Gerhardt Schmidt has an excellent business idea: He will start importing and installing computer technology designed especially for domestic users. He plans to establish his company in Helsinki. He has no idea how to start and he is wondering WHAT ISSUES ARE THERE TO CONSIDER before he can get to the business?

INTRODUCTION TO FINNISH COMPANY LAW

FINNISH TRADE ACT Main principle: freedom of trade Exceptions: Concerns most trade => No permission required nor any other regulations Exceptions: E.g. Banking, insurance, security companies, travel agencies, restaurant and catering services => Permission of or a notification to the appropriate authority before beginning the trade activity

TRADE ACTIVITIES BY FOREIGNERS 1) Natural persons who are permanent residents in the EEA and Juristic persons based in the EEA area: => no need of a special permission 2) Others: => need a permission from the National Board of Patents and Registration of Finland (NBPR)

Owner’s responsibility for the company’s liabilities Business form PRIVATE ENTERPRENEUR Yksityisyritys Tnmi GENERAL PARTNERSHIP Avoin yhtiö LIMITED PARTNERSHIP Kommandiitti- yhtiö Ky LIMITED LIABILITY COMPANY Osakeyhtiö Oy, Oyj Owner Number of Owners Founding documents Owner’s responsibility for the company’s liabilities Acting on behalf of the company (Within the line of business) Profit sharing Entrepreneur Partner Personally liable and silent partner Shareholder 1 2 or more 1 + 1 or more 1 or more - Founding contract Founding contract Contract, Articles of Assoc. Owner liable with his entire personal property The partners are personally, jointly and separately responsible for the company’s liabilities Personally liable partner: as in partnership, silent partner: liability limited to his contribution Shareholders’ liability limited to their contribution Entrepreneur Each partner independently Personally liable partner: as in partnership Board of Directors All the proceeds of the enterprise belong to the entrepreneur 1) According to the contract 2) Interest to the partners’ contributions First silent partner’s share of profit, liable partner’s as in partnership Non-restricted equity capital can be distributed as dividends among the shareholders

1. PRIVATE ENTERPRENEUR (PRIVATE PROPRIETORSHIP) Not a juristic person the entrepreneur and his firm are not separate Owner One natural person Must have his habitual residence in the European Economic Area, unless exempted by the National Board of Patents and Registration of Finland (NBPR) Acts on behalf of the firm Is responsible for commitments made on behalf of his firm Liable with his entire personal property Bookkeeping is required No auditing required

2. GENERAL PARTNERSHIP Setting up By an agreement between 2 or more founders juristic person At least one of the partners must have his habitual residence (or if a juristic person, be registered) in the European Economic Area, unless exempted by the NBPR Contractual freedom as to management, division of power, right to veto, share of profit

Partners’ liability Each partner is liable for all corporate obligations of the company toward a creditor Jointly and separately Even with his/her personal property Agreements on liability restrictions have binding effect only between the partners

Partners’ authority Each partner may represent the company within the company’s line of business Deviations: Partners’ agreement => effective if the third party knew => best to register Each partner has a veto right => effective toward a third party only if he knows about the veto

3. LIMITED PARTNERSHIP Setting up Position of the partners One or more general partners and one or more silent partners At least one of the general partners must have his habitual residence (or be registered, if a juristic person) in the European Economic Area, unless exempted by the NBPR Other provisions as with general partnership Position of the partners 1. General partner Same as in general partnership 2. Silent partner Responsibility for liabilities of the company is limited to the amount of the investment No managerial power No right to represent the company Certain decisions can’t be made without the silent partners’ approval

COMPANY (LIMITED COMPANY BY SHARES) LIMITED LIABILITY COMPANY (LIMITED COMPANY BY SHARES) Setting up One or more founders The company must be registered => juristic person At least one of the founders must have his habitual residence (or be registered, if a juristic person) in the European Economic Area, unless exempted by the NBPR Share capital Private limited liability company: Minimum € 2 500 Public limited liability company: Minimum € 80 000 Shareholders’ liability for the company’s debts is limited to their investment

FOUNDING PROCEDURE MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION Date Names of the shareholders and subscription list Price for subscription Term of payment for shares Members of Board of Directors, Managing Director (if any) Auditors (if none, must be indicated) Financial period Shareholders sign the Memorandum of Association Subscription for shares ARTICLES OF ASSOCIATION Mandatory contents: Name of the company Domicile Branch of industry Financial period (if not in the founding agreement) Becomes part or appendix of the Memorandum of Association BASIC NOTIFICATION WITH THE TRADE REGISTER Auditors’ certificate of the payment for the shares A statement of the members of the Board of Directors (and the Managing Director) confirming that the company has been formed in compliance with the provisions of the Companies Act, and a certificate of the auditors confirming that the provisions of the Companies Act on the payment of shares have been complied with Filed within three months from the signing of the Memorandum of Association

