Establishing a limited company in practice
Setting up a limited company is easier than generally thought. The company is created by means of a incorporation notice, after which the company is registered in the Trade Register.
At the same time, it is also possible to register in the taxpayer’s registers, which can of course be done later if you wish.
You can easily register online here.
OR, if necessary, on a paper form, which can be downloaded here:
Articles of incorporation of a limited liability company
In order to set up a limited company, certain founding documents must be in order. Such instruments of incorporation include:
- Founding agreement
- Articles of Association
In the next section, we will go through the mandatory documents and their contents in more detail.
Agreement establishing a limited liability company
The memorandum of association is a written agreement in which the shareholders of the future limited company agree to establish the company.
The agreement must state the shareholders, the number of shares and their ownership, as well as the payment date of the shareholders to be redeemed, the price paid for the share (not necessarily in cash), the date of the agreement and the members of the Board.
An important point is that the memorandum must be signed by all shareholders.
Articles of Association of a limited liability company
The Articles of Association are a mandatory document registered in the Trade Register, in which the main rules of the game are agreed.
Its minimum content is prescribed by the Companies Act.
The most typical things to be agreed upon are, for example, the industry, domicile, the name of the company and the rules of the game for representing the company.
More information can be found in the Companies Act:Articles of Association
The cost of establishing a limited company
Contrary to popular belief, setting up a limited company is relatively inexpensive.
The price of the joint-stock company’s founding notification online currently costs 240 euros, and if the electronic transaction is not successful, the price of registration when handled by letter is 380 euros.
If the company wants to set up an auxiliary trade name, the cost of setting it up is 60 euros online and 115 euros on paper.
You can find more information on the website of the National Board of Patents and Registration at the link below.
When will a limited company could be good choice?
Typically, when setting up a company, the form of the company between the trade name and the limited company is considered.
A limited company operates well in a situation where there are more founders or in situations where the company has growth plans and through that the company’s business is seen to grow in the future.
A limited company is a common form of company also for investment companies, where the purpose is to increase the company’s assets and then raise income in small installments through a dividend.
Taxation of a limited company
Unlike a trade name, a limited company is an independent legal entity and is therefore also taxed independently.
The taxation of a limited company is based on the corporate tax rate, which is currently 20% in Finland. The amount of the tax is calculated for the limited company from the so-called net profit, from which the operating expenses, depreciation and borrowing costs have been deducted from the actual profit.
Income from a limited company
In practice, shareholders can increase their income from the company on two main principles:
- As wage income
With regard to wage income, the employee pays ordinary income taxes and social security contributions, and the limited company also bears its own employer costs.
With regard to dividends, the condition is that the company has distributable funds and that the dividend distribution is subject to a proposal from the Board of Directors and, finally, a decision by the Annual General Meeting.
The taxation of dividends has its own characteristics, depending on whether the dividend payer is an unlisted or a listed limited company.
More information on dividend taxation can be found here:
Limited company act
Limited company act contains many detailed provisions and instructions related to the establishment and operation of a limited company.
It is therefore worth studying the law in more detail.
The law can be found in its entirety here.