Switzerland has one of the most liberal and competitive economies in the world. The most notable factors that position Switzerland as an advantageous European business location for high quality products and services are: legal security, long-term stable fundamentals for investors, low regulatory hurdles, guaranteed protection of property ownership, free competition, as well as the avowed protection of banking secrecy. The Swiss economy’s high degree of development is largely due to its strong intertwining with the economies of other countries.

Prosperity level and pillars of the Swiss economy

Switzerland has a per capita gross domestic product which is the sixth highest worldwide or, when adjusted at purchase power parity, the seventh highest. The highly motivated workforce,the strong linkage of its industry and trade with foreign countries, and the achievements of the services industry are the keys to these economic results. The nominal gross domestic product of USD 50,500 per capita is significantly higher than the EU average and 44% and 30% higher than in Germany and Austria, respectively. In this “mature” economy, almost 70% of the gross domestic product is generated by the service sector. The manufacturing industry, with nearly 30% of the gross domestic product, also remains an important pillar of the national economy. Within the key sectors of chemicals and investments, and in the banking sector, Switzerland has maintained its strong position over the course of many years. In the high-growth services sector, information technology and telecommunications, the Swiss economy benefits from continuing market liberalization.

Basic chemicals, pharmaceuticals, machine tools and certain electronics sectors represent outstanding growth areas. The chemicals and pharmaceuticals sectors contribute 25% of the total value added of the manufacturing industry. The growing trend towards a services-based economy is accompanied by the development of smaller companies. The preponderance of small and medium-sized enterprises (SME) has traditionally been a feature of the Swiss economy. Over 99% of all companies have fewer than 250 full-time employees. A strong commitment and a keen sense of responsibility of the employees toward their employers are among the most outstanding characteristics of the Swiss workforce. They place great importance on quality and customer service in the Swiss industry sector as well as in the services sector.

Human capital

The classic example of a successful export-oriented branch of the manufacturing sector is what is known as the “secret automobile and aircraft industry”: a little known network of highly specialized manufacturing companies and problemsolvers providing components for a range of areas from precision and micro-mechanics to materials technology, plastics and textiles. As leading innovation partners, they were able to position themselves as suppliers of quality and precision products coupled with their ability to reliably meet delivery deadlines. For a mature economy such as Switzerland’s, it is typical that its

growth potential remains modest. However, Swiss industry has

massively increased its productivity. Measured by the value

added per employee, Switzerland is still an international leader.

With the progressive deregulation of protected market segments,

higher overall productivity gains are likely. Overall,

Switzerland has a solid base for building on its already strong

international competitiveness.

Company formation switzerland: Legal forms of business

Forms of domicile

An overseas individual or foreign company may choose the business form which best meets their needs. The time horizon,legal and fiscal framework and additional strategic issues of management require careful evaluation (headquarters, manufacturing or operating companies, sales office, financing or service companies).

Swiss law recognizes the following types of business forms:

• Founding a partnership or a joint-stock company

• Establishing a subsidiary or branch

• Acquiring an existing company in Switzerland (partnership

or joint-stock company)

• Forming a joint venture (partnership or joint-stock company)

• Creating a strategic alliance with or without an equity investment

The most common forms of domicile for a foreign company

in Switzerland are the subsidiary (in the form of a corporation

or limited liability company) and the branch. The right choice

of domicile and legal form can have a decisive impact on the

success of a business relocation. It is therefore worth seeking

the advice of someone familiar with the Swiss system at an

early stage in the process.

Joint-stock company

The joint-stock company or corporation (AG) is the most widely used type of legal entity in Switzerland. Foreign companies often choose this legal form for their Swiss subsidiaries. A corporation is a distinct legal entity, and its liability is limited to its assets. The authorized capital is determined in advance and is subdivided into shares. The AG is the legal form chosen not only for large companies, but also for medium and smaller ones. It is the usual legal form for holding companies and commercial finance companies. The reasons for the popularity of the AG as a legal form are:

• Limitation of liability to the company‘s assets

• Anonymity of the capital providers

• Limitation of the shareholder‘s obligation to contribute additional capital

• Simple inheritance arrangements

• Publication of annual financial statements required only if the AG has outstanding bonds or if it is listed on the stock exchange.

Establishing a corporation or joint-stock company (AG):

• At least three shareholders are required. It is possible for

shares to be held in trust by third parties. The single shareholder

corporation is not uncommon.

• The minimum capital is CHF 100,000 of which at least

CHF 50,000 must be paid in (at least 20% per share).

• The legally prescribed articles of incorporation and governing

bodies are to be created.

• There is a formal incorporation procedure ending with entry

in the commercial register. The entry is published in the Swiss Commercial Gazette.

The law prescribes three governing bodies:

• The General Meeting of Shareholders is the highest governing

body. It has the most important powers, such as the definition and modification of the articles of incorporation, electing the board of directors, choosing the statutory auditors, approving the annual report, balance sheet and income statement, deciding on the distribution of profits and approving or ratifying the actions of the board of directors.

• The board of directors is the managing body of the corporation

(AG). It consists of one or more members who must also be shareholders. The majority of board members must be resident in Switzerland and either be Swiss citizens or citizens of an EU or EFTA member state. Exceptions are possible in the case of holding companies. But in every case, at least one authorized representative of the company must be resident in Switzerland.

• The statutory auditors examine the accuracy of the annual financial statements and report to the board of directors or to the shareholders at the annual general meeting. They must be certified and independent.

Limited liability company

After the new limited liability company legislation comes into force (on 1/1/2008), a limited liability company (German abbreviation GmbH) will be considered to be a company established as a legal entity in which one or more persons or companies come together in a new firm with predetermined nominal capital (equity). Each member contributes to the firm’s capital by taking one or several equity shares at a nominal price of at least CHF 100. Equity amounts to at least CHF 20,000 and must be paid in full. Equity shares can be easily transferred in written form. Due to the revision of the corporation law, the GmbH is enjoying increasing popularity as an alternative to the corporation. The GmbH is an attractive legal form for a company and is increasingly preferred over the AG by small and medium-sized companies. The GmbH does not have a Board of Directors, thereby somewhat reducing structural costs; responsibility is concentrated in the managing director/s (at least one of which must be domiciled in Switzerland). Depending on its size, the GmbH only has limited auditing requirements. Compared to the AG, it has the advantage of having a smaller amount of registered capital, and the disadvantage of no anonymity; all members, even those who join later on, are disclosed. The formation of a limited liability company and the costs involved are similar to setting up a joint stock company. Only one founder is required. Existing GmbHs must adapt their rules and regulations within the two years following the enactment of the new GmbH legislation.

Branch

Foreign companies often choose the legal form of a branch for entering the Swiss market. Branches are not distinguished as separate legal entities under Swiss civil law. There are only references to branches under other legal forms (e.g. corporation or limited liability company). The branch is subject to the provisions of Swiss law (civil law, contract law, international private law). As far as authorization, registration, taxation, and accounts are concerned, a branch is treated like a Swiss company.