Why SMEs restructure through merger or split
Mergers and splits are corporate restructuring tools that allow companies to consolidate activities, separate business lines, or simplify group structure without selling individual assets. In Switzerland, these transactions between companies registered in the commercial register are governed by the Federal Act on Merger (Merger Act, LFus) and, for accounting and governance aspects, by the Code of Obligations (CO); they have direct implications for the balance sheet, profit tax, stamp duty, and employees' pension position.
For an SME, the motivation is often practical: merging two companies with the same owner to reduce administrative costs, splitting off a business line to sell it or protect a core activity, or preparing a business succession by transferring shares to family members through a new entity.
Unlike a simple transfer of business, mergers and splits involve universal transfer of assets by operation of law: contracts, employees, licences, and liabilities pass automatically to the beneficiary company. This operational advantage, however, requires rigorous planning on the accounting and tax front, especially when latent capital gains, qualified participations, or taxed reserves are involved.
Mergers and splits: which instruments to use and when
The Merger Act distinguishes four main models. The choice depends on the strategic objective and the asset structure of the companies involved:
Merger by absorption
One or more companies (companies absorbed) are taken over by an existing company (absorbing company), which succeeds universally to their rights and obligations. The absorbed companies cease to exist without formal liquidation.
Typical for SMEs: merging an operating GmbH with a holding GmbH, or merging a local branch into the parent company to eliminate duplicate accounting.
Merger by incorporation
Two or more companies are combined into a newly formed company. All participating companies are dissolved and the new entity succeeds to the overall assets.
Useful when none of the existing companies is suitable to act as the absorbing vehicle, for example in a generational restructuring with a new shareholding structure.
Partial split
A company transfers part of its assets and liabilities to one or more beneficiary companies, continuing to exist with the remaining assets. Shareholders of the split company receive shares or equity interests in the beneficiaries.
Common scenario: separating a production division from a real estate division, or isolating a high-risk activity from the core business.
Full split
The entire assets are allocated among two or more beneficiary companies. The split company is dissolved without classic liquidation.
Indicated when two business lines must become autonomous entities, for example before a partial sale to external investors.
Comparative table of restructuring transactions
Summary of the main aspects that distinguish mergers and splits in the most common SME transactions:
| Criterion | Merger by absorption | Partial split |
|---|---|---|
| Legal basis | Merger Act art. 2–22 | Merger Act art. 29–52 |
| Resulting company | 1 absorbing company survives | Split company + 1 or more beneficiaries |
| Transfer | Universal by operation of law | Partial, by defined asset blocks |
| Consideration to shareholders | Shares/equity interests in the absorbing company | Shares/equity interests in the beneficiary companies |
| Approval required | General meeting of each company (two-thirds of votes represented and absolute majority of nominal value represented; for GmbH, also majority of voting share capital) | General meeting of split company + beneficiaries (same majorities; asymmetric split: 90% of votes) |
| Creditors | Invitation to assert claims (FUSC publication); security within 3 months of registration | Notice to creditors (FUSC publication); security within 2 months, before the resolution |
| Accounting treatment | Merger balance sheet at book value | Split balance sheet with asset allocation |
| Indicative duration | 3–6 months | 4–8 months |
Legal process: mandatory steps and timelines
Mergers and splits follow a standardised procedure requiring coordination between management, auditor, notary, and the commercial register. The main steps are:
Merger agreement or split plan
Document drawn up in writing by the management bodies defining the exchange ratio, asset allocation, any cash compensation (cash-out), and treatment of employees. The general meeting resolution requires a public deed. The exchange ratio must reflect actual asset values, failing which minority shareholders may challenge it.
Merger or split balance sheet
Prepared as at the reference date specified in the agreement (as a rule, the last approved annual balance sheet). It must include a statement of asset allocation and, in the case of a split, a detailed list of items transferred. If the reference date is more than six months before conclusion of the agreement or material changes to assets have occurred, an interim account is required (Merger Act art. 11 and 35).
Auditor's report and management report
The licensed audit expert verifies the correctness of the exchange ratio and flags any contributions in kind or cash compensation. The management body explains the economic rationale for the transaction and the consequences for shareholders and creditors.
