Changing the company form from private trader to a limited company – UKKO Sole Trader

As your business grows or your circumstances otherwise change, changing your business form from a private trader to a limited company often becomes relevant. In practice, changing the business form always involves establishing a new limited company to which the entire business operations of the private trader are transferred.

The operations of a private trader are therefore not directly changed into a limited company. Instead, a limited company is established and the operations of the private trader are terminated at the same time.

In practice, there are two options:

Changing the business form so that the private trader’s operations continue as a limited company
Establishing an entirely new limited company and transferring the private trader’s operations to the limited company separately

The most suitable option depends, among other things, on whether the private trader has assets or debts to be transferred, how quickly the limited company is needed, and whether you want the business operations to continue as seamlessly as possible without separate sales of assets from the private trader to the limited company.

Change of business form or new limited company?

Changing the business form may be suitable for your situation if:

The business operations continue exactly as they were under the private trader
All assets and liabilities related to the business are transferred to the limited company
You want to preserve the continuity of the business as one unified entity
The private trader owns, for example, vehicles, equipment or inventory, or has debts
You have enough time to prepare the change and wait for the PRH processing
You are prepared to draw up a transfer agreement and any other required documents.

Consider establishing a new limited company if:

You want to start operating as a limited company as quickly as possible
The private trader has no significant assets or debts to be transferred
The business operations, business sector or company structure will change
You want to establish the limited company as simply as possible
The documentation and processing time required for the change of business form do not suit your situation
The only objective of changing the business form is to retain the private trader’s name when changing the business form

A change of business form is intended for situations where the business operations continue in the limited company in exactly the same form as they did under the private trader.

If the company’s operations continue exactly as before and the private trader has assets or debts to be transferred, the change of business form must be carried out seamlessly. The application can only be submitted using the PRH online forms, which request that the termination of the private trader and the establishment of the limited company be processed at the same time. Assets to be transferred may include, for example, funds in the private trader’s business bank account, vehicles and other business equipment.

You must complete the forms required for the change of business form yourself, provide the required explanations and submit the documents to the authorities through the PRH online form.

Please note that the PRH processing times are currently affected by congestion, and changes of business form may currently take as long as 1–3 months to process. This should be taken into account when planning the change of business form.

If the change of business form is urgent and the private trader has no assets or debts to be transferred, an entirely new limited company can be established using an electronic notification in the YTJ service. After the limited company has been established, the private trader can be terminated separately.

We are happy to assist you with establishing a new limited company through the YTJ service.

Things to consider when changing the business form

The Business ID always changes when the business form changes.
- The limited company receives a new Business ID, and the operations under the private trader’s Business ID end when the business form is changed.
The business sector of the limited company must be the same as that of the private trader.
When changing the business form, you must register the ownership of the new limited company entirely in your own name.
The private trader’s net assets must be positive in order to change the business form.
When establishing the limited company, you will need at least one deputy member in addition to yourself on the company’s Board of Directors.
Limited companies need a business bank account to operate.
The change of business form is subject to a Trade Register fee. In addition, any fees related to terminating the private trader’s operations must be taken into account.
Any tax consequences should always be carefully assessed. You can find guidance from the Finnish Tax Administration, for example, here.

Useful links

Information on changing the business form from a private trader to a limited company can be found here.
More information on establishing a limited company can be found here.
You can view the processing times for applications here.
Instructions for paying Trade Register notifications here.

Checklist for changing the business form

As a private trader, you can change your business form to a limited company. The change may be worthwhile if your business is profitable and you have to pay more income tax than an employee doing equivalent work.

A prerequisite for changing the business form is that your business operations remain exactly the same despite the change. Maintaining the identity of the business means that the scope and nature of the transferred operations do not change, even though the business form changes.

Implementing the change of business form

The change of business form is reported to the PRH using an online form. The notification requests that the termination of the private trader and the establishment of the limited company be processed at the same time.

