Major Differences Between LLC and Corporation
When starting a business in Geneva, choosing the legal structure is a crucial step. The two most common forms are the limited liability company (LLC) and the corporation (SA). These two structures have fundamental differences that affect management, taxation, and the liability of partners or shareholders.
Definition of the LLC
The LLC is often favored by small and medium-sized enterprises (SMEs). It is characterized by simplified management and a relatively low minimum share capital.
Definition of the Corporation
The corporation, on the other hand, is generally chosen by larger companies or those planning to raise significant funds. It offers better protection of shareholder anonymity.
| Criteria | LLC | Corporation |
|---|---|---|
| Minimum share capital | CHF 20,000 | CHF 100,000 (of which at least CHF 50,000 must be paid in) |
| Minimum number of founders | 1 | 1 |
| Investor anonymity | No | Yes |
| Member liability | Limited to share capital | Limited to share capital |
Share Capital and Liability
Share capital and member liability are two fundamental aspects to consider when choosing between an LLC and a corporation.
Required Share Capital
- LLC: The minimum share capital is CHF 20,000. This amount must be fully paid in at the time of company formation.
- Corporation: The minimum share capital is CHF 100,000, but only CHF 50,000 must be paid in initially.
Member Liability
In both cases, the liability of partners or shareholders is limited to the amount of share capital. This means their personal assets are protected in case of bankruptcy or debts.
Governance Bodies: Partners and Shareholders
The governance structure differs between an LLC and a corporation, especially regarding the roles and responsibilities of partners and shareholders.
LLC: Partners and Management
- LLC partners are generally involved in the management of the company.
- Management is handled by one or more managers, who may also be partners.
Corporation: Shareholders and Board of Directors
- In a corporation, shareholders do not necessarily participate in daily management.
- Management is entrusted to a board of directors, composed of at least one member.
| Function | LLC | Corporation |
|---|---|---|
| Daily management | Managers (partners or not) | Board of directors |
| General meeting | Mandatory | Mandatory |
Taxation and Executive Compensation
Taxation and compensation methods also differ between the two structures.
Taxation of Profits
- LLC: Profits are taxed at the company level, then distributed to partners as dividends, which are also taxed.
- Corporation: The tax regime is similar, but shareholders often benefit from better tax optimization due to the possibility of holding anonymous shares.
Executive Compensation
- In an LLC, executives can be compensated through salary or dividends.
- In a corporation, compensation may include salaries, dividends, and shares or stock options.
Formation Procedure, Costs, and Timelines
Creating an LLC or a corporation in Geneva involves several steps, specific costs, and timelines to follow.
Formation Steps
- Choosing the company name: Check name availability with the commercial register.
- Drafting the articles of association: The articles must include essential company information.
- Opening a bank account: Deposit the required share capital.
- Notarial deed: Have the articles notarized.
- Registration with the commercial register: This step formalizes the creation of the company.
Estimated Costs
- LLC: Around CHF 2,000 to 4,000 for notary and registration fees.
- Corporation: Costs are generally higher, between CHF 3,000 and 6,000.
Timelines
- On average, forming an LLC or corporation takes between 2 and 4 weeks.
Practical Case: Creating an LLC in Geneva
Example figures:
- Share capital: CHF 20,000
- Notary fees: CHF 2,500
- Registration fees: CHF 600
- Total: CHF 23,100
Common Mistakes and Corrections
Common Errors
- Underestimating initial costs: Not budgeting enough funds to cover formation expenses.
- Choosing the wrong legal structure: Opting for an LLC when a corporation would be more suitable.
- Neglecting legal obligations: Failing to meet registration or filing deadlines.
How to Avoid Them
- Conduct a thorough analysis of your business needs.
- Consult an accountant or fiduciary to assess tax and financial implications.
- Establish a clear timeline to meet all administrative steps.
FAQ: Creating an LLC or Corporation in Geneva – Answers to Key Questions
What is the main difference between an LLC and a corporation?
The main difference lies in the required share capital and governance structure. The LLC requires a minimum share capital of CHF 20,000, while the corporation requires CHF 100,000, of which CHF 50,000 must be paid in.
Which structure is best for a small business?
The LLC is often better suited to small businesses due to its lower share capital and simplified management.
Is partner liability limited in an LLC?
Yes, partner liability is limited to their contribution to the share capital.