General meeting approval and creditor protection
Resolution by qualified majority: at least two-thirds of votes represented and absolute majority of nominal value represented (for GmbH, also majority of voting share capital). This is followed by publication in the Swiss Official Gazette of Commerce (FUSC): in a merger, creditors may request security within three months of registration; in a split, within two months of the notice, with possible provision of security before the resolution.
Registration in the commercial register
Upon registration, the merger or split takes effect. Absorbed or split companies are deleted; the beneficiary company automatically succeeds to contracts, employment relationships, and tax positions (VAT, withholding tax, etc.).
If the acquiring company is a capital company, the agreement must be reviewed by a licensed audit expert (Merger Act art. 15). SMEs falling within the legal definition may waive the review, report, and consultation with the unanimous consent of all shareholders; independent advice nevertheless remains advisable.
Accounting entries and balance sheet treatment
Under Swiss accounting (CO standards and, for listed or larger SMEs, Swiss GAAP FER), mergers and splits are generally recorded at historical book value and not at fair value. The going concern principle allows assets, liabilities, and reserves of the absorbed or split company to be carried forward without recognising latent accounting gains.
In the absorbing company, net assets acquired are recorded by booking assets and liabilities at the book values of the absorbed company. Any difference between acquisition cost (shares issued) and net assets acquired is generally recorded as a merger reserve (merger difference), except in particular cases provided for by the applicable accounting standards.
Accounting items to prepare carefully
| Document | Essential content | Operational note |
|---|---|---|
| Merger/split balance sheet | Balance sheet and income statement as at reference date | Basis for exchange ratio and commercial register registration |
| Allocation statement | Detail of assets, liabilities, and reserves transferred | Essential in partial split for tax consistency |
| Closing entries | Elimination of accounts of absorbed/split company | Transfer of balances to beneficiary company |
| Beneficiary opening entries | Carry-forward of book values with accounting continuity | Verify consistency with approved split plan |
| Reserve documentation | Taxed reserves, capital reserves, retained earnings | Affects future distributions and participation tax |
If the transaction occurs mid-year, it must be defined whether the current year's income statement remains with the transferring company or follows the split-off division. This choice must be aligned with the split agreement and the tax treatment of the transaction, to avoid double taxation or gaps in the tax return.
Tax implications: profit tax, participations, and stamp duty
For tax purposes, mergers and splits may benefit from the reorganisation regime under art. 61 DBG (DFTA) and the corresponding cantonal laws. If the conditions are met, transfer of assets and liabilities takes place without taxable realisation of gains at corporate level.
Corporate profit tax
Transfer of assets and liabilities in the context of a qualifying merger or split does not, as a rule, generate taxable income for the transferring company. Tax values of assets and liabilities transfer to the beneficiary with continuity.
Caution: latent gains on real estate or securities may be treated differently at cantonal level. Always verify the practice of the competent tax authority before finalising the plan.
Tax on qualified participations
When shareholders receive participations in exchange for those held, the principle of tax continuity applies under art. 19 para. 1 let. c DBG: the tax cost and holding period of the original participation transfer proportionally to the new shares received.
Document precisely the original acquisition cost and any taxed reserves: this will be essential upon a future disposal or distribution.
Personal taxation of shareholders
If the reorganisation assigns an individual shareholder asset value exceeding their proportional share — for example through cash-out, asymmetric allocation, or transfer of liquidity and real estate to individual shareholders — the excess may be subject to income tax as income from participations (art. 20 DBG), and not as capital gain.
This risk is particularly relevant in splits with cash-out or non-proportional allocations. Indirect partial liquidation (art. 20a DBG) mainly concerns the sale of qualified participations from private to commercial assets: advance tax modelling is essential.
Stamp duty and VAT
Creation or increase of participation rights within qualifying mergers and splits is exempt from issue tax (art. 6 para. 1 let. a-bis Stamp Duty Act); securities transfer tax generally does not apply to transactions connected with restructurings compliant with the Merger Act.
