I attended this workshop organised by Startups.ch which went through the main steps of creating a company in Switzerland and explained the different choices to be made. The training was mildly interactive and served as a pitch for Startups.ch to demonstrate their expertise and sell their comprehensive package, as well as further training modules.
Training was delivered by Raphael Nerz Business Consultant at Startups.ch and a gentle follow-up took place by email to check if I had questions. Nice and soft approach!
1. Legal forms of company in Switzerland
There are 4 different legal forms of company to choose from:
- Personal company: either Sole Proprietorship or General Partnership
- Capital company: either Limited Liability Company (GmbH) or Public Limited Company (AG)
The table below shows the main differences (please note that general partnership is not represented). For more information please check here.
1.1 Personal Companies
There is no share, you are the only owner (or several owners if general partnership) and if you want to raise finances to scale you will have to change status. No auditors are required and you handle the company taxes as part of your personal taxes.
- No capital requirement
- No general assembly
- Can use your pension fund (all or nothing) as starting capital, but you will have to show that you are an independent (show 3 bills from 3 different clients) ; this will put your pension funds at risk as it becomes part of your assets.
- Personal liability
- No insurance for loss of employment
- Some companies might not want to do business with you as there is no capital behind your company (seen as more risky as there is no capital to claim from in case you don’t deliver)
1.2 Capital Companies
You will be required to bring capital:
- GmbH requires 20’000 CHF in escrow account at registration and then transferred to the account of the company and available to buy services, furnitures, etc…
- AG requires 50’000 CHF minimum to be paid in cash, the rest can come in cash or in kind (e.g. car, other assets – but these must be assessed by accountants, so will probably be valued lower than their real value and will cost the accountants fee for the assessment)
- So typically it will be easier to start at a GmbH and develop your product, rather than create your product and bring it as “as kind” capital into a AG
With Capital companies, you will need to perform an audit if you have more than 10 employees. Taxes will be paid on profits made by the company, by the company. Then the company will pay salary to its employees, and employees will pay social security and taxes on their wages. As the owner of the capital you can also decide to be remunerated through dividend paid by the company (but there will still be double taxation, on the profits made by the company, and then on the dividend paid to owners).
1.3 What legal form to choose?
The choice of legal form depends on your business model. It is dictated by the risks you are taking in delivering your business:
- If you are taking lots of risks (e.g. a doctor), then you should go for a Capital company as it puts a limit to your personal responsibility in case things go wrong
- If you are not taking much risk, then a Personal company is probably more appropriate as it has a simpler structure, and wont expose you too much
You also need to take into account how much capital you will need to develop your business and whether you want to be using your pension fund as funding capital.
You should also consider the costs you are prepared to support in creating the structure (capital company costs much more than personal company to run).
Finally you also need to decide whether you will need associates, or shareholders to help you grow the company.
The following points are however irrelevant to the decision of which legal form to adopt:
- Whether you want to hire staff
- How you will pay yourself
- Whether it is your main occupation or a 2nd activity (please note that as a general rule, you cannot compete directly with your employer in case it is a 2nd activity, and also note that if you resign and want to conduct this as you main occupation, it is likely that non-competition clauses will apply for a period of 6 months to 1 year – anything beyond is not enforceable)
2. The Business Plan
A Business Plan will be used as:
- An internal planning tool – from the very strategic level (business model and strategy) down to the very practical level (market entry and financing plan) and to help you prioritise what needs to be done when
- A pitch for investors and/or for partners and associates
The structure of your Business Plan should follow this sequence (TAKE-OFF in German):
- Management summary
- T ätigkeit (Target company): idea, strategy, legal form
- A bnehmer (Market): needs, market, target customers
- K onkurrenz (Competition): direct and indirect competitors
- E intritt (Entrance): price, product, place, promotion
- O rganisation (Organisation): team, organisation, infrastructure
- F ernsicht (Future): strengths, weaknesses, opportunities, threats, milestones
- F inanzen (Finances): projected income statement, capital requirements, financing,
liquidity, balance sheet
How to leverage your Business Plan:
- Use the essence of your business model for your pitch, but also to decide whether a pivot is required (i.e. change of business model, in case the original idea does not work)
- Structure your project plan and your financial planning
- Keep these two points fresh (but not necessarily the full document)
2.1 Business Model (Tätigkeit)
First, you need to think about your business model. The essence of the business model can be captured in the following diagramme:
Key questions to consider here are:
- Who (clients) buys what (products) and how (business process)?
