Company Liquidation in Switzerland
Reasons for closing a business in Switzerland
Although Switzerland has a business-friendly tax and regulatory regimes, there are a lot of obstacles in the way of young companies. Here are several common reasons why businesses come to the end.
The profit isn’t enough
It is normal for companies to make just a little bit of profit during the first years.
However, all businesses, even the tiniest startups are expected to become profitable and earn good money. If the company works for more than five years and is still in need of cash infusions, it is probably a good decision to close it.
The products and services are uncompetitive
Business life is cruel, so there is always a risk that services and products won’t be liked by customers. People have various needs, and it can be very difficult to meet their requirements. To deal with this problem, you may work hard on the variety and product improvements. If it doesn’t help and or the firm doesn’t have sources to develop, voluntary liquidation can be uncomfortable but needed solution.
Employees work ineffectively
Human resources are one of the most predominant factors when businessmen choose to launch a firm in Switzerland. While the Swiss employees are famous for their excellent skills and strong work ethic, sometimes that is not enough. Specific companies have specific requirements when it comes to staff recruitment. That’s why it is a useful idea to do your research on the local labor force before launching a firm in the Swiss Confederation.
Liquidation or winding up a business, whether it is voluntary or compulsory, can be extremely challenging if you have no clue about laws in Switzerland. When you are planning to shut down your Swiss company, you should always choose a risk-free way. Professional legal consultants with years of experience will be able to solve all your business issues in the most efficient way.
Despite Switzerland is one of the best countries to run business, some companies still could face some problems. Depending on various reasons there is could be a necessity to shut down their Swiss operations. It is important to know about the liquidation process as it can help to avoid many issues. Here is information about it.
Company Liquidation Process
Liquidation is the process by which a company is brought to an end and all of its assets, for example, property and stock, are liquidated or turned into cash to repay creditors. For example, the liquidation process occurs when the company shutdown happens due to legal issues such as bankruptcy, losses, or when a company finds an advantage in combining business operations with another company in a way that will increase the shareholder value.
There are two main types of liquidations for companies whose liabilities surpass the value of its assets - voluntary liquidation (a process is instigated either by the company director(s)) and involuntary liquidation (a process is instigated by creditors). The closure procedure depends on the type of company liquidation and its legal structure.
What are the legal grounds for liquidating a Swiss limited liability company?
Although Switzerland is one of the best countries in the world for doing business, some companies have no choice but to cease their operations. It happens for multiple reasons: sometimes good, sometimes bad. When a company shuts down, it can be a result of financial problems or bad management. After all, investors can lose interest in this particular project. What should be done in this case?
There are some important legislation and rules that should be applied when it comes to terminating a business. These regulations establish the necessary procedures and explain the duties of the parties as well as the mechanisms to use when a firm is undergoing bankruptcy.
The liquidation typically occurs after the shareholders' decision. Overall, it is required to collect the vast majority of votes to set up the process of dissolving, except the documents indicate something else.
In Switzerland, there are two main types of liquidations:
That is the simplest method to end a Swiss business.
Such liquidations usually happen due to legal reasons, for example, bankruptcy. If a firm is insolvent, the bankruptcy should be initiated ASAP.
We collected a few reasons why LLCs could be brought to an end:
- through the articles of association, for instance, the life cycle of the firm may be limited by some conditions which are irrelevant now; ·
- through the decision of shareholders, in case if the articles of association don’t imply other legal grounds regarding the liquidation process; ·
- through the judgment of a court, if a minimum 10% of shareholders expressed the wish to wind up a firm for particular reasons; ·
- incorporation errors can result in a business liquidating too; ·
- if an enterprise is engaged in illegal activities, it almost always leads not only to problems with the law but also to the company liquidation.
Opening the Liquidation Proceedings in Switzerland
The decision to liquidate a Swiss company is usually happened by adopting a resolution on shareholders' meeting. In order to put the company into winding up, it is necessary to get the most votes from the company’s shareholders, unless there are no contradictions in the statutory documents of the company.