For VAT, reorganisation is generally not a taxable supply if there is no material change in liability status. Notify the FTA of the transaction and update the VAT registration of the resulting company.
Companies owning real estate must assess real estate tax and any cantonal charges on transfer. In some cantons, a merger may trigger taxation of real estate gains if it does not fall within reorganisation exemptions under cantonal law.
Employees, contracts, and ancillary compliance
Upon registration in the commercial register, employment contracts of staff of the absorbed or split company pass automatically to the beneficiary company by operation of law (CO art. 333). A new contract is not required, but it is good practice to inform employees in writing and update internal regulations, organigrams, and insurance policies.
Assess the impact on occupational pension funds (BVG/LPP): merger or split may require notification to the pension institution and, where teams are separated, allocation of vested benefits. Supplier contracts, leasing, software licences, and insurance policies must also be reviewed for change-of-control clauses.
On the administrative side, remember to update within the deadlines: UID and VAT numbers, bank accounts, payment mandates, cantonal tax subscriptions, share or equity registers, and, where applicable, sector licences (hospitality, FINMA, etc.).
Costs to budget for
For an SME with 1–3 companies involved, typical costs break down as follows:
| Cost item | Order of magnitude | Notes |
|---|---|---|
| Notarial fees | CHF 3,000–8,000 | Depends on number of companies and contract complexity |
| Audit / expert review | CHF 2,000–6,000 | Merger balance sheet, report, exchange ratio |
| Tax advisory | CHF 2,000–10,000 | Higher if real estate, cash-out, or multiple cantons |
| FUSC publications | CHF 500–1,500 | Creditor notices and commercial register registrations |
| Stamp duty | CHF 0–15,000+ | Exempt if transaction qualifies under Stamp Duty Act/Merger Act |
| Internal accounting compliance | Variable | Closing entries, chart of accounts alignment, reporting |
Operational checklist for SMEs
Before starting the procedure, confirm you have completed these steps:
- Define the strategic objective — cost reduction, activity separation, succession, or sale preparation: the legal structure follows the purpose.
- Conduct asset due diligence — map assets, liabilities, contracts, pending litigation, and tax reserves for each company.
- Model the exchange ratio — verify that the value of participations received matches net assets transferred, net of any compensation.
- Obtain written tax advice — especially for splits involving real estate, taxed reserves, or individual shareholders.
- Align charts of accounts — standardise account codes before closing to simplify transfer entries.
- Plan timing — avoid overlapping merger/split with year-end close, audit, or bank financing renewal.
- Prepare post-registration documentation — new opening balance sheet, update of corporate registers, FTA and cantonal authority notifications.
Common mistakes to avoid
Underestimating the exchange ratio. A ratio unfavourable to minority shareholders may be challenged and block the transaction. The calculation must be based on verified asset values, not on undocumented internal estimates.
Overlooking shareholders' personal taxation. A split that distributes liquidity or real estate non-proportionally to an individual shareholder may trigger income taxation under art. 20 DBG, with progressive rates varying canton by canton.
Forgetting creditor notices. Failure to comply with notices and security deadlines under the Merger Act (three months for mergers, two months for splits) exposes those responsible to liability towards creditors.
Failing to align accounting and tax. Recording accounting entries inconsistent with the approved split plan creates difficulties in subsequent tax returns and auditor reviews.
Delaying ancillary compliance. Unupdated bank accounts, VAT, and occupational pension records can cause payment delays, penalties, and operational disruption in the weeks following registration.
How Accountex supports mergers and splits
Corporate reorganisation puts pressure on accounting, reporting, and tax compliance. Accountex lets you manage multiple accounting entities in parallel, facilitating preparation of the merger or split balance sheet with detailed asset extracts and chart-of-accounts reports.
During the transfer phase, closing and reopening entries can be documented with cross-references between companies, maintaining traceability for the auditor and the tax authority. Reports on reserves, retained earnings, and shareholders' tax position help prepare the documentation required by the tax advisor.
After registration, consolidation of positions and updating of company data (VAT, financial year, cost centres) allow you to resume operations without interruption, with a clean accounting base for the new financial year.