Does a sole proprietorship protect the entrepreneur's personal assets in the event of bankruptcy?

No. As a sole proprietor, the entrepreneur is liable for business debts with all of his or her assets. In principle, only a limited liability company and a corporation can limit the entrepreneur’s liability to the amount of the company’s capital stock. However, this issue goes beyond the scope of this article and warrants a separate legal analysis.

What is the most advantageous legal structure for an entrepreneur who is a resident of France and works in Switzerland?

There is no one-size-fits-all answer. An individualized analysis is essential, as the choice of structure can determine whether taxation remains in Switzerland or, conversely, shifts to France. Depending on the cantons involved, income level, and family situation, the total tax burden can vary significantly depending on the structure chosen.

What is the most advantageous structure for an entrepreneur working in a canton other than the one where they reside?

There is no one-size-fits-all answer. An individualized analysis is essential. Depending on the chosen structure, the entrepreneur will be taxed at their place of residence (SA/Sàrl) or at the location of their business (RI). Depending on the cantons involved, the level of income, and family circumstances, the total tax burden can vary significantly depending on the structure chosen.

What is CSI Circular 28?

This refers to Circular No. 28 of the Swiss Tax Conference (CSI), dated August 28, 2008, drafted by a private-law association comprising the directors of the cantonal tax administrations as well as the Federal Tax Administration. It proposes a uniform method for valuing unlisted securities for the purposes of wealth tax in the various cantons. CSI 28 does not have the force of law. The Federal Supreme Court nevertheless recognizes its significant practical value, considering its method to be, in principle, adequate and reliable for determining the market value of unlisted securities, while acknowledging that other methods may be appropriate depending on the circumstances. The method is based primarily on the company’s profitability and thus incorporates a goodwill component. The higher the profits, the greater the tax value of the shares.

Is it still possible to convert from a sole proprietorship to a corporation at a later date?

Yes. A conversion is generally possible at any time. Starting out as a sole proprietorship—for example, due to the need to draw on LPP assets—does not preclude a future transition to a corporation. However, it will generally no longer be possible to choose to have the ownership interest form part of the entrepreneur’s “elective” business assets.

How much is the income tax for a corporation or a limited liability company headquartered in Geneva?

The effective tax rate is approximately 15%. This rate is significantly lower than the income tax rate that would apply to the same profits if they were earned as income from self-employment (10% AVS + approximately 43% income tax for a taxpayer domiciled in Geneva). It is precisely this difference that creates the tax advantage, which, however, applies only to the undistributed portion of the profit. Income tax is generally not eliminated, but deferred until a future distribution. The entrepreneur therefore has more money available to reinvest!

Is it worthwhile to incorporate a corporation when high income is entirely spent?

From a tax perspective, this is unlikely. When one’s lifestyle consumes most of one’s income, a sole proprietorship is simpler and just as effective. A corporation (SA) or a limited liability company (Sàrl) becomes advantageous from a tax standpoint once the entrepreneur wishes to reinvest a portion of their profits.

How does the LPP’s “above-mandatory” component help reduce the tax burden for an executive or self-employed individual?

The LPP, and particularly the non-mandatory portion of the LPP, allows for reductions in income tax, wealth tax, and social security contributions while deferring taxation. This can be achieved through high savings contributions, buybacks, or contributions to reserves (RFV, RCE). However, the structure must comply with the principles of adequacy, collectivity, equal treatment, and insurance; otherwise, the tax authorities may disallow the deduction. An individualized analysis remains essential to determine the optimal structure based on the client’s profile.

FAQs -

Does a sole proprietorship protect the entrepreneur's personal assets in the event of bankruptcy?
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What is the most advantageous legal structure for an entrepreneur who is a resident of France and works in Switzerland?
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What is the most advantageous structure for an entrepreneur working in a canton other than the one where they reside?
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What is CSI Circular 28?
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Is it still possible to convert from a sole proprietorship to a corporation at a later date?
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How much is the income tax for a corporation or a limited liability company headquartered in Geneva?
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Is it worthwhile to incorporate a corporation when high income is entirely spent?
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How does the LPP’s “above-mandatory” component help reduce the tax burden for an executive or self-employed individual?
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