An unusual aspect of Swiss Company accounting is the requirement to constitute a General Reserve (or Legal Reserve) from prior year profits. The Legal Reserve is different from other provisions and reserves in that it is a legal requirement to build up reserves in a company following a period of profitable trading.

The General Reserve is formed by taking 5% of the prior year profits and affecting it to the Legal Reserve (typically account 2950 in the Swiss Chart of Accounts). This is typically undertaken in the accounts on the first day following the previous year end. The rest of the prior year profits can be entered into other optional or statutory reserves or else more commonly to prior year profits carried over.

5% of the yearly profits need to be transferred to the Legal Reserve until the Legal Reserve accounts for at least 20% of the paid in share capital of the company. If there is a loss carried forward, it must be cleared before the profit is assigned to the reserve.

As long as the general reserve does not exceed half of the share capital, it can only be used to cover losses or to take measures enabling the company to maintain itself in times of loss-making operations, to avoid making redundancies or to mitigate its consequences.

The rules shown here are covered in more detail by Article 672 of the Swiss Code of Obligations.