In Switzerland, the company liquidation can be concluded in the presence of a public notary. He must produce a document which confirms that the company is in liquidation. This legal paper should be entered into the Swiss Trade Register. As soon as a company is excluded from the Register it will have no right to conduct business, dispose of the assets, and initiate suits. The duration of the entire process can take about 9 months, depending on individual circumstances.
There is a possibility to shut down a Swiss company without liquidation. This involves some restructuring transactions. For example, demergers mergers, and transformations. The following issues could be reasons to shut down a firm in Switzerland:
- The company's money flow demonstrates constant problems.
- Clients have a low engagement.
- Employees are poorly trained.
It should be noted that in Switzerland liquidations and insolvencies of companies and partnerships are generally controlled by DEBA. It also governs the enforcement of monetary claims in the country, the enforcement of secured monetary claims, and bankruptcy proceedings.
Some companies end their operations without a direct liquidation. It happens due to restructuring processes and other transformations. All these changes are regulated by a particular rule, called The Federal Act on Merger, Demerger, Transformation, and Transfer of Assets and Liabilities.
What should you remember when you are going to dissolve your Swiss business? The most far-reaching effects of the liquidation, both voluntary and compulsory are tax changes. You should keep in mind the distinction between the market value and the book value subjects when it comes to various taxes. When we are talking about voluntary liquidation, your Swiss fiscal debt can be wrapped up only when all taxes are paid. The same happens when you end the financial operations, but don’t start a formal liquidation.
Once again, bear in mind: you should pay all taxes to prevent any potential problems. Even if your company is in the process of closing up, still consider the question of taxes. Be sure you are able to strike a balance between your wish to save your valuables and the legal requirements. Always try to make only wise decisions, however difficult it can be.
If you need more information or just don’t know where to start, our Swiss legal consultants are ready to answer all your questions.
Advantages of voluntary dissolution
It is the most cost-beneficial approach to end business in Switzerland if your company has no creditors
Disadvantages of voluntary dissolution
It can be really expensive. However, if your company is still debt-free, dissolution is the only way to cease business activity.
The process is complicated, especially if you do it on your own. Improper dissolution can be time-consuming and costly, plus leads to really huge legal and financial issues.
It is always a great idea to ask professional help when you are going to dissolve your firm in Switzerland.
The Voluntary Liquidation in Switzerland
The first type of company liquidation is voluntary liquidation. Usually, if the business isn’t working and the shareholders or founders (depending on the company type, AG or GmbH) find no reasons to keep on running it, they make a decision to close the company. Such an approach is valid if the company has assets and accounts receivable, as it can be used to repay the creditors. The rest (if there is any left) may be distributed among the shareholders of the company.
Other than the shareholders’ meeting, this type of company closure is possible through a judgment when at least 10% of the firm’s shareholders have enough reasons to ask for the liquidation.
The liquidation actions can be conducted by the firm’s directors or by liquidators appointed by a Swiss court. In any case, there must be made a balance sheet. Then creditors can submit their claims. If the company has a lot of debts, the assigned liquidators must inform the Swiss courts on the matter. Then the insolvency procedures will be started.
If the firm may continue the process of closure, the assigned liquidators will suspend the activities of it, give notification of any remaining share capital of the firm, and fulfill any other commitments. As soon as the liquidation procedure is concluded, the liquidators must submit a document with the Commercial Register for the deletion of the firm.
The voluntary liquidation is a simple procedure and a great solution for inactive companies. Nevertheless, it can be quite costly through the whole liquidation process. It takes a long time and there is a risk of unplanned expenditures.
Involuntary Liquidation in Switzerland
The process of involuntary liquidation can be started irrespective of the position of the ’s founders or shareholders. The liquidation proceedings can begin if a company becomes bankrupt, for instance, or in the case in which the company will merge with another business. When involved in a bankruptcy process, the firm’s creditors or the firm itself must ask for the liquidation procedure in the presence of a local court.
Meanwhile, a company could also apply for insolvency proceedings. It is a right prescribed by the Swiss Debt Enforcement as well as the Bankruptcy Law. Regardless of the way of liquidation the firm is going through, the procedure will be represented by an administrator, who will confirm that the liquidation will be terminated following the required stages.