PRH service:

https://turvaviesti.prh.fi/ilmoitus-kaupparekisteriin

The following forms and attachments must be completed, signed and submitted in order to proceed with the change of business form:

Form Y1
Form Y6
Form 1 attachment
Personal data form
The original memorandum of association of the limited company. An example of a memorandum of association can be found here.
A copy of the Articles of Association. Examples of Articles of Association can be found here.
A separate request explaining the desired registration date
Receipt of payment of the establishment fee. Payment instructions can be found here.
If a price is specified for the shares, also provide either:
- An auditor’s certificate confirming payment for the shares, if the company has an auditor
- Other proof of payment, if an auditor is not required
  - Other proof may be, for example, a payment receipt bearing the bank’s archive reference, a bank statement or a receipt from a payment machine.

You must complete and sign the required forms yourself and submit them to the PRH through its online service. Depending on the situation, the PRH may also request other explanations.

If the aim is for the private trader’s operations to end at the same time as the limited company’s operations begin, the desired registration date must be justified in a separate request. The processing times of the PRH and the Finnish Tax Administration should be taken into account when planning the change.

Assets and liabilities

Continuing the business operations also requires that the assets and liabilities related to the private trader’s operations are transferred to the new limited company. This means that all equipment recorded in the private trader’s accounts is transferred to the ownership of the limited company, such as purchased tools, machinery, equipment or vehicles.

If your private trader business uses a business bank account, the account balance will be transferred to the limited company as its opening balance.
If you have used your personal bank account for your private trader business transactions, you must review the business’s income and expenses for the entire period of operation in order to calculate the cash balance to be transferred.

If any assets that are essential to the business operations are not transferred, this will result in tax consequences for your business.

When considering a change of business form, you must take the company’s assets and liabilities into account and ensure that the company’s equity is positive at the time of the change of business form.

Negative equity prevents the change of business form from being carried out.

Effects of the change on taxation

If you change your private trader business into a limited company in the middle of the tax year, the private trader’s tax year ends when the limited company is entered in the Trade Register. The tax return for the private trader must still be submitted at the beginning of the year following the end of the tax year.

The change does not result in tax consequences if the business operations carried out by the private trader continue and the assets and liabilities are transferred to the new company at their book values. Continuity must therefore be maintained in the operations, accounting and taxation.

Depreciation on equipment and other assets can only be made once during the year of establishment. If depreciation has already been made by the private trader, no depreciation is made by the limited company during the same tax year.

Agreement on the change of business form

You must also draw up a written agreement on the change of business form and hold the necessary meetings.

A written agreement must be drawn up for the change of business form. The agreement must specify at least:
- The assets transferred to the limited company
- The liabilities transferred to the limited company
- The values of the transferred items
- How the difference between the assets and liabilities is recorded in the limited company
- Whether the difference is entered in the share capital, the invested unrestricted equity reserve (SVOP), or partly in both
The value of the transferred items is based on the private trader’s latest tax return.
It is not possible to provide a model example of this agreement because its content may vary depending on the specific circumstances of the company. We recommend consulting an expert, such as a tax lawyer, when preparing the agreement.
In addition to the agreement, you must provide us with the minutes of the Board meeting and, if a General Meeting has been held, the minutes of the General Meeting as well.

A Board meeting must always be held. At this meeting, the transfer of the assets and liabilities to the limited company is approved, and it is decided that the difference will be entered in the share capital and/or the SVOP reserve.
A General Meeting must be held if a share issue takes place or shareholders’ rights change.

The company name when changing the business form

A new limited company cannot be established under the same name as an existing private trader.

If you want to use the same name for the limited company, the transfer of the name should be taken into account already when preparing the application. Alternatively, you can:

Change the private trader’s name before establishing the limited company, so that the name becomes available for registration by the limited company
Establish the limited company under another name first and change the name later
Release the name registered to the private trader after the private trader’s operations have ended

The private trader’s name can be transferred directly for use by the limited company when changing the business form. However, the name of the new limited company must include an identifier indicating the business form, such as “Oy” or “limited company”. The name will be reviewed by the PRH.

