Restructuring of personal companies

Case 1: Conversion of a sole proprietorship into a corporation

1. facts of the case

Hans Balmer, born January 23, 1964, is the owner of the bus company "Balmer's Bus- und Carträume" (hereinafter: "BBC"), which is registered as a sole proprietorship in the Commercial Register of the Canton of Bern.

Hans Balmer is also the owner of a plot of land which was assigned to him by his father in 2003 - subject to a reservation of usufruct until June 30, 2007 at the latest. The imputed value of the property in relation to his two siblings was set at CHF 423,000. The usufruct has since been discharged and deleted from the land register.

On the property there is, among other things, a commercial building with two business premises, which Hans Balmer rents out. The land and the building are not included in the balance sheet of the sole proprietorship. In the years 2003 to 2005 - i.e. still during the period of the usufruct - Hans Balmer additionally built a bus and car hall for BBC on the property and capitalized it in the balance sheet. In total, investments of around CHF 1.4 million have been made for the car hall to date, which have been depreciated by around CHF 800,000.

The key balance sheet figures of BBC according to the annual financial statements as of December 31, 2022 are as follows (in CHF):

The income statement of BBC as of December 31, 2022 shows the following figures (in CHF):

With a view to his succession, Hans Balmer decides in March 2023 to incorporate the sole proprietorship BBC retroactively as of January 1, 2023 into a new corporation to be founded, "Balmer's Bus- und Carträume AG" (hereinafter: "BBC AG"), domiciled in the Canton of Bern.

Question

Can the conversion of BBC into BBC AG as of January1,2023 be carried out in a tax-neutral manner? What are the relevant requirements?

Variant 1

Hans Balmer intends, in the context of the transformation of BBC (see Facts 1), to transfer the property according to Facts 1 to his private assets, i.e. not to transfer it to BBC AG. The property has an official value of approximately CHF 1,100,000.

Questions

1. What question with regard to the property arises pre-question?
2. Can the conversion still be made tax neutral?
3. What is the tax situation regarding the transfer of the property to private assets?
4. What is the problem?

variant 2

Hans Balmer employs a young, committed employee (Lukas Müller), whom he would like to "bind" to himself or the business immediately (keyword: shortage of skilled workers), i.e. immediately after the transformation of BBC into BBC AG. He is therefore looking for a way to give Lukas Müller a stake (around 10%) in BBC AG.

Question

Do you see any ways in which Hans Balmer could achieve his intention?

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Case 2: Conversion of a general partnership into a corporation

1. facts of the case

Pflanzen + Blumen Hostettler & Co. (hereinafter: "PBH") is a general partnership with its registered office in the Canton of Berne. It was founded in 2000 by the spouses Fritz and Dora Hostettler and the long-time employee Lars Knuchel. The general partnership has since been registered in the Commercial Register of the Canton of Berne.

The purpose of PBH is the production, sale and trade of flowers and plants of all kinds. It employs around 45 people and generated sales of around CHF 5 million in the 2022 financial year.

In April 2005, Dora Hostettler left the general partnership and her son Matthias Hostettler (born 1974) joined the general partnership in her place. Fritz Hostettler also left the general partnership at the end of December 2005. Also as of January 1, 2006, the two remaining partners Lars Knuchel and Matthias Hostettler reorganized their relationships in a collective partnership agreement dated June 19, 2006. Since then, they have each held a 50% share in the general partnership.

In the annual financial statements of PBH, three plots of land in Bern (No. 2059, 3281, 3501 and 1908) used for business purposes are included in the balance sheet. However, these properties have never been owned by the general partnership, but are in the sole ownership of Matthias Hostettler, who took over the properties with benefit and risk as of January 1, 2006 for the account of future inheritance under tax deferral. Since then, the land has been leased to PBH in accordance with the rental and lease agreement dated June 19, 2006. The real estate (net) income is determined in a separate divisional statement and the resulting result is solely attributable to Matthias Hostettler. The remaining operating profit is divided equally among the shareholders.

The properties mentioned were already previously in the business assets of Fritz Hostettler. Accordingly, they are still in the business assets of Matthias Hostettler today.

Two of the plots of land (Nos. 2059 and 3501) are subject to a mortgage, which is also recognized in PBH's financial statements. However, Matthias Hostettler is the debtor vis-à-vis the bank. The mortgage interest is borne by him and claimed as a deduction for tax purposes.

Questions

1. Is it possible in principle to convert PBH into a corporation, i.e. Pflanzen + Blumen Hostettler AG (hereinafter: "PBH AG")?
2. What difficulties arise if Matthias Hostettler and Lars Knuchel are to continue to hold 50% each in PBH AG?