It is important for representatives of companies to know that once the firm entered the liquidation procedure, it is mandatory to disclose all its assets, while the creditors must have to make claims. Within 2 months the administrator has to produce a balance sheet and the distribution of the firm’s assets in order to settle the debts.
As soon as the creditors get the assets the firm will be excluded from the Swiss Trade Register. This process is controlled by the assigned liquidators, who must apply an application by contacting the Trade Register.
What is the Legal Grounds for Liquidating a Swiss Limited Liability Company?
A Limited Liability Company (LLC/SARL) is one of the most preferred business forms in Switzerland. It usually is used in cases where the founders only have access to a limited amount for the company capital.
LLC has the following advantages:
- Foreigners can own 100% of all the shares.
- The liabilities of shareholders are limited to their share contributions.
- LCC only requires one shareholder to incorporate.
This is a simple requirement - only one director, who can be the sole shareholder. At least one director of LCC must be a resident of Switzerland. Moreover, one shareholder has the right to have total control.
The main reasons for which LCC can be liquidated in Switzerland are presented below:
- LCC can be liquidated as per the provisions of the firm’s charter;
- through the resolution of the LCC shareholders, provided that the charter doesn’t consist of any legal basis related to the liquidation;
- through the decision of a Swiss court, when at least 10% of the LCC shareholders have expressed the intention to shut the company down for weighty reasons;
- the dissolution of LCC can also occur if it has incorporation errors;
- a Swiss company may be dissolved if it is engaged in illicit activities.
These reasons are applicable if LCC is included in voluntary liquidation. It should be noted, that regardless of business form, this type of liquidation is the most cost-effective variant when having to shut down the business in case there are no creditors.
What are the Tax Requirements When Concluding the Liquidation Swiss Liquidation?
During the process of liquidation, a firm is not restricted from running its business. This means that a firm will still be abiding by a country’s tax law. Thus, a set of corporate taxes will be applied. Depending on the legal entity, different taxes could be imposed, but it is useful to know about the following:
- a corporate income tax could be applied. Nevertheless, it’s important to understand that holding companies that are in liquidation could be exempted from it if requested at a cantonal level;
- a real estate tax may be imposed for capital gains. It also could be applied for the transfer of real estate;
- a withholding tax is applied (35%);
- a stamp transfer tax can be just in case of selling taxable securities;
- the payment of value-added tax is applicable, provided that the firm qualifies for this type of tax.
For company representatives, the decision to exit from the business is very difficult and quite painful. However, entrepreneurs should know that such a decision almost always proves preferable to a continual demolition of the firm’s values.
While choosing the type to shut the company down it is sometimes wise to find a professional liquidator.
What are the Main Stages of a Bankruptcy Procedure in Switzerland?
In Switzerland, the bankruptcy is declared when a company has not paid debts or it has ceased to pay it. It is important to know that a single unpaid debt can beсcome for a company a starting point of bankruptcy. A creditor of a company can inform the court of the company bankruptcy even for a single debt. Meanwhile, a debtor can also provide a petition for bankruptcy when its position is compromised.
There are many stages to be accomplished if a firm is going to be liquidated due to bankruptcy. The process can begin through an inquiry of one of the firm’s creditors or by the firm. It must submit a declaration of excessive indebtedness.
A bankruptcy administrator will be assigned, who, within 60 days since the inquiries have been submitted, must produce a plan under which the firm’s assets will be distributed amongst all parties. This person must provide a report on the matter, and file it to the court of competent jurisdiction.
It should be noted that if a company fails to pay the funds required by the summons, its creditors can apply to the court 20 days after the summons is served and have the company declared bankrupt.
The debtor has an opportunity to avoid bankruptcy. He has to prove by documentation that the company has already paid its debts or that he has funds from the creditor to do it. The debtor can pay its debts within 10 days after the declaration of bankruptcy. He must ask the appeal court to annul the bankruptcy.