Selling a corporation in Switzerland: planning succession strategically

Selling a corporation in Switzerland: plan succession strategically!

The corporation (AG) is one of the most frequently chosen legal forms in Switzerland. It stands for stability, reliability and clear ownership structures. Many entrepreneurs decide to sell their AG as part of their succession planning.

Selling a company places high demands on planning, documentation and negotiation. A structured approach helps to carry out the sales process efficiently and in compliance with the law.

Objective of the sale

A company sale can take place for a variety of reasons:

• Age-related withdrawal from working life
• Lack of internal succession
• Focus on new projects or activities
• Private or health-related reasons
• Optimisation of asset structure or retirement planning

Regardless of the reason, early engagement with the topic is crucial. The more time available for preparation, the greater the room for manoeuvre – particularly from a tax perspective.

Importance of structured planning

A clear sales strategy protects against:

• tax surprises
• unrealistic price expectations
• lengthy negotiations
• legal uncertainties

Professional support from fiduciaries, tax experts and M&A advisors significantly increases the chances of success. An external view helps to assess the company objectively and position it optimally on the market.

When is it worth selling a corporation?

Selling a corporation is a significant step – both entrepreneurially and personally. The reasons are varied: some entrepreneurs wish to retire due to age, others aim for a new direction or cannot find a suitable successor within the family or workforce. Health or financial considerations can also play a role.

Regardless of the motive, anyone wishing to sell their AG successfully should start planning early. A planning horizon of two to five years makes it possible to exploit tax structuring options, optimise operational structures and carefully select suitable buyers.

Form of sale: share deal or asset deal?

A key topic in preparation is the choice of transaction structure. In Switzerland, two variants are possible:

In practice, the share deal is clearly preferred, primarily because of the tax advantages for the seller. The asset deal is usually used when certain assets are deliberately excluded or realised separately – such as real estate or non-operating liquidity.

The AG sales process step by step

The sale of a corporation takes place in several clearly delineated phases. Each stage fulfils its own function – from the entrepreneurial decision to the formal handover. A structured process helps to minimise risks and safeguard the interests of both parties.

1. Preparation: analysis, valuation, sales documentation

The starting point is the decision to sell the AG. This should be accompanied by a sober assessment of the current situation. This includes:

• Current annual financial statements and management accounts
• Contracts, leases, insurance policies and ongoing obligations
• Overview of assets, liabilities and legal risks

The next step is the business valuation. This is based on various methods (e.g. earnings value, net asset value or market comparison) and takes into account both financial key figures and qualitative factors such as market position, customer structure or dependence on key individuals.

The results flow into a sales documentation. This typically consists of:

• Teaser (anonymised initial information for potential buyers)
• Sales memorandum (detailed presentation of the company)

2. Buyer search, confidentiality and initial discussions

Depending on the sales objective, a buyer can be approached from the personal environment, from management (MBO), from the market or via specialised platforms. In any case, it is important to maintain confidentiality. Before detailed documents are released, a non-disclosure agreement (NDA) is signed.

Once serious potential buyers have been identified, initial exploratory talks begin. These serve to clarify mutual expectations and build trust.

3. LOI and due diligence

If there is concrete interest, a letter of intent (LOI) usually follows. This declaration of intent is not legally binding, but marks the start of exclusive negotiations.

This is followed by due diligence. In this phase, the buyer examines the company in detail for opportunities and risks – particularly in the areas of finance, law, taxes, contracts and organisation. The aim is to confirm the information provided and clarify any open points.

4. Purchase agreement negotiations, signing and closing

On the basis of the results of the due diligence, the purchase agreement is negotiated. In addition to the purchase price, terms of payment and warranties, this also records conditions precedent and handover arrangements.

Signing refers to the signing of the contract. Actual ownership of the AG usually passes only at closing – i.e. upon fulfilment of all contractual conditions, in particular payment of the purchase price and formal transfer of the shares.

5. Handover and post-deal support

Closing marks the beginning of the handover phase. Depending on the agreement, this can range from supported onboarding to a complete handover without the seller’s involvement. Owners often remain available in an advisory capacity for a certain period of time in order to ensure continuity of operations.

Notification to the commercial register and adjustment of signing authorities also take place during this phase.

Tax aspects when selling an AG

The tax framework plays a central role when selling a corporation. Particularly for private individuals in Switzerland, a correctly structured sale can bring considerable advantages – especially in the form of a tax-free capital gain. At the same time, there are certain risks that can lead to subsequent tax charges. Early planning is therefore essential.

Tax-free capital gain: requirements

If a natural person sells shares from their private assets, the capital gain realised is generally tax-free in Switzerland. This presupposes, however, that the shares do not belong to business assets and that no tax-relevant special cases apply. This rule makes the share deal particularly attractive for sellers.

