Establishment of a business in Finland

Establishment of a business in FinlandFinland offers many opportunities for success. Finland has a well-educated population and Finns are reliable people who have created an infrastructure which functions exceptionally well. Worlds Economic Forum recently declared Finland among the most competitive economies in the world. Finlands educational system has been appraised bringing excellent results. This week (Nov. 2006) Transparency International rated Finland as the worlds least corrupt country. Companies from all sectors are welcome. A) Legal Form To select a legal form for a business is very much dependent of a case at hand. Factors such as the number of founders, the required capital and its availability affect any decision on form of business. There are no set rules determining which form of business should be chosen. The most suitable and appropriate form of business must be determined individually in each situation. 1. Number of foundersAn individual engaged in business without a partner may do so in the form of a single-member company or as a private entrepreneur. Partnerships (general partnership and limited partnership) always require a minimum of two partners. When there are several founders, the alternative forms of business are a limited liability company and a cooperative. A limited liability company may also be a single-member company, or there can be several partners. The minimum number of founders for a cooperative is three. 2. Required capital and its availability upon establishing an enterpriseThe amount of capital required for business activities depends on the type and scope of the activities. Acting as a private entrepreneur (so-called private business name) is usually appropriate if the amount of required capital is relatively small. A general partnership can be established without monetary investments. Work contribution by the partners is sufficient. In a limited partnership a monetary investment is required of the silent partner, while work contribution is sufficient for general partners. Limited liability companies are the most common form of business in areas requiring large amounts of capital. The minimum share capital required of a limited liability company is prescribed in the Companies Act as EUR 2,500. The share capital must be paid to the companys account in full before the company can be entered in the trade register maintained by the National Board of Patents and Registration. For legal purposes, a limited liability company is established when it is entered in the trade register. There are no minimum requirements concerning the capital of cooperatives. The type and scope of the cooperatives activities determine the required capital.Registration. The company has to be registered in the Trade Register kept by the Patent and Register Board. The registration fee for a new limited company is 330 euros. 3. Division of responsibilities in an enterpriseA private entrepreneur is responsible for any liabilities of the business with his/her personal property. The partners in a general partnership and the general partners in a limited partnership have a similar personal responsibility. The partners in a general partnership and the general partners in a limited partnership may make commitments on behalf of the partnership. Thus it is particularly important to select the right partner in this type of business. The responsibility of shareholder in a limited liability company, and of a member of a cooperative, is limited to the capital they have invested in the enterprise. In practice, especially in the early stages of the business, the property of shareholders or members or guarantees by the shareholders and members may be required as surety for the enterprises debts.4. Flexibility of operationsA private entrepreneur makes all decisions himself/herself and is responsible for the activities with his/her personal property. The partners in a general partnership and the general partners in a limited partnership make decisions either solely or jointly. Limited liability companies and cooperatives are represented by their Boards of Directors. In a limited liability company there is a certain amount of statutory paperwork to take care of. One Ordinary General Meeting must be held in each accounting period, unless otherwise stipulated in the Articles of Association. In a cooperative decision-making is characterised by the requirement for democracy. Each member has one vote, irrespective of the amount of their investment.Partnerships, limited liability companies and cooperatives may elect a Managing Director to see to the day-to-day management of the business.5. Continuity of operationsA private entrepreneurs business operations are the most vulnerable on the death of the entrepreneur. In a partnership the share of the partner may be transferred to another person with the agreement of the other partners, if this has been agreed in the partnership agreement. In a limited liability company changes in the shareholders do not affect the existence of the company. While membership in a cooperative cannot be sold, the cooperative itself may be sold if the members reach a sufficient level of unanimity. 6. Profit distribution and loss coverageA private entrepreneur retains any profits himself/herself, but is also responsible for the losses incurred by the business. In a general partnership profits and losses are distributed among the partners as decreed by law (Partnerships Act, 389/1988) or in the partnership agreement. In a limited partnership a silent partner is first paid a share of the profits on his investment as at the beginning of the accounting period, as decreed in the partnership agreement. The remaining part of the profit will be distributed among the general partners in accordance with the partnership agreement. Silent partners do not contribute to the coverage of losses.A limited liability company pays its shareholders a dividend. Only the profit of the previous accounting period and unrestricted shareholders equity may be used for dividends. If the results for the accounting period were negative or the company has made losses in previous accounting periods, these must first be subtracted from the above-mentioned items. The companys restricted equity may not be distributed as dividends. In a limited liability company profits are distributed as dividends paid to the shares of the shareholders.In a limited liability company a shareholders losses will only amount to the investment, unless he/she has pledged a personal guarantee for the companys debts. Instead of obtaining a profit for its members, the purpose of a cooperative is to offer services for its members. Only a limited consideration on capital invested in the cooperative is paid from the profits. The profits, or the surplus, may be distributed to the members as extra wages, interest on cooperative capital or return of the