Changes to legislation in force since 1 July
€2,500 of share capital no longer needed when registering a limited liability company
Until now, registering a limited liability company (osakeyhtiö, oy) has required a minimum share capital of €2,500, but as of 1 July 2019 none whatsoever is needed.
This reduces the threshold for registering a limited liability company. Many current entrepreneurs have chosen to operate as sole traders, even though a limited liability company could be an equally good, if not better, solution.
Now both new and existing sole traders are thinking about registering limited liability companies.
What are the differences between a sole trader and a limited liability company?
There are two significant advantages to registering a limited liability company: reduced liability for company operations, and taxation.
In a limited liability company, liability is limited to the company, whereas as a sole trader you are personally liable for all responsibilities, contracts and debts related to your business activities.
The business owner’s personal funds are not liable for repayment of a limited liability company’s debts unless you have used them as loan collateral.
As a sole trader, your income is taxed directly as personal income. A limited liability company, on the other hand, is independently liable for taxes. You pay tax on the profits from a limited liability company that you run, but the salary you pay yourself as the business owner reduces those profits.
If your limited liability company makes a profit, you can distribute it to shareholders as dividends. Limited liability companies often shoulder a notably lighter tax burden than sole traders.
A limited liability company faces stricter accounting requirements. It must use double-entry bookkeeping, whereas a sole trader can get by with single-entry. A sole trader does not necessarily have to provide a financial statement, but a limited liability company must always compile one.
A limited liability company must also have a board of directors. When you register a limited liability company, you can be both CEO and chair of the board, which also has to have at least one vice-member of the board. This can be your spouse, for example.
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The aim of this amendment is to lower small businesses’ threshold for hiring new employees.
The law has been amended to make explicit note of the number of employees working in the company when one of them is dismissed. In other words, the amended law will take better account of a small employer’s situation.
The conditions of small workplaces are different in many ways. A single employee can have a large effect on the entire workforce. A small workforce is clearly more sensitive to problems. A smaller employer is often worse placed to withstand financial losses.
In the future, legal processing of dismissals will give particular consideration to whether the workplace had only a few employees.
In the long term the effects will be seen in court rulings.
When courts assess the gravity of cause for dismissal in future, they will have to consider the size of the business, particularly if it has a small number of employees. That is where the effects will become visible. This is a clear change to current legal practice.
The basic conditions for dismissal will remain the same. It is possible to dismiss an employee only with a valid and weighty cause.
Position of entrepreneurs’ unemployed family members becomes easier
Since 1 July a law has been in force which aims to improve and clarify the position of entrepreneurs’ family members in the unemployment security system.
The change affects family members of entrepreneurs who do not have any ownership or control in the company, and whose work is not insured by YEL insurance. A “family member” means a spouse, or a person who is one generation directly above or below the person working in the business, and who lives in the same household.
For the person to be considered an entrepreneur, he or she must have a personal ownership share, a share of votes, or other personal control of the company. A person who does not have ownership in or control of the company will continue to be considered an employee for unemployment security purposes.
Now, when employment ends for production or financial reasons, the non-owning person has the right to unemployment benefits after a qualifying period.
If someone affected by the change wishes to accrue the right to earnings-linked unemployment benefits, he or she must join an unemployment fund for employees or move his or her membership in an entrepreneurs’ unemployment fund to an employees’ fund.
Such people currently pay the same proportion of their salary towards unemployment insurance as other employees, whereas previously they paid a smaller, “part-owner contribution”.
After the change introduced at the beginning of July, a non-owning family member of a family business owner will need to work for 52 calendar weeks to qualify for unemployment benefits. He or she must work at least 18 hours per calendar week and be paid a salary according to the relevant collective bargaining agreement.
An employee normally needs to work for 26 weeks to qualify for unemployment benefit. If an employee who is a member of an unemployment insurance fund meets both employment duration requirements upon becoming unemployed, he or she can choose which job will be used to calculate his or her unemployment benefits.
If the person has not worked long enough to qualify for unemployment benefits, he or she can still receive the labour market support paid by Kela, the social security institution of Finland.
Owners’ details to be filed with the trade register
Since 1 July, many companies have had to file information about their owners (“real owners”) with the trade register. All limited liability companies and cooperatives have to file, among other firms. Sole traders and listed companies do not need to file.
An accountant or deputy can file information about beneficiaries for the company if the company has authorized them to do so.
A real beneficiary of a company is someone who, for example, owns more than 25% of its shares, directly or via another company.
Companies have a year to file, beginning from 1 July 2019. After that, companies must file each time a new company is registered or when the beneficiaries’ details change. A company must also file when it has no beneficiaries or when the beneficiaries are not known to the company.
You can file and authorize a deputy electronically in the Business Information System service (www.ytj.fi). Filing beneficiaries’ information and authorizing deputies is free of charge.Read more about beneficiaries on the Finnish Patent and Registration Office (PRH) website.