Limited Liability in a GmbH and AG: Where It Holds and Where It Doesn’t

The stock corporation (AG) and limited liability company (GmbH) are two of the most popular legal forms for businesses in Switzerland. One of their main features is that they are both designed to provide limited liability, meaning shareholders’ personal assets are protected from the company’s debts and obligations. However, the important question is, just how foolproof is this protection in reality?

This article explains how limited liability works in Swiss AGs and GmbHs, when it breaks down in practice, and under what conditions directors and managing shareholders can be held personally liable. It also covers the consequences of liability, relevant time limits, common risk scenarios, and strategies to help minimize personal exposure.

Under Swiss law, both AGs and GmbHs are independent legal entities. This means that the company itself is responsible for its debts and obligations, not the individuals who own or manage it. This principle is codified in the following provisions of the Swiss Code of Obligations (CO):

AG (Stock Corporation)

An AG (stock corporation) is defined and governed by Articles 620 to 763 of the Swiss Code of Obligations (CO). The following articles are particularly relevant in understanding how limited liability works in an AG:

• Art. 620 CO defines the nature of a stock corporation and explicitly states that only the company itself is liable for its debts.
• Art. 621 CO requires that the nominal share capital must be at least CHF 100,000, and Art. 632 CO goes on to state that at least CHF 50,000 or 20% (whichever is larger) of the nominal share capital must be paid in upon incorporation. This minimum capital requirement serves as a security buffer for creditors.
• Art. 680 CO clarifies that shareholders cannot be required to contribute more than the nominal value of their shares, even through the articles of association.
• Art. 725 CO outlines the duties of the board of directors in case of capital loss or over-indebtedness, placing an obligation on directors to take appropriate action when financial stability is at risk. Measures include convening a shareholder meeting, preparing audited interim accounts, and, if necessary, notifying the court.
• Arts. 753–755 CO set out the liability framework for company founders, directors, and auditors. In particular, Art. 754 CO establishes that the directors and all those involved in the company management may be held personally liable for damages caused by an intentional or negligent breach of duty, which includes not complying with those duties outlined in Art. 725 CO.

GmbH (Limited Liability Company)

A GmbH (limited liability company) is defined and governed by Articles 772 to 827 of the Swiss Code of Obligations (CO). The following articles are particularly relevant in understanding how limited liability works in a GmbH:

• Art. 772 CO defines the GmbH as a legal entity with its own rights and obligations, separate from those of its shareholders, and specifies that the company is liable for its own debts. It also briefly mentions that, in a GmbH, the articles of association may stipulate additional capital contributions and shareholder obligations (Art. 772 para. 2 CO).
• Art. 773 CO requires a minimum share capital of CHF 20,000, which must be fully paid in upon incorporation. This ensures that creditors have a guaranteed baseline of corporate assets to claim against.
• Art. 794 CO reaffirms that only the assets of the GmbH are liable for its debts, and therefore not the personal assets of its shareholders.
• Art. 795 CO introduces an important difference compared to the AG: the articles of association (AoA) of a GmbH may stipulate obligations for additional contributions by shareholders up to twice the nominal share value. These obligations only apply if explicitly provided for in the AoA and are enforceable in specific situations such as financial restructuring or capital shortfall. Shareholders are only liable for the additional contributions associated with their own registered shares (Art. 795 para. 3 CO).
• Arts. 753–755 CO also apply to GmbHs by reference through Art. 827 CO, meaning that managing directors, founders, and auditors of a GmbH may be held personally liable for damages caused by an intentional or negligent breach of duty, especially when they fail to exercise due care in managing financial distress or fulfilling legal obligations.

While these articles formally limit shareholder liability in a GmbH, they also highlight the increased practical risk of personal exposure, especially since shareholders in GmbHs often act as the managing directors. This active involvement in management means that proper compliance and responsible corporate conduct is essential to ensure protection from personal liability.

In principle, the actions of a company’s board of directors or its individual members are legally attributed to the company itself. When directors or managing shareholders act within the scope of their duties, their conduct is considered the conduct of the legal entity.