surplus according to the use of the cooperatives services by the members, or as otherwise stipulated in the rules. Work cooperatives may pay extra wages to the members. Cooperatives are subject to a reserve requirement; part of the surplus must be transferred to the reserve fund, after the losses shown by the balance sheet have been subtracted.7. TaxationTax treatment varies depending on the form of business. Direct taxation in particular may affect the choice of enterprise formation. The major direct taxes are the state income tax and the municipal income tax payable to the appropriate Municipality. When determining the tax burdens falling on different forms of business, attention must also be paid to the tax burden of the entrepreneur. The joint effect only determines which form of business is the most profitable in terms of taxation. The taxable income is, in all cases, calculated on the net result (profit or loss) shown by the accounts. The annual book profit or loss is nevertheless adjusted with certain supplements and depreciations, since the regulations of the Accounting Act and the Companies Income Tax Act differ somewhat. For example, while all entertainment costs are entered in the accounts, only 50% is deductible in taxation. Direct taxes payable by an enterprise are not deductible. State income taxThe state income tax for the private persons (such as in respect of wages or pensions and fringe benefits) is a progressive tax determined in accordance with the progressive income tax scale. So an increase in income causes a proportionately greater increase in tax.Proportional tax means that a flat tax rate will be applied throughout, irrespective of the amount of the income. Capital income and corporations are subject to a proportional tax rate. In 2006 the tax rate on capital income (for example capital gains) of individuals is 28 per cent. The tax rate of corporations (limited companies and cooperatives) is 26 per cent. Municipal and Church taxThe municipal income tax is determined according to a proportional tax base. In 2006 the municipal income tax rates vary from 16.0 to 21 per cent. The church tax is also a proportional apportionment tax. The church tax rates vary from 1 to 2.00 per cent. The church tax is paid only by the people belonging to the major churches (Lutheran and Orthodox). Assessment of taxCorporate tax is determined gradually within ten months of the completion of the accounting period of the respective corporation (limited liability company, cooperative, etc.). National income tax, municipal tax and church tax of other taxpayers (apart from corporations) are assessed annually at the same time, within ten months of the completion of the tax year (accounting period or calendar year) of the taxpayer. Taxes are assessed by the regional tax office in the taxable persons place of residence. Once the assessment has been completed, taxpayers receive a tax notice, which shows the amount of the final tax.B) Acquiring an Enterprise or its Business OperationsInstead of establishing a business enterprise, the business may also be acquired. To buy an existing business enterprise may have several positive considerations: So it is possible to acquire: - the entire business operations and business property or a business unit - the entire enterprise engaging in business - a share of the companys stock or a share in a partnership.The object of a business acquisition usually includes the fixed assets and inventories (machinery, equipment and inventories), the business name and goodwill. The premises may be transferred to the new owner by means of a transfer of lease. Goodwill is formed on the basis of the business organisation, its client base and brands. The advantages of acquiring the business operations include that the acquisition applies to specific asset items and the customer base, for example, but all old tax liabilities and other hidden risks remain with the selling enterprise.When acquiring the entire stock of a limited liability company, the company is transferred to the new owner with its liabilities and assets. The buyer should carefully study the financial position of the company before the acquisition. The analysis requires financial statements for at least 2 to 3 years and recent intermediate financial statements. Expert advice should be sought for determining the financial value of the acquisition. The buyer often assumes responsibility for the sellers debts. This saves the need for new credit negotiations. The buyer must investigate all the sellers liabilities, such as any pending additional taxes. The sales contract shall indicate the date until which the seller is liable for taxes. You can also become a partner in an existing enterprise. It is possible to purchase a share in a general or limited partnership or part of the stock in a limited liability company. You can join a cooperative by paying the participation share.When acquiring stock in a limited liability company or shares in a general or limited partnership, the company or partnership continues its operations as before. The buyer should investigate the state of the enterprise by studying the financial statements before the acquisition. It should be kept in mind that if more than one-half of the stock of a limited liability company or shares in a partnership changes hands, old losses are no longer deductible. The partners in a general partnership and general partners in a limited partnership are liable for the partnerships taxes for the entire tax year in which the sale is executed. The shareholders of a limited liability company are not liable for the companys taxes.The following should be investigated before the acquisition: Are the operations profitable? How much debt does the enterprise have (in a general partnership or as a general partner in a limited partnership, you are responsible for the partnerships liabilities with your entire personal property)? What is the volume of orders in hand? What is the future outlook for the enterprise and the sector? How is your partner as a businessman/ as a person; The assistance of an outside expert is often extremely useful in order to avoid any surprises in the future.C Residence PermitsIn Finland a persons permanent place of residence is determined by the information entered in the Population Register. EU/EEA citizens are entitled to stay and work in Finland without a residence permit for a maximum of three months. If the term of employment exceeds this limit, the employee must apply for a residence permit. This also applies to Swiss citizens. People from countries outside the EU may stay in Finland as tourists for three months without a permit. If they wish to work in Finland, they need to apply for a residence permit, even if the period of stay is shorter than three months EEA and Swiss citizens, their spouses and children under 21 years of age or dependent on their parents care do not need a work permit.