By far the most popular company forms in Finland are limited company and sole proprietorship. A sole proprietorship is easy to run, while a limited company is suitable for growth-oriented businesses that require financing. However, there are also other options for those considering entrepreneurship.
It is important to consider the company form of your new business carefully. The company form has implications for taxation, growth opportunities and the amount of time the self-employed person has to devote to administrative work.
Each company form has its own rules on who is an entrepreneur under the Self-Employed Persons' Pensions Act. A family member working for the company may also sometimes need YEL insurance. This depends on the company form and the family member's work and position in the company. Find out how the company form affects the YEL obligation.
Sole proprietorship – for small-scale and flexible entrepreneurship
A sole proprietorship is a good choice when you want to keep your business small and your turnover moderate. It is an easy company form for a business that does not need big loans, large inventories, expensive investments or complex tax planning.
– A sole proprietorship is a suitable business form for service sector professionals who employ themselves, for example. It allows, for example, a hairdresser or massage therapist to easily sell their own expertise and work, says Marketta Korhonen, Managing Director of the Vantaan Uusyrityskeskus. The Enterprise Agencies (Uusyrityskeskukset) are partners of Varma, offering free advice on how to start a business, among other things.
According to Korhonen, a sole proprietorship is also often suitable for part-time entrepreneurs, as it can easily be adapted to their life situation and there is little bureaucracy. On the other hand, if the company needs to make large investments, take on external funding and entrepreneurial risk, or hire employees, a sole proprietorship is not recommended. In it, the entrepreneur is personally responsible for all commitments, ultimately with all their assets.
– As the business grows, the taxation of a sole proprietorship also tightens, while in a limited company you can do more tax planning. It is therefore often wise to convert a sole proprietorship into a limited company when the business expands.
General partnership – requires a high level of trust
A general partnership has at least two co-partners, who are authorised to manage the affairs of the company independently and without the permission of the other co-partners. Each partner is jointly and severally liable for any commitments, such as debts, made in the name of the company, with all their assets. Therefore, a general partnership requires absolute mutual trust between the partners.
According to Korhonen, a general partnership is rarely the best option as the company form. Its problem is precisely the liability issues.
– Even if the partners are best friends when the company is set up, situations can change and, for example, a debt taken on in the name of the company may end up falling entirely on the shoulders of one partner. If a general partnership suits someone, it might suit a family business where mutual ties are strong not only through the company, says Korhonen.
Limited partnership – when an investor is wanted
At the time of establishment, a limited partnership has at least one general partner and one silent partner. The general partner contributes to the company with their own labour, while the silent partner is required to make a financial contribution.
If an entrepreneur wants an investor in the business, a limited partnership can be a good option. It is easier to set up and less complicated to manage than a limited company.
– Although limited partnerships are set up relatively rarely, they work quite well for small businesses and family-run companies. In a family business, the silent partner is often a family member, says Korhonen.
However, when setting up a limited partnership, it is important to remember that the partners are not on the same level when it comes to liability. The general partner is personally responsible for the company's decisions, debts and contracts. The liability of the silent partner is limited to the capital they invest.
Limited company – limited risk, good growth potential
A limited company is a good option for many entrepreneurs. Setting up a limited company is particularly sensible when large investments are made in the company or when there are several owners who are employed by the company. In a limited company, ownership is divided into shares, and the owners of the shares, the shareholders, are only liable for the company to the extent of their investment. The entrepreneurs are therefore not personally liable for the debts of a limited company, for example, unless they have guaranteed them with their assets.
Administratively, a limited company is more burdensome than some other company forms, but it is well suited to a business that needs capital. Sometimes financiers may even require a limited company as the company form.
– Many new entrepreneurs still seem to think that a limited company is a bureaucratic and time-consuming company form. However, the legal requirements for small limited companies have recently been relaxed. There is a slight administrative burden of double-entry bookkeeping, financial statements, general meetings and board minutes, but you can learn them quickly if you have a good accountancy firm as a partner, estimates Korhonen.
Cooperative – an option for the experimental co-entrepreneur
A cooperative is often set up to provide services to its members. The largest cooperatives are found in the commercial and banking sectors, but the company form is becoming more common, especially among entrepreneurs in the social and creative sectors.
– A cooperative is often the right company form for people with different skills and who benefit from being able to try out a business together. For example, it is suitable for students trying out a business or craft entrepreneurs who want to create new products or market their services, says Korhonen.
A cooperative does not require a large initial capital and can be joined and left very smoothly. According to Korhonen, the loose bond is also a challenge for the cooperative, as it needs an active leader – a responsible person who is fully committed to the activities.
Members of a cooperative are not formally self-employed if the cooperative has more than seven members. If, on the other hand, a member of a co-operative has the right to sign alone, has more than 30% ownership or, together with members of their family, has more than 50% ownership, they are covered by the statutory self-employed persons' pension insurance.
Light entrepreneurship – entrepreneurship without bureaucracy
A light entrepreneur is responsible for their own customer acquisition and agrees with the client on the content, schedule and price of the work. Invoicing is often handled through an invoicing service operating online. The invoicing services take care of the bureaucracy of the business, i.e. the payment of compulsory employer and insurance contributions and withholding taxes, and charge the light entrepreneur a service fee for the invoice.
According to Korhonen, light entrepreneurship is an excellent way to try out entrepreneurship. However, those considering light entrepreneurship should note that the legislation does not recognise the term. Those who are not employed in a public office or employment relationship are called either self-employed or employed in other own-account work. Most self-employed persons are now counted as entrepreneurs. As a result, light entrepreneurship has become an increasingly common topic encountered in business advisory services.
– It is great that such a service has been created. However, there are now two types of light entrepreneurship. Through invoicing cooperatives, you can invoice for services without having to set up a business or get a business ID. On the other hand, there are also those who offer light entrepreneurship services in which you get a business ID. I would therefore like to see a clearer public policy on light entrepreneurship. At the moment in the business advisory service, we meet people who have tried light entrepreneurship and do not know that they have also set up a business.
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YEL – insurance common to all company forms
Common to all company forms is that entrepreneurs usually need statutory YEL insurance, which is the basis of their social security and pension accrual. Age, YEL income and the company form, for example, affect whether or not you need YEL insurance.