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Starting a business
Business Types
This is a short introduction to the main types of businesses in Sweden, and we want to share some advice about what to consider when starting a business.
Limited Company
A limited company is its own legal and taxable “person”, and it can be owned by one or more shareholders. If you work in a company that you own, you are employed in the same way as anyone, and salaries and employer taxes are declared as usual.
To start a limited company, you need to invest a share capital, which currently needs to be at least SEK 25,000. If the company goes bankrupt, it is these SEK 25,000 that you as the owner risk losing, as long as you have managed your responsibilities in a sufficiently responsible manner. If the board has been grossly negligent, it may still be liable for more than these SEK 25,000. If you as a smaller company apply for a loan, you as a business owner usually also need to guarantee the loan, and then you become responsible for the loan even if it is a limited company.
In our opinion, the benefits of starting a limited company are that:
- It can be perceived as more serious than the other company forms.
- There are tax advantages compared to e.g. a sole trader business or a trading partnership, at least if you work full time in the company and / or earn more than average income.
- There will be a clearer division between you as an entrepreneur and your company.
- It is easier to run a business if you are or will be more than one person in the business who will take part of the profit.
- It partially reduces the financial risk for the entrepreneur / entrepreneurs. However, you must remember that you will probably have to guarantee the loans that the company has, and that you must be careful to handle the financial accounts in a correct and responsible manner.
In our opinion, the disadvantages of starting a limited company are that:
- There are significantly more formal requirements for limited companies than other company forms, which leads to more time-consuming administration and more things to keep track of.
- You need to invest SEK 25,000 in the company to be able to start it.
- It is more difficult to close the business compared to e.g. sole proprietorship and trading partnership.
Sole trader business
A sole trader business is not its own legal entity, it is you as an entrepreneur who “is” the company. If you withdraw money from the company’s bank accounts, it is not declared as salary as for limited companies, it is counted as a withdrawal of past or future profits. The own withdrawals are not counted as a cost for the company. The profit from the sole trader business is declared as an appendix to your private income tax return.
You do not need to invest any capital to start a sole trader business, and you are personally fully responsible for paying the company’s debts.
In our opinion, the benefits of starting a sole trader business are that:
- There are significantly fewer formal requirements for sole trader businesses than for other business types, which leads to less time-consuming administration and fewer things to keep track of.
- You do not need any initial capital to register the company.
- It is easy to close the business if you for some reason do not want to continue.
In our opinion, the disadvantages of starting a sole trader business are that:
- It can be quite difficult to understand how taxes work for a sole trader business, even if it is intended to be a simple business type.
- It can be perceived as less serious than a limited company.
- There are tax disadvantages compared to limited companies if you work full time in the company and / or earn more than average income.
- There will be an unclear separation between you as an entrepreneur and your company.
- It is difficult to run a business if you are, or will be, more than one person in the business who will take part of the profit.
- It partly increases the financial risk for you as an entrepreneur. However, you should be aware that you will probably have to personally guarantee the loan you take out if you start a limited company, so it does not necessarily have to be a much greater risk to have a sole trader business.
Trading partnership
A trading partnership is its own legal entity that may have two or more shareholders, but it is still the shareholders who pay tax for their share of the profit and who are responsible for the company’s debts. If you withdraw money from the trading partnership’s bank accounts, it is not declared as salary as for limited companies, it is counted as withdrawal of past or future profits. The own withdrawals are not counted as a cost for the company. The profit from your share of the trading partnership is declared as an appendix to your private income tax return.
In our opinion, the benefits of starting a trading partnership are that:
- You can run a business if you are more than one person in the business who will take part of the profit.
- There are slightly fewer formal requirements for trading partnerships than for limited companies, which leads to less time-consuming administration and fewer things to keep track of.
- You do not need any initial capital to register the company.
- It is easy to end the business if for some reason you do not want to continue.
- The company’s annual accounts are not public information as they are for limited companies.
In our opinion, the disadvantages of starting a trading partnership are that:
- It can be perceived as less serious than limited companies.
- There are tax disadvantages compared to limited companies if you work full time in the company and / or earn more than average income.
- Trading partnerships are now quite uncommon, so it can be more difficult to find information and help.
- It can be difficult to understand how taxes work for a trading partnership, compared to limited companies.
- You are jointly and severally liable for the trading partnership’s debts with the other shareholders. This means that you can become responsible for the entire trading partnership’s debts if any of the other shareholders do not have the ability to pay. The financial risk for you as an entrepreneur is also higher compared to in a limited company, as the financial risk is not limited to the sum of the share capital.
Now when the minimum requirement for share capital when starting a limited company has been lowered to SEK 25,000, there are in our opinion few reasons to start a trading partnership instead of a limited company, as the disadvantages in most cases outweigh the advantages. But if you do not have SEK 25,000 or if you absolutely do not want the annual accounts to be public information, it can be a good business type if you are more than one person who is to start a business together.
Limited partnership
A limited partnership is, on the whole, very similar to a trading partnership. The big difference is that the financial responsibility is limited to one of the shareholders, the general partner. It is an unusual form of company, so if you are new as an entrepreneur, this is probably not where you start. We will therefore not describe this company form in detail here either.
More about limited partnerships on Verksamt’s website
Co-operative society
A co-operative society is an association with the purpose to promote the members’ financial interests and to conduct economic activities. These are often activities that involve several different people, and where the commitment is of a passive nature. For example, tenant-owner associations, cooperatives, car pools, etc. This form of firm is usually not considered as a business, and therefore we will not describe this form of company in more detail. The business type is in many ways similar to a limited company, but there is no share capital and the annual report does not need to be sent to the Swedish Companies Registration Office, unless it is a larger financial association.
Also for co-operative societies you can check the Verksamt’s website
Non-profit association
A non-profit association is an association which, unlike a co-operative society, does not have the purpose of promoting the members’ financial interests. A non-profit association must also have a non-profit purpose. So if you want to start a business with a non-profit purpose, it is a non-profit association you should register.
You can find additional information about non-profit associations on Verksamt’s website