Indirect partial liquidation: what buyers and sellers need to know

An exception to the tax-free capital gain is the so-called indirect partial liquidation. This occurs when:

• the shares are transferred by the buyer into business assets (e.g. into a holding company), and
• within five years of the sale, distributions of substance or hidden profit distributions are made,
• which are used to (part-)finance the purchase price.

In this case, the originally tax-free sale can subsequently be requalified as taxable income for the seller – even if the seller did not initiate any distribution.

The issue can be mitigated by appropriate contractual arrangements, for example by:

• a prohibition of distributions of substance in the first five years
• contractual penalties in the event of violations
• reinvestment obligations for released funds

Holding period restriction after transformation

If, within the last five years before the sale, the company was converted from a sole proprietorship or partnership into an AG, special care is required. In this case, the so-called disposal holding period restriction applies: if the sale takes place within this period, the hidden reserves contributed tax-free upon conversion will subsequently be taxed.

The sale can still be prepared. A call option, preliminary agreement or down payment is permissible – but formal transfer of ownership should only take place after the period has expired.

Structuring earn-out arrangements correctly

If part of the purchase price is paid depending on the company’s future performance (so-called earn-out), particular care is required. For tax purposes, this can be interpreted as a staggered sale, which in turn can trigger multiple periods for indirect partial liquidation.

A clear contractual separation between fixed price and earn-out component is important, as is the definition of clear measurement bases.

Tax optimisation through pension fund buy-ins and withdrawals of substance

If non-operating assets (e.g. excess liquidity or real estate) are on the AG’s balance sheet, it is advisable to withdraw them in good time before the sale. Staggered withdrawals over several years – ideally combined with buy-ins into the pension fund – can significantly reduce the tax burden.

Optimisation is particularly effective when:

• sufficient time remains before the planned sale
• buy-ins into the second pillar can be claimed for tax purposes
• substance is withdrawn via salaries or dividends without triggering the partial liquidation issue

Tax ruling: creating planning certainty

To obtain clarity on the tax consequences of a sale, a tax ruling can be requested from the competent tax authority. This is a binding statement on the tax treatment of a planned transaction.

A tax ruling is particularly useful in the case of complex transaction structures, holding company buyers or planned restructurings. It is important that the ruling is based on a fully disclosed initial situation and takes into account any legislative changes during the relevant period.

Who will buy your AG? MBO, MBI or external investors

Depending on the company’s situation, different buyer profiles come into question. The following variants differ in terms of familiarity with the business, financing, handover effort and future prospects.

Staggered sale: step-by-step transfer of ownership

A special form is the staggered sale. Here, the shares are transferred in several stages, e.g. 20% annually over five years. This offers both parties flexibility – for example in financing or knowledge transfer.

Note: Each partial transfer triggers its own 5-year holding period in relation to indirect partial liquidation. Without contractual precautions, this can lead to subsequent tax consequences for the seller.

Costs when selling an AG

Selling a corporation not only generates proceeds, but also involves various costs. These arise depending on the structure, scope and complexity of the transaction. Transparent planning of these expenses is important in order to realistically assess the overall economic success of the sale.

Advisory costs

A large proportion of the costs is attributable to professional support during the sales process. This includes, among other things:

• Fiduciaries and tax advisors who review the financial and tax structure
• M&A advisors who assist with buyer search, negotiations and valuation
• Lawyers who legally safeguard the purchase agreement and other arrangements

Fees can be charged on an hourly basis or as a percentage of the sale price. For mid-sized companies, the success fee for M&A advisors is often between 2% and 5% of the sale price.

Transaction and administrative costs

The administrative effort includes, among other things:

• Commercial register fees for registration of ownership transfer
• Notary fees if certifications are required (e.g. for amendments to the articles of association)
• Costs for company valuations, if these are carried out externally

These items vary greatly depending on the canton, registered office and number of parties involved.

Tax advisory costs and tax risks

For complex transactions – especially with earn-out agreements, holding structures or converted legal forms – an in-depth tax analysis is advisable. The costs for a binding tax ruling request to the tax authority are manageable, but preparation by the tax advisor can involve additional effort.

There are also potential back taxes, for example in the event of non-compliance with holding periods, indirect partial liquidation or incorrect withdrawal of substance.

Summary of typical cost items

Selling an AG – note the differences compared to a GmbH

The sale of a corporation differs in several respects from the sale of a GmbH. These differences mainly concern the ownership structure, transfer modalities and disclosure in the commercial register.

These differences are particularly relevant when a company needs to be transferred quickly and easily – for example in succession solutions with tight timeframes or several stakeholders.