- How is value being created // how do you generate money from the services/products that you sell to clients?
- (be careful of liquidity… i.e. when do you receive the cash? Any business model with upfront payment is better than a model where cash is collected at the end!)
2.2 Market Analysis (Abnehmer)
Then you will need to conduct a market analysis to quantify the size of the market you are planning to address and how much revenue you can expect to generate:
- Top-down: with trends and study reading to assess the size of your market (use google)
- Bottom-up: ask potential clients / use your own experience
2.3 Competition (Konkurrenz)
Finally, you will also need to take into account potential competitors. Having no competitor is not a good sign (as there must be no market then, or your idea is really revolutionary and you will spend lots of time and efforts to evangelise clients). Most of the times in fact, you will have indirect competitors (i.e. alternative ways to fulfil the need you identified). Try to position yourself against the main competitor and take the features/part of their USP (Unique Selling Proposition) you like the most
2.4 Market Entry (Eintritt)
Then, you will need to define your approach to enter your target market, and once again two choices:
- Think long and hard and create the perfect idea, then build it and roll it out with a bang when everything is ready: this is risky, as you might get something wrong and only realise when it’s too late.
- Preferable to start lean and get feed-back along the way, so build module by module: this allows to de-risk the market entry and to improve along the way
2.5 Future (Fernsicht)
The purpose of the Business Plan is to show that you are able to think ahead and you can use external available information to support the development of your idea (e.g. SWOT analysis). You need to show:
- You can use your strengths to mobilise resources to capture opportunities and develop mitigation measures for your weaknesses
- How you will use the opportunities to mitigate the threats
The Business Plan will need to have milestones. So think in terms of workstreams and deadlines. Creating a start-up implies that lots of things will happen simultaneously and you need to be able to manage this.
2.6 Financing Plan (Finanzen)
Financing plan will need to cover the first 2years of costs and revenues.
Don’t forget the cash flow statement (as you need to ensure that you are not running out-of-cash, otherwise your start-up dies).
3. Finding capital
The graph below pictures the different phases of your start-up growth and the associated sources of capital to match your financing needs:
Unless you can commit important personal capital from the start, you will need to start with bootstrapping, and finance your first efforts with your own money and love money from the 3Fs (Friends, Family and Fools).
Once you have reached some successful milestone and have demonstrated traction among your target market, with sales, revenues and future pipeline, it makes sense to raise external capital to fund the next step of growth. The more effort you will have put it, the more traction you will have hopefully created and the more you can claim to keep in terms of equity (as the value of the business will be higher).
You will not receive any financing from VCs or Banks until you have a proof of concept and a (favourable) market response to your idea:
- In order to obtain loans from banks, you will need to have at least 2 years of business success
- When engaging with VCs, remember that they will have a fixed term for exit and will therefore exert pressure towards the approaching term to exit your business (be aware of it as it might not fit with your plans)
4.1 Social Insurance
The table below shows the different types of social insurances and their approximate amounts you will need to pay depending on the legal form of your start-up:
All yellow contributions are mandatory.
If you are an independent:
- Contributing to a pension fund is only voluntary. If you work full-time, you can find a pension organised in your industry. Alternatively you can also pay up to 20% of your profits (total max of 33’840 CHF/per year) into your 3rd pillar pension.
