Management buy-in and buy-out for partnerships

Case 1: Formation of a partnership

1. facts of the case

Doctors Bruno Braun and Kevin Klein want to establish a joint medical practice in the legal form of a general partnership.
Bruno Braun contributes a plot of land, in which the practice rooms are located, to the general partnership when the practice is founded. This has a market value of CHF 4 million and investment costs of CHF 3 million. Kevin pays Bruno a compensation payment of CHF 2 million from his private assets for the contribution of the property, which also corresponds to his capital contribution.

The foundation balance sheet is as follows:

2. questions

• Canton with monistic system: Are there tax consequences from the contribution of the property?
• Canton with dualistic system: Are there tax consequences from the contribution of the property?

Case 2: Entry of the hopeful junior doctor

1. facts of the case

After a few years of successful work, the two founding physicians want to give the hopeful junior physician Amanda Weiss a share in the medical partnership by increasing the capital of the general partnership by Amanda's share. Amanda is to have a 33% stake in the partnership in the future. According to the partnership agreement, she must also buy into the existing hidden reserves. The corresponding premium is to be credited to the capital of the "old shareholders".

The balance before Amanda's involvement:

2. questions

• What is the amount of Amanda's investment?
• Are there any tax consequences for Amanda as a result of the entry?
• Will the entry have tax consequences for the "old shareholders"?

Case 3: Sale of a share in the company

1. facts of the case

As an alternative scenario, Bruno is considering leaving the practice for reasons of age and selling his interest in the general partnership to Amanda at fair market value, in which case Amanda would compensate Bruno with a corresponding payment.

2. questions

• What are the tax consequences for Bruno?
• What are the tax consequences for Amanda?

Case 4: Conversion of a partnership into a legal entity

1. facts of the case

To Amanda Weiss, the structure of a partnership does not seem very practical - there are already other experienced young talents in the pipeline who will also be involved in the practice in a few years, and it is also conceivable that an external investor will be brought on board in the medium term. Bruno and Kevin want to take these considerations into account and convert the partnership into a legal entity.

2. question

• Which legal and tax aspects have to be considered?

Case 5: Withdrawal of a shareholder

1. facts variant 1

After a few years, when Amanda Weiss is very well established, Bruno decides to retire from practice to devote himself to philanthropic work.

2. questions

• What is Bruno's capital share?
• What are the tax consequences of Bruno's withdrawal if the capital share is settled by the remaining shareholders with a compensation payment from company funds and the allocation of the company car?
• Tax consequences for the remaining shareholders?

3. facts variant 2

The practice is integrated in a legal entity (AG) and the three participants Kevin Klein, Bruno Braun and Amanda Weiss hold the participation rights in equal shares (1/3 each) in their private assets. Bruno Braun now wishes to leave the company and intends to sell his participation rights. In order to keep the group of shareholders small, the other two shareholders would like to buy the shares from him in equal shares.

4. questions

• What tax consequences does the sale of shares trigger for the shareholders?
• Assume that Bruno would like to be compensated for his shares, among other things, with a vehicle that is part of the business assets of the AG. What options are available to the shareholders and what would be the tax consequences of this transaction for the parties involved?

Case 6: Conversion of the partnership into a stock corporation with private withdrawal of a participation

1. facts of the case

The Good Health Group, which operates many medical practices in Switzerland, has already sounded out whether it can also take over the medical practice. For this reason, the doctors are considering a conversion into an AG.

In the conversion, Kevin Klein wants to take over a participation in MedStartup AG, which is recognized in the annual financial statements of the general partnership and belongs to the business assets, as he has put a lot of heart and soul and commitment into the development of the business concept of this company. The other partner physicians leave the participation to Kevin at the net asset value, which is above the participation book value but below the appraisal value according to SSK circular no. 28.

2. questions

• What tax consequences would the conversion into an AG have for the shareholders?
• What are the tax consequences for the shareholders of Kevin Klein's gratuitous takeover of the shareholding in MedStartup AG?
• What would be the tax consequences of Kevin Klein acquiring the interest in MedStartup AG at fair value for consideration?