If the sole reason for changing the corporate form is to retain the company name, establishing a new limited company may in practice be a faster and less burdensome option.

PRH guidance on company names:

https://www.prh.fi/en/companiesandorganisations/yritystennimet/nimiohjeet.html

Establishing a new limited company

If there is no particular need to change the business form and the private trader has no significant assets or liabilities to be transferred, the limited company can be established as an entirely new company.

A new limited company is established electronically through the YTJ service. After the limited company has been registered, the private trader can be terminated separately.

Establishing a new limited company may be appropriate, for example, when:

The limited company is needed quickly
The private trader has no significant assets or liabilities to be transferred
The business operations will change in connection with the change of business form
You want to change the business sector, ownership or structure of the business
The documentation required for changing the business form seems unnecessarily burdensome
You want to avoid the long processing time associated with changing the business form

When an entirely new limited company is established, the private trader’s business operations are not automatically transferred to the limited company. Assets and equipment can be sold to the limited company at their fair market value. Contracts, debts, customers, suppliers and other commitments must also be transferred or made again separately.

The private trader’s funds are not transferred to the limited company under the continuity principle. Instead, the new limited company starts as a financially separate company. A separate business bank account is opened for the limited company, and the limited company’s operations are started in its name once the company has been registered and the practical arrangements are in place.

The private trader’s operations can generally continue until the new limited company has been established and the operations can be transferred under its name. After this, the private trader is terminated through the YTJ service. Before the private trader is terminated, its assets must be sold to the limited company, the entrepreneur or another party appropriately.

Schedule and possible interruption to business operations

Changing the business form is generally a slower and more laborious process than establishing a new limited company. The PRH processing time may be several months, so the change should be planned well in advance.

When changing the business form, the continuity of the business operations may be interrupted if the PRH or the Finnish Tax Administration cannot process the application by the desired date. UKKO.fi cannot influence the authorities’ processing times.

Establishing a new limited company allows the existing private trader to continue operating while the new limited company is being established.

Once the new limited company has been registered, a bank account has been opened and the other practical arrangements have been completed, the operations can be transferred seamlessly to the limited company, after which the private trader’s operations are terminated.

If your private trader’s accounting is handled by UKKO.fi

If you are already a private trader customer of UKKO.fi and are changing your business form to a limited company, notify us without delay at osakeyhtio@ukko.fi.

This allows us to assess which final notifications and accounting transfer measures are required in connection with the change. The private trader’s accounting can be transferred to the limited company service in accordance with the transfer agreement you have prepared, including the assets, liabilities and other items belonging to the limited company.

The change of business form should be reported to UKKO.fi as early as possible so that the required documents, schedules and transfer of accounting can be planned before the change takes effect.

If your private trader’s accounting is handled elsewhere than by UKKO.fi

Once the private trader’s accounting has been completed, please send us the following accounting materials for the completed tax year:

General and subsidiary ledgers
A detailed profit and loss statement and balance sheet
Balance sheet specifications as at the end of the financial year
A list of open accounts receivable and accounts payable
A list of accounts receivable being collected
Tax return

Summary

Changing the business form is suitable for a situation where you want to continue exactly the same business operations as a limited company and transfer the private trader’s entire business, assets and liabilities to the limited company as one entity.

Establishing a new limited company is more suitable when the limited company is needed quickly, the business operations will change, or the private trader has no significant assets or liabilities to be transferred. It is generally the faster option, but assets, contracts and other commitments must be transferred separately.

Before making a decision, you should at least clarify:

The assets and liabilities of the existing private trader
The amount of equity
Whether the company’s contracts can be transferred
Any tax consequences
The need for a new business bank account
The costs of establishing the limited company and accounting
The current PRH processing time
The desired date for transferring the business operations

If you are unsure whether a change of business form is suitable for your situation or what the potential tax effects may be, find out more from the Finnish Tax Administration or a tax expert in advance. The PRH advises on matters related to registration, forms and the notification procedure. UKKO.fi does not provide tax advice or assess the tax treatment of an individual company.

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