The general partnership: when it makes sense

The general partnership (Kollektivgesellschaft) is the classic form for two or more people who want to run a commercial business together under a shared firm name. It is simple to set up, but it rests on a demanding principle: the personal and joint liability of all partners. Let’s look at when it is the right choice and when it isn’t.

What a general partnership is

It is a partnership in which two or more individuals run a commercial enterprise under a shared firm name. It is not a separate legal entity like an AG or a GmbH, yet it does have a certain legal capacity: it can hold assets of its own, be a party to legal proceedings and appear in the commercial register under its own firm name.

Only individuals can be partners in a general partnership. If a legal entity is among the participants, a different form applies.

Formation and capital

The features that make it agile:

• No minimum capital is required by law.
• All you need is a partnership agreement between the partners; it requires no public deed (notarised act), although a well-drafted written contract is strongly recommended.
• Registration in the commercial register is mandatory. This is a difference from the sole proprietorship, where registration depends on turnover.

The firm name must contain at least the surname of one of the partners together with an addition indicating the partnership relationship (e.g. “Rossi & Co.”).

Liability: the heart of the form

This is the point that must be fully understood before choosing the general partnership.

• The partners are liable for the partnership’s obligations in an unlimited, joint and personal manner, with their entire private assets.
• Liability is subsidiary to the partnership: the creditor must first enforce against the partnership’s assets, but if these are not enough (or in the event of bankruptcy or a partner absconding), it can turn to each partner for the full amount.
• “Joint” means that a creditor can claim everything from a single partner, who then settles accounts internally with the others.

Anyone joining a general partnership must fully trust the other partners: management actions by one bind them all.

Taxation

The general partnership is fiscally transparent: it is not taxed as a separate entity. The profit is allocated among the partners according to their agreements, and each partner adds it to their personal income, taxed under the direct federal tax and cantonal/municipal taxes. Likewise, the share of the partnership’s assets is added to the partner’s net wealth.

This avoids the double taxation typical of corporations (company profit + shareholder dividend), but it exposes the partners to the progressive rates that apply to individuals on higher incomes.

In terms of social security, active partners are treated as self-employed for AHV (state old-age pension) purposes, with the same implications as the sole proprietorship (no mandatory unemployment insurance, optional BVG (occupational pension)).

Internal governance

Unless otherwise agreed, every partner has the right and duty to take part in management and may represent the partnership towards third parties. The partnership agreement can, however:

• assign management to only some partners;
• govern the allocation of profits and losses;
• regulate the entry, exit and death of a partner;
• provide for non-competition clauses among the partners.

A detailed partnership agreement is what distinguishes a solid general partnership from a source of future conflict.

When it makes sense

The general partnership is suitable when:

• there are two or more individuals who know and trust each other;
• the activity carries a limited risk, without major investments or exposures;
• you want to start with no minimum capital and with light formalities;
• you prefer fiscal transparency (profits taxed directly at partner level), which is useful when personal incomes are not yet high.

When it is better to avoid it

It is better to opt for a corporation (GmbH or AG) instead when:

• the activity involves significant contractual or financial risks;
• you want to limit liability to the assets contributed;
• the entry of investor partners is planned (who often do not want unlimited liability) or of legal entities;
• you are aiming for a scalable and transferable structure.

The general partnership rewards simplicity and mutual trust, but in exchange it demands that every partner’s personal assets be put on the line. If that risk is not sustainable, the GmbH is often the more balanced alternative.

Want to understand whether the general partnership suits your project or whether a corporation is the better choice? SIH ONE analyses liability, taxation and objectives and guides you through setting up your company in Switzerland.