Freelancers and consultants: which legal form to choose

Anyone working on their own as a consultant, developer, designer or professional soon faces a question: carry on as a sole proprietorship or set up a company? There is no one-size-fits-all answer. It depends on how much you turn over, how much risk you take on, whether you work for few or many clients and how you want to be taxed. Here are the criteria for deciding rationally, without following the trend.

The first hurdle: being genuinely self-employed

Even before the legal form, there is an issue that many freelancers underestimate: the recognition of self-employed status by the AVS compensation fund (AVS is the state old-age and survivors’ pension). Declaring yourself self-employed is not enough. The fund assesses concrete indicators:

• you work for several clients or in fact depend on just one;
• you bear your own entrepreneurial risk (investments, your own organisation);
• you act in your own name and on your own account, with organisational freedom.

If these elements are missing, the fund may classify you as an employee in fact, with consequences for contributions. Those who work steadily for a single client are particularly exposed. This must be clarified at the outset, because it shapes the whole set-up.

The sole proprietorship

It is the simplest way to start:

• no minimum capital and low start-up costs;
• entry in the commercial register mandatory only above CHF 100,000 in revenue;
• simplified accounting below CHF 500,000 in turnover;
• the activity’s income is added to personal income and taxed under ordinary progression.

The heavy drawback: unlimited liability. The owner answers with all their personal assets for the obligations of the activity. For consulting with low contractual risk it may suffice; for activities that expose you to significant liability, it is a risk to weigh seriously.

The GmbH

Setting up a GmbH changes the logic:

• minimum capital CHF 20,000, fully paid in;
• liability limited to the share capital: personal assets are protected;
• the freelancer becomes an employee of their own company, with a salary subject to AVS and social insurance like any employee;
• the ability to modulate salary and dividend, with different tax and contribution effects;
• a more structured image towards corporate clients and the possibility of bringing in partners.

In exchange there are more obligations: orderly accounting, annual closing, social affiliations, recurring management costs. Moreover, the GmbH resolves at the root the problem of recognising self-employed status with the AVS: as a director-employee you are a salaried person, and the question does not arise in the same terms.

Sole proprietorship or GmbH: how to decide

In practical summary:

• Low turnover, contained risk, uncertain start → the sole proprietorship is leaner and cheaper.
• Growing turnover, real contractual risk, corporate clients, a will to separate assets → the GmbH protects and provides structure.
• A single steady client → the self-employment question must be addressed upstream; the GmbH can be the answer, but here too substance counts.

A widespread rule of thumb: when profit becomes stable and substantial, the protection and planning advantages of the GmbH begin to outweigh the additional costs. But the exact threshold depends on the case, not on a fixed rule.

Social insurance, in both cases

As a self-employed person, you affiliate with the compensation fund for AVS/AI/IPG (state old-age, disability and loss-of-earnings insurance) and provide for your own pension (the LPP, occupational pension, is not mandatory for the self-employed, but is often wise). As a director-employee of your GmbH, instead, you fall within the salaried system, with mandatory LPP above the salary threshold and LAINF (accident insurance) coverage. The difference in pension protection is a concrete element of the choice, not a detail.

How we work at SIH ONE

At SIH ONE we help freelancers and consultants choose the right form based on turnover, risk and objectives, secure the issue of self-employment recognition, and set up tax, contributions and pension coherently. If the GmbH is the correct choice, we set it up; if the sole proprietorship is, we set it up well from the start.

Do you want to understand which form really suits your independent activity? SIH ONE guides you in the choice and the incorporation tailored to how you work.