Formation of partnerships in Switzerland

Types and formation of partnerships

What is the statutory basis for partnerships, and partnership-like structures in your jurisdiction? To what extent do these laws overlap or share features with company law?

The statutory basis for partnerships in Switzerland is the Code of Obligations (CO) with separate sets of provisions (titles) for each form of partnership. The Collective Investment Scheme Act (CISA) governs the limited partnership for collective investments. In addition, there are further acts and regulations that deal with Swiss partnerships in specific situations, such as the Act on Merger, Demerger, Transformation and Transfer of Assets, as well as the Ordinance on the Commercial Register.

These laws govern different topics related to partnerships and do not overlap. They are to be consulted in parallel. These laws also contain various provisions related to company law, with certain shared features.

Identify the types of partnerships or other partnership-like structures permitted in your jurisdiction. What are they typically used for?

There are three main forms of partnership in Switzerland: the simple partnership, the general partnership and the limited partnership. In addition, there is also the limited partnership for collective investments, which is a sub-form of the limited partnership.

The simple partnership is a contractual relationship between two or more persons (physical persons or legal entities) to join forces to achieve a common goal. The simple partnership is often only created for a certain period in time (ie, until a specific project is achieved). An example often used when explaining the simple partnership is a building consortium that is dissolved once the construction project is finished.

The general partnership is a business entity set up and organised between two or more physical persons, if it is to operate a trading, manufacturing or other form of commercial business or not. It is a business form aimed at long-term projects and a brief analysis of the general partnerships registered in the commercial register shows that it is typically used by smaller, often local, businesses managed by two or more partners, such as local craftsmen and service providers (eg, accounting and law firms). According to the annual statistics of the Federal Commercial Registry, as at 1 January 2019 there were 11,395 general partnerships registered in Switzerland.

The limited partnership is a business entity in which at least one partner (the general partner) has unlimited liability and one or more partners (limited partners) have limited liability up to the amount of their respective contributions. The general partner must be a physical person, whereas the limited partner can either be a physical person or a legal entity. The limited partnership as a business form can be chosen where there is a need for further investors but without the wish to expand the management circle. Only the general partners are allowed to manage the partnership. According to the annual statistics of the Federal Commercial Registry, as at 1 January 2019, there were only 1,548 limited partnerships registered in Switzerland.

As its name indicates, the limited partnership for collective investment is a partnership whose sole object is collective investments. CISA contains provisions regarding, inter alia, the partners (interesting is that only stock companies limited by shares with their registered office in Switzerland may be general partners), authorisation, partnership agreement, prospectus and commercial register information. The limited partnership for collective investment is a very specialised type of partnership and is not very frequently used in Switzerland. It will not be mentioned further in this overview.

What are the key differences between the various types of partnerships (and similar entities) available in the jurisdiction? Are partnerships treated as bodies of persons or bodies corporate?

The main differences between the simple partnership and the general and limited partnerships is that the simple partnership (as opposed to the general and the limited partnerships) cannot be registered in the commercial register, nor does it have a protected name. It cannot operate a commercial business, nor can it acquire any rights or incur liabilities under its own name, nor can it sue or be sued in court or be subject to debt collection proceedings. The rights and obligations always belong to the simple partners. All partners of a simple partnership have the right to manage the partnership, unless the management has been entrusted exclusively by partnership agreement or resolution to certain partners or third parties. The simple partners are jointly and severally liable for obligations entered into together or via representation of individual partners. The provisions regarding the simple partnership are often used and explicitly referred to when interpreting not clearly defined relationships of other legal entities. Further, a simple partnership is only deemed to exist if the partnership does not fulfil the distinctive legal criteria of any other form of partnership, in which case the other forms prevail.

The general partnership and the limited partnership must be registered in the commercial register. The general partnership and the limited partnership are free to choose their business name, subject to the general principles regarding the business names. The name must be clearly distinct from other business names of entities in any of these forms registered in Switzerland and include the indication of the business form in question. The accepted abbreviations for the general partnership are KlG (German) or SNC (French and Italian). The accepted abbreviations for the limited partnership are KmG (German), SCm (French) and SAc (Italian).

The partners of a general partnership must be physical persons. They are responsible for the management and may individually represent the partnership, unless the representation power is limited to certain partners only. Such representation limitations must be registered in the commercial register to be valid towards third parties acting in good faith. The partners of a general partnership are jointly and severally liable with their entire (personal) assets for all obligations of the partnership. However, the liability of the partner is only of a subsidiary character as he or she is only liable for a partnership debt, even after he or she leaves the partnership, unless he or she has been declared bankrupt, the partnership has been dissolved or debt collection proceedings have been brought against the partnership unsuccessfully. The insolvency or bankruptcy of the general partnership does not automatically result in the bankruptcy of its partners.

The limited partners of a limited partnerships can be either physical persons or legal entities (eg, companies). The limited partners do not have the right to manage the partnership business, but have limited liability for the partnership obligations up to the amount of their contributions as indicated in the commercial register. The general partners of the limited partnerships are liable to the same extent as the partners of a general partnership (ie, jointly and severally but with the same subsidiary nature).

What are the typical reasons that businesses choose to operate through a partnership structure in your jurisdiction? Do any factors discourage adopting a partnership structure?

The typical reason for choosing the form of a partnership in Switzerland is mainly the easy setup with very few formal requirements. Further, no minimum capital requirements exist. There is also a large amount of flexibility in how to structure the inner workings of the partnership through the partnership agreement. Tax considerations may also play a role when choosing the partnership structure.

The strongest discouragement is certainly the joint and several liability of the partners (and of the general partners in the case of a limited partnership).

Even though the simple partnership is of great importance owing to its character as the basic form for all legal entities and different varieties of joint ventures (many simple partnerships most likely exist without the knowledge of their partners, both in the commercial as well as the non-commercial world), the clear trend in Switzerland has been and continues to be an organisation of lasting business ventures in the form of companies, particularly stock companies limited by shares and limited liability companies.

How are partnerships and the similar structures available in your jurisdiction formed?

The simple partnership is created by agreement between two or more persons (physical persons or legal entities) to join forces to achieve a common goal. The agreement does not have to be in written form.

The general partnership and the limited partnership are also based on a partnership agreement between the partners. The agreement does not necessarily need to be in writing, even though it is highly recommended. The partners are to a large extent free to choose the contents of the agreement, but it would typically include the name of the partnership, the purpose, the internal organisation, the representation rights as well as contribution duties and profit (or loss) sharing of the partners. In addition to the partnership agreement, the general partnership and the limited partnership must be registered in the commercial register. General partnerships and limited partnerships that do not operate a commercial business will only come into existence upon registration in the commercial register. The registration contains the name, the registered office and the address, the legal form, the date on which the partnership started, the purpose, the names and further details of the partners and of the persons with representation powers. In the case of a limited partnership, the registration further contains the contributions made by the limited partners and, if the contributions were made in kind, details and valuation regarding such contributions in kind.

There are no nationality or residence requirements regarding the partners. However, the activity as a self-employed person in Switzerland for foreign nationals requires a valid residence permit.