How much does it cost to create a corporation in Geneva?
Creating a corporation generally costs between CHF 3,000 and 6,000, depending on notary and registration fees.
Can an LLC be converted into a corporation later?
Yes, it is possible to convert an LLC into a corporation, but this involves administrative steps and additional fees.
How long does it take to create a company in Geneva?
Forming an LLC or corporation usually takes between 2 and 4 weeks, depending on the speed of administrative procedures.
Advantages and Disadvantages of Both Structures
To choose between an LLC and a corporation, it is essential to understand the advantages and disadvantages of each structure. Here is a detailed overview:
Advantages of the LLC
- Lower formation cost: With a minimum share capital of CHF 20,000, the LLC is more accessible for entrepreneurs with limited resources.
- Simplified management: Partners can be directly involved in management, facilitating decision-making.
- Transparency: The structure is ideal for family businesses or SMEs where trust among partners is crucial.
Disadvantages of the LLC
- Limited anonymity: The names of partners are listed in the commercial register, which may be an issue for those seeking discretion.
- Less suited to fundraising: Unlike the corporation, it is more difficult for an LLC to attract external investors.
Advantages of the Corporation
- Shareholder anonymity: Shareholders are not publicly listed, ensuring a certain level of confidentiality.
- Ease of fundraising: Shares can be easily transferred or sold, attracting investors.
- Increased credibility: The corporation is often seen as a more prestigious structure, which can strengthen business partners' trust.
Disadvantages of the Corporation
- Higher formation cost: The minimum share capital of CHF 100,000, of which CHF 50,000 must be paid in, can be a barrier for small businesses.
- More complex management: The need for a board of directors and formal governance can slow decision-making processes.
Checklist: Key Steps to Choose Between an LLC and a Corporation
Here is a checklist to help you determine the most suitable legal structure for your business:
- Financial needs analysis: Assess available capital and future financing needs.
- Desired level of confidentiality: Do you want investors to remain anonymous?
- Nature of the activity: Does your activity require a flexible structure or formal governance?
- Number of partners or shareholders: How many people will be involved in management or investment?
- Growth plan: Do you plan to raise funds or sell shares in the future?
- Consultation with an expert: Have you consulted a lawyer or accountant to assess tax and legal implications?
Comparative Table: Legal Obligations of LLCs and Corporations
| Legal obligations | LLC | Corporation |
|---|---|---|
| Annual general meeting | Mandatory | Mandatory |
| Management report | Mandatory if thresholds exceeded | Mandatory |
| Audit of accounts | Optional (depending on size) | Mandatory |
| Registration with commercial register | Mandatory | Mandatory |
| Publication of accounts | No (except exceptions) | Yes (if listed on the stock exchange) |
Points to Consider for Foreign Entrepreneurs
Foreign entrepreneurs wishing to create an LLC or corporation in Geneva must consider certain specifics:
Conditions for Foreigners
- Residence in Switzerland: At least one person authorized to represent the company must reside in Switzerland.
- Work permit: Foreign entrepreneurs must obtain a residence and work permit.
- Opening a Swiss bank account: Necessary to deposit the share capital.
Advantages for Foreign Investors
- Access to the Swiss market: Creating a company in Switzerland allows you to benefit from a stable and favorable economic environment.
- Favorable taxation: Switzerland offers competitive corporate tax rates.
FAQ: Frequently Asked Questions About Creating LLCs and Corporations in Geneva (continued)
What are the thresholds for a mandatory audit of accounts?
A regular audit is mandatory if the company exceeds two of the following three thresholds: a total balance sheet of CHF 20 million, turnover of CHF 40 million, or 250 full-time employees on average per year (source: Corporation or LLC: how to choose? (SECO SME Portal)).
Can you create an LLC or corporation alone?
Yes, a single person can create an LLC or a corporation. However, for a corporation, at least one board member must be appointed.
What are the annual fees for an LLC or corporation?
Annual fees include accounting costs, possible audits, and administrative fees. For an LLC, these fees can range from CHF 2,000 to 5,000, while for a corporation, they can reach CHF 10,000 or more depending on the complexity of the structure.
Can an LLC issue shares?
No, only corporations can issue shares. LLCs operate with membership interests, which are not freely tradable.
What are the timelines for converting an LLC into a corporation?
The conversion can take several weeks, depending on administrative procedures and validation of new articles by a notary and the commercial register.