However, this so-called “corporate veil” has its limits. The risk of personal liability for directors and managers in AGs and GmbHs is a practical reality, especially when they fail to fulfil their legal obligations. This liability is governed primarily by Art. 754 CO (for AGs) and Art. 827 CO (for GmbHs). To hold a person liable, the following four cumulative conditions must be met:

1. Breach of duty
2. Damage
3. Causal connection
4. Fault

Let’s take a deeper look at each of these conditions in turn:

1. Breach of duty

A breach occurs when a director or manager violates their legal obligations, the company’s articles of association, or board/shareholder resolutions. Typical breaches include:

• Failing to properly supervise the management
• Ignoring early warning signs of financial distress
• Misusing company funds
• Failing to take action during over-indebtedness

A key point of reference in helping identify potential breaches of duty is Art. 716a CO, which lists the non-delegable duties (cannot be transferred to someone else) of the board of directors. These include:

• Overall management of the company
• Establishing the company’s organization
• Structuring accounting, financial control, and planning
• Appointing and overseeing management personnel
• Ensuring legal and statutory compliance
• Responding appropriately in financial crises (e.g. over-indebtedness)

Neglecting any of these duties can constitute a breach.

2. Damage

For liability to arise, the breach of duty must cause demonstrable damage, typically a financial loss. Damage is often calculated using the difference theory: comparing the actual financial position (e.g., of the company, individual shareholder, or creditor) with the hypothetical position it would have been in had the breach not occurred.

Some common examples include:

• Unpaid taxes or social security contributions
• Losses from unauthorized transactions
• Insolvency-related creditor losses

3. Causal connection

There must be a clear and sufficient causal connection between the breach of duty and the damage. The breach must be capable of causing the kind of damage that occurred, according to the normal course of events.

In other words, this condition is not met if the damage would have arisen irrespective of whether the board had fulfilled its duties properly. Courts will also consider whether the damage was a foreseeable result of the misconduct.

4. Fault

The final condition is that there must have been fault in the actions of the board of directors or managing shareholders. Fault can be either intentional or negligent, and even minor negligence is enough. The standard applied to evaluate fault is objective: what would a reasonably competent person in the same position have done?

While a lack of experience is no excuse, the more responsibility or knowledge a person has, the higher the standard expected of them. Furthermore, it’s important to understand that decisions made with proper due diligence, which ultimately turn out to be wrong/damaging, are not deemed breaches of duty. After all, the management of the company must have the freedom to take reasonable entrepreneurial risks.

Claims for personal liability under Swiss company law are subject to both relative and absolute limitation periods, as set out in Art. 760 CO.

• The relative limitation period is three years from the date the injured party becomes aware of both the damage and the identity of the liable person.
• The absolute limitation period is ten years from the date the harmful conduct occurred or ended — regardless of when the damage was discovered.

This means that if a creditor, shareholder, or the company itself wants to file a liability claim against a director or managing shareholder, they must act within these timeframes. The limitation period is paused if a special investigation is ordered by a court or during the course of such proceedings.

If the damaging conduct also constitutes a criminal offence, the timeline for civil liability is extended. In that case:

• The limitation period for the civil claim aligns with the criminal prosecution period (e.g. 7, 10, or 15 years depending on the offence).
• If the criminal prosecution results in a conviction, a new three-year limitation period begins from the date of that judgment.

This ensures that serious misconduct where criminal activity is involved isn’t protected by short limitation periods.

While both AGs and GmbHs are legally separate entities providing limited liability protection, the practical liability exposure can differ:

GmbH (Limited Liability Company)

The GmbH is an especially popular legal form for SMEs and startups. It is common for shareholders to also serve as managing directors, which increases their exposure to personal liability. The articles of association may also impose additional contribution obligations requiring shareholders to inject more capital in certain situations. Furthermore, the relatively informal management structure can sometimes lead to blurred lines between personal and corporate responsibilities, making it easier for individual actions to trigger personal accountability.

AG (Stock Corporation)

The AG, on the other hand, is typically chosen by larger businesses and companies with external investors due to its more formal structure. It often provides a clearer separation between shareholders and the board of directors or management. Shareholders in an AG are not personally liable unless they also take on a management role or serve on the board. This generally makes the AG structure more effective in terms of risk containment, offering better protection for those who wish to passively invest in a company without becoming involved in its operational responsibilities.

The AG and GmbH structures offer genuine legal advantages, especially in terms of capital raising and asset protection. However, these benefits only go so far.

If you’re actively involved in managing your company, you're no longer just a passive investor, but an integral part of the corporate body with specific duties and responsibilities. And if those responsibilities are neglected, Swiss law allows for personal accountability, regardless of what the legal form may promise on the surface.

That’s why understanding and respecting the limits and duties of your role, being proactive about sound governance, and securing adequate insurance are essential steps in protecting yourself.