A limited company is the most common form of business in Finland. Contrary to the business name, the company is a separate legal entity from the entrepreneur. In practice, this means that the entrepreneur is not, in the same way as when operating as a private trader, personally financially responsible for the company's commitments and obligations. A limited company can be established either alone or together with one or more persons.
In small-scale business and when it is mainly based on the entrepreneur's own work, a company name is usually a good choice. If the business grows again, it is good to think about whether the business form could be changed from private trader to a limited company.
A private trader and a limited company differ from each other in many different ways. Differences can be found, for example, in the start-up costs, the entrepreneur's personal responsibility, taxation, salary payment, and the ownership base and its expansion possibilities.
A limited company differs from a private trader in several ways:
- A private trader is responsible for the obligations of the business name with all of their personal property. A limited company, on the other hand, is a separate legal entity that is responsible for its own obligations. The shareholder is responsible for the obligations of the limited company only up to the amount of the capital invested.
- The taxation of a private trader is done in the entrepreneur's personal taxation. A private trader cannot withdraw the salary, but the remaining share is the result of the financial year after taxes. A limited company can pay a salary to a shareholder working in the company. A limited company can also distribute dividends to its owners if it wishes.
- A private trader is usually suitable for a business where the entrepreneur's work is the main part. A limited company is more suitable for business expansion. New shareholders can be admitted to a limited company, and it is easier to finance expanding operations.