- UVG/NBU are not necessary if you work part-time (already paid by your employer)
If you are non-independent, as a rule of thumb, assume that you have to pay between 16 and 18% of salary for social insurance (make sure to account for it in your financing plan).
4.2 Other Insurances
You might consider other insurance, depending on the nature of your business:
- Vehicule insurance
- Property insurance against damage to production plant or default of a debtor
- Voluntary personal insurance like income replacement due to illness, accident insurance
- Liability insurance against claims of third parties for damages to person and property
- Legal insurance
5.1 Income Tax/Company Tax
Personal company: Sole Proprietorship and General Partnership
- Joint tax return for the owner and the company
- Profit of the company is seen as the owner(s)’s income – split according to %ownership of the company
Capital company: GmbH and AG
Profits made by the company are taxed with rates depending on location of the company. Losses can be deducted from future profits up to 7 years after.
As employee of the company, you have to pay social insurance on your wages (AVH/IV/EO/Family Allowance/ALV/2nd Pillar/UVG or NBU) as per the table above.
As the owner of the company, you can also receive dividends from the company, but you will be taxed on this revenue as well. You cannot receive 100% of your remuneration under the form of dividend. There are industry standards/averages and the tax office will check that you are within these averages. They will also check that social security has been paid on wages.
There are some cantonal regulations to mitigate the double taxation effect (company profits + tax on dividend): if you own at least 10% (in some cantons also 5% or 20%) of a GmbH or AG you will be able to get a deduction on your income tax for the dividends.
5.2 Value-Added Tax (VAT or MWST in German)
You have to pay VAT to the VAT Office if you generate more than 100’000 CHF of turnover per year.
If you know (or think) you are going to hit this threshold when you launch, then you should sign up to the VAT office. This avoids that you don’t charge VAT to your clients, and then realise you need to pay it and end-up paying it from your own pocket.
If you don’t generate more than 100’000 CHF /year you don’t have to sign up, but you can still decide to register voluntarily, in particular if:
- Majority of export abroad
- Large initial investment but currently little revenue
- Many VAT obligated companies as customers
- If you don’t want to show customers are straight away how little turnover you have
There are two methods to pay VAT:
- Effective Method
- Quarterly billing
- Payment has to be made within 60 days after the billing period expires
- Switching to net tax rate possible after three years
- Settlement Tax Rate Method
- Fixed net tax rate (depending on activity; between 0.1% – 6.7%)
- Simplified half-yearly billing
- Input tax does not need to be determined (which can be negative for you if your true input tax is higher than industry average)
- Up to max. 5m CHF turnover per year & up to max. 109’000 CHF VAT
- Switch to effective billing method after one year
You need to ask yourself two fundamental questions:
- Can I do myself?
- Do I want to it myself? i.e. What other thing(s) could I do instead during this time and where I can add more value?
Alternatively you can delegate all or part to a specialist external firm. In case you delegate only a part, make sure you use the same software as the accounting firm.
If you have chosen a Capital Company, remember that the accounting will need to have double entry book-keeping, so definitely a specialist may be required.
7. Founding process with Startups.ch
Duration without STARTUPS.CH
Duration with STARTUPS.CH
|1. Choice of the correct legal form||
|15 minutes in the form of a consultation|
|2. Implementation/Drafting of Documents||
|24 hours at the most (on workdays)|
|3. Letter of deposit of the deposited share capital||
|4. Notarization of the foundational documents||
|5. Entry into the Commercial Register and verification of the Certificate of Registration||
|Average of 12 days|
8. Founding costs with Startups.ch
* Discount 10th anniversary until 30/06/2017 – Regular price GmbH 1500.-/ AG 1600.-
** Discount 10th anniversary until 30/06/2017 – Discount of 50.- on regular price
*** In the case of a start-up using contributions in kind, additional costs will be incurred by the auditor: mostly 500.- to 1000.-
All prices exclude Commercial Register charges.
Founding costs can be reduced to nil through cooperation with Startups.ch partners.
More reading about founding companies: