GmbH or Sole Proprietorship? The Big Decision Guide

It’s the most common question before starting a company in Switzerland: sole proprietorship (Einzelfirma) or GmbH (Swiss LLC)? Both legal forms have clear strengths – and which one fits you depends on liability risk, capital, revenue and your plans. This guide gives you the basis for your decision, point by point.

The quick comparison

Criterion	Sole proprietorship	GmbH
Minimum capital	CHF 0	CHF 20’000
Liability	Unlimited, with private assets	Limited to company assets
Formation costs	from approx. CHF 0–120	from approx. CHF 0–1’500
Business name	Must include family name	Freely choosable (+ suffix “GmbH”)
Social insurance	Self-employed	Employee of your own GmbH
Taxes	Personal income tax	Profit tax + tax on salary/dividends
Bookkeeping	Simplified up to CHF 500’000 revenue	Double-entry accounting mandatory
Unemployment insurance	No entitlement	Covered in principle (with restrictions)

Liability: the biggest difference

With a sole proprietorship there is no separation between you and your business. If something goes wrong – a client sues, a project fails, debts pile up – you are liable with all of your private assets: savings, car, possibly even your home.

With a GmbH, in principle only the company’s assets are liable, i.e. at least the share capital of CHF 20’000. Your private assets remain protected, as long as you correctly fulfil your duties as managing director.

Reality check: how high is your risk really? A copywriter with professional liability insurance carries a different risk than someone importing machinery or building software for critical infrastructure. The larger the potential damages and obligations, the stronger the case for the GmbH.

Capital: CHF 0 versus CHF 20’000

You can start a sole proprietorship without a single franc of starting capital. The GmbH requires CHF 20’000 in share capital, fully paid in at formation.

Important for context: the share capital is not a lost fee – it remains the property of your company and is available as working capital. You’ll find the details in our article Forming a GmbH: costs in detail.

Still: if you simply don’t have the CHF 20’000 in liquid funds, the sole proprietorship is the pragmatic starting point.

Social insurance: self-employed vs. employed

Here lies an often underestimated difference.

Sole proprietorship: you are self-employed

As the owner of a sole proprietorship, you count as self-employed for the AHV (Swiss old-age insurance). That means:

• You pay AHV/IV/EO contributions on your income (a reduced contribution rate compared to employees).
• No unemployment insurance – if your business folds, there are no unemployment benefits.
• No mandatory occupational pension – you must arrange retirement provision via BVG (occupational pension) or pillar 3a voluntarily yourself.
• Accident and daily sickness benefit insurance are also voluntary.

GmbH: you are an employee of your own company

If you pay yourself a salary from the GmbH, you are regularly employed – with all mandatory insurances: AHV/IV/EO, unemployment insurance, accident insurance and, from the BVG minimum salary, occupational pension too. That costs more in contributions but gives you a much tighter social safety net. (When claiming unemployment benefits, however, restrictions apply to shareholder-managing directors as long as you have significant influence over the company.)

Taxes: simple vs. plannable

With the sole proprietorship it’s simple: the business profit is your private income and is taxed together with any other income under income tax. One taxpayer, one tax return.

With the GmbH, so-called economic double taxation comes into play: the GmbH pays profit tax on its profit, and you pay tax again privately on what you pay out to yourself – whether as salary (income tax plus social contributions) or as dividends (income tax, taxed at a reduced rate for qualifying shareholdings).

Sounds like a disadvantage – but it’s also a planning lever: you can control how much you take as salary and how much you leave in the company or distribute as dividends. With higher profits, the overall tax burden can be optimized this way, to varying degrees depending on the canton. With small profits, however, double taxation usually eats up this advantage.

Anonymity and external image

A point many consider only late: the name of the sole proprietorship must include your family name – for example “Weber Webdesign”. A pure fantasy name is not allowed. In addition, you appear as the owner in the commercial register once you are registered.

The GmbH may carry a freely chosen name (“Pixelwerk GmbH”). Note, however: with a GmbH too, the shareholders are publicly visible in the commercial register – full anonymity of the owners is only offered by the AG (Swiss stock corporation).

As for external image: a GmbH often signals more commitment and permanence to larger clients, suppliers and banks than a sole proprietorship.

Switching later is possible

The good news: this decision is not final. Converting a sole proprietorship into a GmbH is possible at any time later – the business is contributed to a newly formed GmbH. Many successful Swiss companies started exactly this way: launch lean as a sole proprietorship, switch to the GmbH as they grow.

The reverse path (GmbH back to sole proprietorship) is considerably more cumbersome – another argument for starting small when in doubt.

The rule of thumb: from CHF 100’000–150’000 revenue, the GmbH becomes interesting

If you want a simple guideline:

• Under CHF 100’000 annual revenue: the sole proprietorship is usually the better choice – no formation costs, no double-entry bookkeeping, no tied-up capital.
• From CHF 100’000–150’000 annual revenue: the GmbH becomes interesting. Fixed costs (bookkeeping, annual accounts) matter less as a percentage, limited liability becomes more valuable as business volume grows, and the tax planning options start to take effect.

Regardless of revenue, these factors favour the GmbH: high liability risk, multiple founders (a sole proprietorship only works solo), planned investors, or a desired fantasy name.

Conclusion: how to decide

Choose the sole proprietorship if you’re starting alone, with little capital and manageable risk, and want to get going quickly – our step-by-step guide to the sole proprietorship shows you how. Choose the GmbH if your liability risk is relevant, you can raise the CHF 20’000 and your revenue is heading towards six figures, or you’re founding as a team.

And once you’ve decided: our provider comparison calculator shows you which formation provider lets you set up your legal form cheapest and fastest – and on the comparison page you’ll find all providers in detail.