The most essential thing to understand about limited companies is that the profit of the company is not the same as the entrepreneur’s profit. Starting a limited company is a good option if the business entails significant risks, multiple people participate in starting the company, the business involves large sums of money or if you need flexibility in paying yourself salary. The limited company form allows versatile tax optimisation.
These days, limited company is a sensible company form even for a individual entrepreneur, since you can start a limited company without any share capital. Furthermore, limited companies can have only one shareholder, and only one deputy board member is required for administration. These recent changes to the Limited Liability Companies Act particularly aim at making it easier to start small companies.
Even the smallest limited companies – called micro-undertakings in legislation – are governed by the Limited Liability Companies Act. According to the act, limited companies need to compile an annual profit and loss account and financial statements, but micro-undertakings are exempt from these obligations. All limited companies are obliged to carry out audits.
Managing a limited company is more arduous than managing business as a private trader. For example, for company forms other than private traders, double-entry bookkeeping is mandatory. Double-entry bookkeeping should be conducted by a professional bookkeeper. Limited companies need to have a board of directors and hold annual general meetings. When a limited company has more than one shareholder, trustworthy partners are crucial for the company’s success.
Limited companies can compensate their shareholders’ work or investment as either salary or dividend. Taxpayers often try to minimise their taxes to maximise their net income. Therefore, it is common to deliberate on whether company owners should pay themselves salary or dividend if they want to optimise their income. This is a complicated question that involves various circumstances. You can find more information from the links under the title “About salary and dividend” below and in The Gig Work Guidebook section “How are companies taxed?”
Starting a limited company:
https://www.prh.fi/en/kaupparekisteri/yrityksen_perustaminen/osakeyhtio.html
https://www.suomi.fi/company/starting-a-business/forms-of-enterprise/guide/limited-liability-company
About salary and dividend (in Finnish):
https://www.rantalainen.fi/julkaisut/artikkelit/palkkaa-vai-osinkoa/ (in Finnish)
https://www.administer.fi/tietoa-meista/ajankohtaista/palkkaa-vai-osinkoa/ (in Finnish)
https://www.isolta.fi/yrityksen-palkanmaksu (in Finnish)
Government Decree on the information presented in the financial statements of a small undertaking and micro-undertaking:
https://www.finlex.fi/fi/laki/kaannokset/2015/en20151753.pdf
Limited Liability Companies Act:
https://www.finlex.fi/fi/laki/kaannokset/2006/en20060624_20110981.pdf