Types of companies in Finland and their legal forms
Which is the most suitable for the kind of business I want to set up?
Anyone who wants to start a business, no matter which is the activity field, has to face the same initial dilemma: Which is the most suitable legal form for the firm that I want to setup? Or in other words, what type of company should I create?
The final decision to these questions may depend on several factors that the entrepreneur must clarify in advance. Among them is the size of the company, the number of owners or shareholders, the initial capital, the division of responsibility and decision-making, in addition to financial and fiscal issues.
As in other developed economies, in Finland there are different legal forms which adapt better or worse to each type of business, as the case may be. For very small businesses or for those who can´t still afford to hire employees it might be appropriate to start as a private entrepreneur, but for middle size and big enterprises there are other options as Limited Liability Company, Public Limited Company or different forms of Partnership.
Finnish economic authorities strongly recommend consulting a legal expert before making this decision. The New Enterprise Centers (Uusyrityskeskus) that exist throughout the country offer free guidance throughout the process of setting up a new business. It is also possible to obtain advice through the internet or by telephone at the local state employment offices (TE-Toimistot), from the Ministry of Economic Affairs and Employment (TEM) and from the Federation of Finnish Enterprises (Yrittäjät).
In any case, the different business models available in Finland are the following:
1. Private entrepreneur (Toiminimi)
This is the simplest, fastest and the most common way to establish a new business. With this modality only one person is needed to start operating under a company name and it is not necessary to have a minimum amount of capital. Another advantages are that registering the business online costs only 75 euros and all the decision making relies just on the founder.
Private entrepreneurship is an interesting option for unemployed persons who want to setup their own business or for part-time entrepreneurs. If they do it well and the activity becomes profitable enough, with the time it can be turned into another legal form. The main disadvantage is that with this method all the responsibility falls on the entrepreneur, with unlimited liability. This means that in case of bankruptcy s/he must respond with her/his personal assets of the debts or obligations contracted.
2. Limited Liability Company (Osakeyhtiö, OY)
A Limited Liability Company needs to be established at least a natural or legal person, that is to say, an individual or a corporation. But they can be more than one.
In this case the Finnish legislation established in the past an initial minimum capital of 2.500 euros, which must be contributed by the shareholders, to start operating. However, this minimum amount of capital requirement was abolished in July 2019. Now there is no minimum amount for the initial capital.
Once the initial capital is deposited in a bank account and the company has been registered, the company’s direction may dispose of it to use it in its operations.
The share capital must be divided into shares and the voting power that holds each partner depends on the number of shares owned, as do the percentage of benefits and liability. Limited Liability Societies require more resources to be constituted than Private Entrepreneurship and their registration is more expensive: it costs around 330 euros if it is made online. But they have a great advantage: liability is limited to the capital contributed and in case of bankruptcy the shareholders do not respond with their personal assets.
3. General Partnership (Avoin Yhtiö, AY)
A General Partnership must be formed minimum by two individuals who establish a company by signing a partnership agreement. In this case the advantages for the entrepreneurs are that there is no minimum amount of capital required and all partners have equal status in all the company’s operations.
The main disadvantage is that each member of the partnership responds personally and unlimitedly for the obligations, decisions, liabilities and debts of the company.
4. Limited Partnership (Kommandiittiyhtiö, KY)
This legal form differs from the General Partnership in that includes at least one limited partner, who generally plays the role of investor. Therefore, to constitute a Limited Partnership at least one general partner and one limited partner with financial input are needed.
There is no minimum capital to setup the business. At least one of the members is liable for the debts and obligations of the company.
5. Public Limited Company or Corporation (Julkinen Osakeyhtiö, Oyj)
A Public Limited Company is another limited liability form, but this is generally used by larger companies. This modality allows public securities trading in shares of a company for instance on a stock market. However, ticketing is voluntary. It may happen that just part of the shares in a public limited company are traded on the stock exchange and for some of them there may be no trade at all. All Finnish listed companies are public limited liability companies.
The minimum number of partners needed to constitute a Public Limited Company is one and the share capital has to be at least 80.000 euros. On its board it must have a CEO and at least three board members. The corporation is also obliged to publish interim and annual reports on its results.
6. Cooperative Association (Osuuskunta)
A Cooperative association is an organisation owned by its members. Its main distinctive characteristic is that membership and share capital have not been determined in advance.
This is a form of company whose purpose is to support the economic activity or the livelihood of its members through the pursuit of economic activities by cooperative members using the services provided by the Cooperative itself. The purpose of a Cooperative may be stipulated otherwise by its internal rules. It can be, for example, the common achievement of an ideological goal.
Cooperatives could be regarded as a kind of business partnership whose regulation is quite similar to that of Limited Liability companies, but they do not have any fixed or minimum capital. At least 3 founders are needed and those can be private individuals, organizations, foundations or other legal persons. The value of the shares is decided by the founders and participation shares must be of equal value. Therefore, the amount of total capital varies depending on the number of members.
In principle anyone can join a Cooperative, though conditions may be stated and the entrance of new members must be approved by the company’s rulers. The members of a Cooperative use the same power as the shareholders of the Limited Liability Company and their liability is limited to their investment of share capital.