit the share capital of CHF 20,000 in an escrow account at a Swiss bank.
- Visit the notary for the authentic deed of incorporation. The cost varies from CHF 800 to 1,500 depending on the canton.
- Register the company with the trade register (approximately CHF 600-800 in fees).
- Obtain your IDE number (business identification number) and your trade register extract.
- Register the company with the AVS fund, LPP, and accident insurance as an employer (you are an employee of your own LLC).
- Open the operating bank account and have the escrow capital released.
Total timeframe: 3 to 6 weeks.
Total creation cost:
- Notary: CHF 800 - 1,500
- Trade register: CHF 600 - 800
- Bank escrow fees: CHF 100 - 200
- Total: CHF 1,500 - 3,500 (excluding share capital)
Concrete Tax Simulations
One of the most determining criteria is taxation. Here are three simplified simulations for a single, childless self-employed person domiciled in the canton of Vaud (Lausanne), to compare the overall tax and social contribution burden.
Scenario 1: Net Profit of CHF 80,000
As a sole proprietorship:
- AVS/AI/APG contributions: ~CHF 8,000
- Taxable income (after deductions): ~CHF 65,000
- Taxes (IFD + ICC): ~CHF 10,000
- Total burden: ~CHF 18,000 (22.5%)
As an LLC (salary CHF 65,000 + dividend CHF 15,000):
- Social contributions on salary (employer + employee share): ~CHF 9,700
- Corporate tax: ~CHF 700
- Personal income tax (salary + dividend): ~CHF 8,500
- Total burden: ~CHF 18,900 (23.6%)
Verdict: At CHF 80,000, the sole proprietorship is slightly more advantageous and much simpler to manage.
Scenario 2: Net Profit of CHF 120,000
As a sole proprietorship:
- AVS/AI/APG contributions: ~CHF 12,000
- Taxes (IFD + ICC): ~CHF 20,000
- Total burden: ~CHF 32,000 (26.7%)
As an LLC (salary CHF 80,000 + dividend CHF 40,000):
- Social contributions on salary: ~CHF 11,900
- Corporate tax: ~CHF 3,500
- Personal tax: ~CHF 15,500
- Total burden: ~CHF 30,900 (25.8%)
Verdict: The LLC starts to become attractive. The difference is modest but will widen with growth.
Scenario 3: Net Profit of CHF 200,000
As a sole proprietorship:
- AVS/AI/APG contributions: ~CHF 20,000
- Taxes (IFD + ICC): ~CHF 45,000
- Total burden: ~CHF 65,000 (32.5%)
As an LLC (salary CHF 100,000 + dividend CHF 100,000):
- Social contributions on salary: ~CHF 14,900
- Corporate tax: ~CHF 8,500
- Personal tax: ~CHF 28,000
- Total burden: ~CHF 51,400 (25.7%)
Verdict: At CHF 200,000, the LLC allows savings of approximately CHF 13,600 per year. The tax optimization is significant.
Important: these simulations are indicative. Taxation varies significantly from one canton to another. See our cantonal taxation comparison in Switzerland and speak with your fiduciary before making a decision.
Concrete Examples by Profession
Freelance IT Consultant (Turnover: CHF 130,000)
Sophie is a web developer in Geneva. She works alone from her apartment, with 4 regular clients. Her financial risks are low (no inventory, no expensive equipment). She started as a sole proprietorship and it is the right choice for her: the administrative simplicity leaves her more time for her projects. She is starting to consider switching to an LLC for next year, as her income is increasing.
Plumber Installer (Turnover: CHF 180,000)
Marc is a plumber in Lausanne. He has a professional vehicle, equipment, and works at the premises of both individuals and businesses. The risks of damage to client property are real. He chose the LLC from the start to protect his personal assets. His professional liability insurance complements this protection. The additional management costs are more than offset by the legal security.
Communications Agency (Turnover: CHF 250,000, 2 partners)
Laura and Thomas created a digital communications agency in Neuchatel. From the start, the LLC was the obvious choice: they are two partners, they need clearly defined company shares, and their turnover justifies tax optimization. Each pays themselves a salary of CHF 80,000 and receives dividends from the remaining profit.
When to Switch from Sole Proprietorship to LLC?
Many entrepreneurs start as a sole proprietorship and convert to an LLC later. Here are the signs that it is time to make the transition:
- Your net profit regularly exceeds CHF 120,000 - 150,000. Tax optimization via the LLC becomes significant.
- You are taking on significant financial risks. High-value contracts, increased liability, material investments.
- You want to bring in a partner. A sole proprietorship does not allow you to integrate a partner.
- You are targeting B2B or international markets. The "Sarl" form inspires greater trust.
- You plan to sell your business. Transferring company shares is much simpler than selling a sole proprietorship.
The conversion is possible without liquidating your sole proprietorship. A notary and your fiduciary will guide you through the process, which generally takes 4 to 8 weeks.
What About the SA (Corporation)?
The SA is a third option, better suited to larger structures. Minimum capital: CHF 100,000 (of which CHF 50,000 must be paid up). It offers the greatest flexibility in terms of financing (share issuance) and governance. However, for the majority of freelancers and small SMEs, the LLC provides equivalent protection with significantly lower costs and complexity. The SA should be considered if you plan to raise funds, go public, or exceed a dozen employees.
How to Decide? The Checklist
Choose the sole proprietorship if:
- You are starting alone with little capital
- Your activity carries low financial risk
- You prioritize administrative simplicity
- Your projected net profit stays below CHF 120,000
- You do not need a partner
Choose the LLC if:
- You have one or more partners
- Your activity involves significant financial risks
- You are aiming for strong growth
- Your net profit exceeds or will soon exceed CHF 150,000
- You want to protect your personal assets
- You plan to sell your business eventually
ToBill Adapts to Your Status
Whatever legal form you choose, ToBill supports you in your daily operations:
- Compliant QR invoicing according to Swiss standards, in just a few clicks
- Simplified accounting (sole proprietorship) or double-entry accounting export (LLC)
- Expense tracking and automatic categorization
- Direct export to your fiduciary in compatible format
- Payroll management (for LLC managers and employees)
- Dashboard to monitor your business in real time
Switching from sole proprietorship to LLC in ToBill is done in just a few clicks: your client data, invoice templates, and history are preserved.
Free 10-day trial, no credit card required. Whatever your status, ToBill simplifies your management.