Sole Proprietorship vs. GmbH: Which Is Right for You?

Choosing between a sole proprietorship (Einzelfirma) and a GmbH is one of the first big decisions for a founder. Each has a distinct profile.

Sole proprietorship

Simple and cheap to set up, no minimum capital, and you are personally liable for all business debts. Profits are taxed as your personal income.

There is no separate legal entity: you and the business are the same person for legal and tax purposes. Setup is essentially a registration, with no capital requirement.

Because profits are taxed as personal income, you are taxed at your personal progressive rate in your canton and commune of residence.

The unlimited personal liability is the main drawback. If the business fails, your private assets are on the line.

• No minimum capital required.
• Unlimited personal liability.
• Simple setup and lower admin.

GmbH

A GmbH requires CHF 20,000 in share capital and has its own legal personality, which limits your personal liability to the company’s assets. Profits are taxed at the corporate level.

The GmbH is a separate legal entity that can own assets, sign contracts and be sued in its own name. Your personal exposure is normally capped at the share capital.

Setup requires founding documents, registration in the trade register and depositing the share capital. It costs more and takes longer than a sole proprietorship.

Profits are taxed at the corporate level, and what you pay yourself is taxed again as income. Tax planning matters more with a GmbH.

• CHF 20,000 minimum share capital.
• Limited liability.
• More formalities and higher admin.

The deciding factors

Liability risk is the strongest signal. If your work could cause significant damages or you take on contracts with real exposure, limited liability is worth the cost.

Some clients and industries expect a GmbH or AG as a sign of substance. The structure can matter as much as the legal protection.

Conversion from a sole proprietorship to a GmbH later is possible, but it involves transferring assets and contracts. Choosing correctly early saves friction.

Cost and admin compared

A sole proprietorship has minimal setup cost and light ongoing admin, though you still need bookkeeping and a tax return. It suits low-risk, single-person businesses.

A GmbH brings founding costs, trade register fees and recurring obligations such as annual financial statements and, above thresholds, an audit.

There are also ongoing duties like maintaining a proper minute book and respecting the separation between company and private assets.

Weigh the recurring cost against the liability protection. For many solo founders, a sole proprietorship is the pragmatic start, with a GmbH as the next step.