Variant

In order to keep the properties in the ownership of the Hostettler family in the long term - and because Lars Knuchel does not want to buy into the value of the properties - the properties should remain in the ownership of Matthias Hostettler.

Note: It should be noted that although the properties are part of Matthias Hostettler's business assets and were listed in the financial statements of the general partnership. However, they are effectively not part of the general partnership, but the real estate (net) income was always determined separately and allocated directly to Matthias Hostettler. Along with the properties, the parking spaces created and financed by PBH on one of the properties are also transferred to Matthias Hostettler at book value (these were previously allocated to the movable tangible assets and are now included in the immovable tangible assets in the 2022 financial statements and in the conversion balance sheet). Furthermore, Matthias Hostettler also takes over the mortgages in his name.

Matthias Hostettler wishes the properties to continue to represent business assets for him in the future and not to be transferred to his private assets. In the future, he will rent the properties "directly" to PBH AG, whereby the rental agreement and the rent will be adjusted to the new circumstances.

Question

Is it possible that the properties remain the property of Matthias Hostettler?

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Case 3: Transfer of shares in partnerships

1. facts of the case

Egon Müller, Zurich, holds several 100% participations in Swiss and foreign corporations. Müller Holding AG and Müller Beteiligungen AG, both domiciled in Zurich, in turn hold interests in various investment companies. These investment companies are established as partnerships (limited partnerships) and are domiciled in Luxembourg and Germany. All fund companies are closed-end funds which are not accessible to the public.

Mr. Müller would like to combine his investment activities under Müller Investment AG, Zurich, which he also owns 100% (effective date: January 1, 2024). This should give him a better overview of his fund investments in the future and also allow him to reinvest more easily. Similarly, for various reasons (e.g. business succession), Egon Müller would like to continue to maintain the three Swiss stock corporations and neither liquidate nor merge them. The three companies in question do not have any tax loss carry-forwards.

Finally, Müller Holding AG is also a limited partner in Müller Beratungen & Co, a limited partnership domiciled inZurich. The general partner and sole signatory is Peter Müller, the brother of Egon Müller, who resides in Lucerne. However, his right to share in the profits amounts to only 0.1% and the equity capital invested by him amounts to CHF 1,000. 99.9% of the profit generated by Müller Beratungen & Co. as well as the equity capital contributed by it (limited partner's sum/contribution) is due to Müller Holding AG.

Müller Beratungen & Co. has neither offices nor its own staff and operates purely as an asset manager. It holds some shares in Swiss, unlisted corporations (free float). These include in particular a participation in the domestic stock corporation Fantasia AG. This participation has hidden reserves of approximately CHF 1 million; the participation rate is 9.5%.

Questions:

1. What are the basic options for transferring the shares in the fund companies to Müller Investment AG? Would a restructuring be conceivable for the purpose of transferring shares?
2. If the partnership shares are to be sold to Müller Investment AG, how is the purchase price determined and what are the tax consequences?
3. Can the limited partner's share in Müller Beratungen & Co. be transferred to Müller Investment AG without realizing the hidden reserves?

Variant

How is question 2 answered if Müller Holding AG has significant tax loss carryforwards?

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Case 4: Conversion of a foreign sole proprietorship into a partnership and joining of partners

1. facts of the case

Markus Schuster lives with his family in Hamburg and operates a flourishing trading business in the Hanseatic city under the company name "Markus Schuster Medical Trading", which is registered in the German Commercial Register, in the legal form of a sole proprietorship. In 2022, Markus Schuster achieved sales of EUR 24 million and a taxable net result of EUR 3.8 million.

Due to his close relationships with various pharmaceutical companies in Northwestern Switzerland, Mr. Schuster is planning to expand his operations into Switzerland. As a first step, a branch office is to be opened in Pratteln/BL. If the market entry can be successfully implemented, Markus Schuster would like to transform his sole proprietorship into Schuster Medical Trading GmbH & Co. KG and let his long-time acquaintance and business friend Gerhard Fleissig from Liestal participate in the German limited partnership. Mr. Fleissig was active for many years in the trade of pharmaceutical products and has an excellent network to manufacturers and larger pharmacies.

The branch office in Pratteln is to be retained even after the conversion of the sole proprietorship into Schuster Medical Trading GmbH & Co. KG will be maintained.

Questions

1. From a commercial law perspective, what needs to be considered with regard to the registration of a branch office by the sole proprietorship Markus Schuster Medical Trading in the Commercial Register of the Canton of Basel-Landschaft?
2. What are the tax consequences of the entry of the branch office in the commercial register of the Canton of Basel-Landschaft?
3. How does the entry of Gerhard Fleissig into Schuster Medical Trading GmbH & Co. KG as a new limited partner under civil law and what tax and social security consequences are associated with this?

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