LIMITED LIABILITY COMPANY BODIES OF THE LIMITED LIABILITY COMPANY SHAREHOLDERS’ MEETING (=GENERAL MEETING =STOCKHOLDERS’ MEETING) AUDITOR(S) SUPERVISORY BOARD BOARD OF DIRECTORS MANAGING DIRECTOR (=CEO)

1. Shareholders’ Meeting Ordinary General Meeting, decisions on: Election of Board Members and auditor(s) Discharge from responsibility Approval of final accounts Disposal of profit Changes in Articles of Association Extraordinary General Meeting Board of Directors convenes on its own initiative, or On demand of the auditors or shareholders

Shareholders’ Meeting (cont.) Each shareholder has as many votes as he has shares, unless otherwise stipulated by the Art. of Assoc. Voting Main rule: Simple majority of votes cast Exceptions: Qualified majority is required E.g. Amendment of the Articles of Association: 2/3 of the votes cast and 2/3 of the shares represented in the meeting Equality of shareholders A decision, which treats shareholders unequally or limits current shareholders’ rights or increases their duties in the company, may require their consent Liability for damages Shareholders are liable for damages caused intentionally or by negligence Shareholders’ Meeting (cont.)

2. Board of Directors 1-5 members At least one of the members must have his habitual residence in the EEA Responsible for administration and organisation of company operations Represents the company The right to sign on behalf of the company can be extended by the Articles of Association Elected by the Shareholders’ Meeting Art. of Assoc. can stipulate that the Board is appointed by the Supervisory Board or less than 50% of members can be appointed some other way Duly convened when 50% of members present Liability for damages Each Board member is liable for damages caused in company administration, unless he can prove having acted with due diligence

3. Managing Director Liability for damages By virtue of the Articles of Association Responsible for day-to-day operations and administration Responsible for financial administration and accounting Represents the company in matters within his authority Appointed by Board of Directors Accountable to the Board of Directors Liability for damages The Managing Director is liable for damages caused in company operations, unless he can prove having acted with due diligence

4. Supervisory Board By virtue of the Articles of Association Supervises the company administration run by the Board of Directors and the Managing Director May have decision-making power stipulated by the Art. of Assoc. E.g. Appointing the members of the Board of Directors General administrative issues Liability for damages Each Supervisory Board member is liable for damages caused in company administration, unless he can prove having acted with due diligence

AUDITOR Auditing Act, 13.4.2007: Requirements for qualifications The auditor has to be an auditor authorised either by the Central Chamber of Commerce of Finland => a KHT auditor or by a regional Chamber of Commerce in Finland => an HTM auditor A deputy auditor has to be elected if the ordinary auditor is not a KHT firm of auditors or an HTM firm of auditors

AUDITOR (cont.) Auditing Act, 13.4.2007: Auditor not necessary A company may under certain conditions decide not to elect an auditor: If no more than one of the following conditions is fulfilled both during the accounting period that has ended and during the accounting period immediately preceding it: 1) the balance sheet total is in excess of 100,000 euros; 2) turnover or comparable net sales is in excess of 200,000 euros; or 3) the average number of employees exceeds 3

Auditor’s tasks Auditor Submits an auditor’s report in each accounting period to the owners of the company Makes an entry into the accounts to this effect with reference to the auditor’s report Must give notification to the board of directors if he finds something significant to remark Specific statements in various situations

TAX TREATMENT OF FINNISH BUSINESS FORMS PROFIT PROFIT PROFIT PROFIT Company tax Company tax PRIVATE ENTERPRENEUR PUBLIC LIMITED LIABILITY COMPANY OYJ PARTNERSHIP LIMITED LIABILITY COMPANY OY dividend dividend dividend dividend A P A P A P A P A P P P ENTREPRENEUR PARTNER PARTNER SHARE HOLDER SHARE HOLDER SHARE HOLDER SHARE HOLDER A = EARNED INCOME P = CAPITAL INCOME Lähde (soveltaen): Kivelä – Nordell. 2001. Yrittäjän oikeutta. Helsinki. WSOY.

TAXABLE CAPITAL INCOME Example: TAXATION OF PRIVATE ENTREPRENEUR INVESTED CAPITAL 200.000 PRIVATE ENTERPRISE 20% PROFIT IN YEAR XX 70.000 OWNER TAXABLE EARNED INCOME 30.000 TAXABLE CAPITAL INCOME 40.000 Modified from: Hulkko - Hyvärinen - Varjola-Vahvelainen - Ohvo 1998. Henkilöstöoikeus. Helsinki. WSOY

TAXATION OF SHAREHOLDERS OF PUBLIC LIMITED LIABILITY COMPANIES DIVIDEND 70% taxable capital income 30% tax free

TAXATION OF SHAREHOLDERS OF PRIVATE LIMITED LIABILITY COMPANIES DIVIDEND 9 % of the mathematical value of the share Capital Income Tax free until € 90 000 / shareholder Of the exceeding part:: 1) Capital income 70% 2) Tax free 30% Earned Income => Taxable 70% Tax free 30%