Choosing between a sole proprietorship (raison individuelle) and a limited liability company (Sàrl / GmbH) is often presented as a purely legal or administrative decision.
In reality, it is a strategic choice that affects:
- personal liability
- social security and pension planning
- taxation
- flexibility
- long-term wealth and succession
Let’s break it down clearly.
1. Sole proprietorship vs Sàrl: the fundamental difference
The Sàrl: (mostly) protecting your private assets
The core principle is correct:
👉 A Sàrl is a separate legal entity
➡️ In case of financial difficulties or bankruptcy, private assets are generally protected.
⚠️ Important exceptions (often misunderstood):
- AHV / IV / APG social contributions
- Occupational pension (LPP) contributions
- VAT liabilities
If these are not paid, managing directors can be held personally liable.
👉 So yes: protection is not absolute, but it remains far stronger than in a sole proprietorship.
The sole proprietorship: simplicity with unlimited liability
- No separation between private and professional assets
- In case of debt → personal assets are fully exposed
But in return:
- great freedom
- low administrative burden
- fast decision-making
👉 Ideal for simple activities, but structurally riskier.
2. Creation and legal obligations: key confirmations
Commercial register
- Sole proprietorship
- Mandatory registration once annual turnover exceeds CHF 100,000
- Sàrl
- Mandatory registration from day one, regardless of turnover
👉 Same destination, different timing.
VAT: when and how?
- Mandatory VAT registration once CHF 100,000 of taxable annual turnover is reached
- Optional below that threshold
The two main VAT methods in Switzerland
1️⃣ Effective method
- VAT charged:
- 7.7% standard rate
- 2.6% reduced rate
- VAT on expenses can be reclaimed
- More precise, but more administrative work
2️⃣ Net tax rate method (flat-rate)
- Rates roughly between 0.1% and ~6.5%, depending on activity
- Often around 5–6% for many independents
- No VAT recovery on expenses
- Much simpler administratively
💡 Strategic choice
- Few expenses → flat-rate often attractive
- High investments → effective method usually better
3. The Sàrl owner is an employee of their own company
A crucial structural point.
Key advantages
- ✅ Accident insurance (LAA / SUVA)
- ✅ Loss of earnings insurance (sickness)
- Mandatory under a CBA
- Optional otherwise, but commonly taken by directors
- ✅ Mandatory LPP affiliation once salary exceeds the threshold
(≈ CHF 22,000 per year)
👉 The director benefits from employee-level protection, which is highly reassuring.
4. LPP in a Sàrl: a powerful (and underused) tool
When the director pays themselves a high salary:
- Access to:
- supplementary pension plans
- high contribution levels
- large LPP buy-ins
- 👉 Immediate tax deductions
- 👉 Strong retirement capital building
⚠️ Trade-offs:
- less flexibility
- strict withdrawal rules
- dependence on pension fund regulations
5. One drawback of the Sàrl: the 3rd pillar ceiling
You are absolutely right here:
- Director = employee
- 3rd pillar limit = employee ceiling
- Around CHF 7,000 per year (adjusted annually)
👉 Less room than an independent without LPP.
6. Sole proprietor: maximum freedom
Coverage is optional
- Accident insurance: optional
- Sickness insurance: optional
- LPP: optional
👉 Total freedom… but total responsibility.
LPP or no LPP: the key strategic question
Case 1: Independent with LPP
- Highly customizable pension plans
- Excellent tax optimization
- But:
- less flexibility
- 3rd pillar capped at employee level
Case 2: Independent without LPP
- 👉 3rd pillar up to 20% of net income, capped at ~CHF 35,000
- Massive tax leverage
- Private, flexible, adjustable
- Contributions can be stopped or modified
💡 Key reminder:
The 3rd pillar is private, unlike the LPP.
7. Withdrawing the 2nd pillar vs the 3rd pillar
Both allow withdrawals for:
- primary residence purchase
- permanent departure from Switzerland
- business creation
- retirement
But a major difference at retirement
🔹 3rd pillar
- Capital only
- Paid directly to the holder
- Separate and favorable taxation
- Full freedom afterwards (spend, invest, private annuity)
🔹 LPP
- Choice between capital, annuity, or a mix
- BUT:
- increasing restrictions on capital withdrawals
- growing political and demographic pressure
8. Structural issues with LPP annuities
A very strong point:
- 🔻 Conversion rates are constantly decreasing
- Same capital ≠ same pension depending on retirement year
- Annuity:
- taxed as income
- governed by pension fund rules
- often lost upon death (outside survivor benefits)
👉 With capital (e.g. via the 3rd pillar):
- transferable
- private annuity solutions available
- far more control
9. LPP performance: safety vs returns
- Legal minimum interest rate on mandatory portion
- Technical rate set by the pension fund
- No investment freedom
👉 Secure, but often underperforming long-term
👉 Highly dependent on profession and pension fund
Typical example
- Independent doctors
- Very low-risk pension funds
- Excellent combination:
- LPP for security
- 3rd pillar for flexibility and performance
10. Taxation of the 3rd pillar
- Contributions deducted from taxable income
- Tax savings = marginal tax rate
- Higher income → stronger impact
11. Succession: a topic too often ignored
Married vs unmarried
- Married couples:
- near-total inheritance tax exemption in most cantons
- Unmarried couples:
- extremely heavy taxation
- Example: Neuchâtel up to ~47%
👉 A major risk for non-married couples with assets.
The PACS solution
- After 2 years, treated like direct heirs
- Same inheritance tax treatment as marriage
- BUT:
- no AHV splitting
- often fiscally more attractive than marriage
👉 A very strong compromise today.
12. Buying property in Switzerland: key reminders
Equity requirements
- Minimum 20% equity
- Max 10% from LPP
- Remainder: cash / 3rd pillar
Don’t forget
- notary fees
- transfer taxes
- ancillary costs
Bank criteria
- debt ratio ≈ 33–37%
- sufficient income
- bank valuation is decisive
⚠️ Example:
- purchase price: CHF 1,000,000
- bank valuation: CHF 700,000
👉 The CHF 300,000 difference must be covered with additional equity.
Strategic conclusion
Choosing:
- sole proprietorship or Sàrl
- LPP or 3rd pillar
- annuity or capital
- marriage or PACS
- investment or security
👉 These are not administrative decisions
👉 They are life, tax, and wealth decisions
And ultimately, as you rightly say:
The final decision belongs to the client.
Our role is to give them the right keys to decide.