Intro
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Corporate law is about how people who want to work together on a business structure their collaboration, with two main issues:
- Money: Who puts in the money, who puts in the sweat, and who gets the money?
- Power: How are decisions about the business made?
You can choose from a variety of corporate structures when starting a business.
While other corporate structures are available (associations, cooperatives, general partnerships, etc.), the main distinction in practice is between (i) sole proprietorships and (ii) companies.
Sole proprietorship
A sole proprietorship is a business structure in which one individual owns and manages the entire business.
Here are some key points about a sole proprietorship:
- Sole ownership: The owner is the only person who owns the business. There are no shareholders or partners. This means that the owner has complete control over all aspects of the business, from business strategy to day-to-day operations.
- Limited access to capital: As a sole proprietorship, the ability to raise outside capital is (very) limited. In addition, it is not possible to bring in investors.
- Liability: The owner has full personal liability for debts. This means that personal assets can be used to pay business debts.
- Taxes: Profits and losses are reported on the owner's personal income tax return. The business itself is not a separate tax entity. This can make taxes easier to handle, but it also comes with personal tax obligations.
A sole proprietorship is not a company
Keep in mind that while a sole proprietorship legitimizes your business, it does not create a separation between you as an individual and your business. This means that you are personally liable for your business. On the contrary, if you have a company, you will (usually) not be directly affected personally, even if your business goes bankrupt.
Company
The structure of a company involves:
- Board of directors: The board of directors is the executive branch of the company. The board usually elects a chairman and makes decisions by majority vote. It has a number of inalienable duties, which are listed here. For other tasks, in particular the day-to-day management of the company, the board may delegate its powers to an individual (e.g. the CEO).
- General assembly: The general assembly consists of all the shareholders of the company and is the supreme body of the company. It must meet at least once a year and has a number of inalienable powers, which are listed here.
As mentioned above, the great advantage of companies is that they limit the personal liability of the founders by creating a distinction between individuals and entities.
When incorporating a company, you can choose between a GmbH/Sàrl or an AG/SA. Check out our Incorporation page for more details.
Corporate documents:
- Articles of association: Articles of association are highly standardized. They are publicly available for all companies on the commercial register's website. They outline the basics such as (i) how many shares are available, (ii) how these shares are issued and transferred, (iii) what the general assembly can decide, etc.
- Shareholders' agreements: The Shareholders' Agreement (SHA) is a confidential agreement between all shareholders. It governs the details of the company's organization.
- Other corporate documents: Other documents related to the Incorporation or, for example, the Capital increase carried out by the companies, are publicly available on the website of the commercial register. Their purpose is to formalize the decisions taken by the company that are visible in the commercial register (e.g., change of seat, capital increase, etc.).