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

BUSINESS FORMS 1 2 or more 1 + 1 or more 1 or more - Business form PRIVATE ENTERPRISE PARTNERSHIP LIMITED COMPANY Owner Entrepreneur Partner Personally liable partner and silent partner Shareholder Number of Owners 1 2 or more 1 + 1 or more 1 or more Founding documents - Founding contract Deed of formation, articles of association Owner’s liability for the company’s obligations Owner is liable with his entire personal property The partners have unlimited primary, joint and several liability The personally liable partner: as in partnership, the silent partner: liability limited to his contribution Shareholders’ liability limited to their contribution Acting on behalf of the company Each partner independently Liable partner: as in partnership Board of Directors Profit shareing All the proceeds of the enterprise belong to the entrepreneur 1) According to the contract 2) Interest to the partners’ contributions First the silent partner’s share of profit, the liable partner’s as in partnership The non-restricted equity capital can be distributed as dividends among the shareholders

PROFIT PROFIT PROFIT TAX TREATMENT OF FINNISH BUSINESS FORMS PROFIT Company tax Company tax PRIVATE ENTERPRISE PUBLIC LIMITED COMPANY OYJ PARTNERSHIP LIMITED 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 PROFIT IN YEAR XX 70.000 20% ENTERPRISE OWNER TAXABLE EARNED INCOME 30.000 TAXABLE CAPITAL INCOME 40.000 Modified from: Hulkko - Hyvärinen - Varjola-Vahvelainen - Ohvo 1998. Henkilöstöoikeus. Helsinki. WSOY

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

TAXATION OF SHAREHOLDERS OF PRIVATE LIMITED 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%

1. PRIVATE ENTERPRISE / PRIVATE PROPRIETORSHIP Not a juristic person => the entrepreneur and his enterprise are legally the same Owner One natural person Must have his habitual residence in the European Economic Area, unless exempted by the Patent and Registration Office Acts on behalf of the enterprise Is liable for the commitments of the enterprise 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 be registered, if a juristic person) in the European Economic Area, unless exempted by the Patent and Registration Office Contractual freedom as to management, division of power, right to veto, share of profit Partners’ liability Unlimited primary, joint and several liability Liability restrictions are invalid

Partners’ authority Each partner may represent the company Restrictions: Company’s line of business Partners’ agreement => effective if the third party knew => best to register Each partner has a veto right => effective toward a third party who knew

Position of the partners 1. General partner 3. LIMITED PARTNERSHIP Setting up 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 Patent and Registration Office Other provisions like with general partnership Position of the partners 1. General partner Same as in general partnership 2. Silent partner Liability for debts is limited to the amount of the investment No managerial power No right to represent the company Certain decisions can’t be made without his approval

4. LIMITED COMPANY Setting up Share capital One or more founders 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 Patent and Registration Office Share capital Minimum € 8 000 fixed Public limited company: Minimum € 80 000 fixed or Variable with min/max limits

SHAREHOLDERS’ MEETING =STOCKHOLDERS’ MEETING) LIMITED COMPANY BODIES SHAREHOLDERS’ MEETING (=GENERAL MEETING =STOCKHOLDERS’ MEETING) AUDITORS SUPERVISORY BOARD BOARD OF DIRECTORS MANAGING DIRECTOR (=CEO)

Shareholders’ liability limited to their investment Board Members and Managing Director are liable for damage caused by negligence Signing on behalf of the company By virtue of 1. Law => The Board of Directors 2. Articles of Association => E.g. Board Members individually or jointly, Managing Director 3. Articles of Association => May entitle the Board to grant the right to a named person

1. Shareholders’ Meeting Decision-making: Election of Board Members and auditors Discharge from responsibility Approval of financial statements Disposal of profit Changes in Articles of Association 1. Ordinary General Meeting 2. Extraordinary General Meeting By decision of the Board of Directors On demand of the auditors or the shareholders

Voting Equality of the shareholders Each shareholder has as many votes as he has shares, unless otherwise stipulated in the Art. of Assoc. The general rule => Simple majority of votes Exceptions in law / Articles of Association => Qualified majority E.g. Amendment of the Articles of Association: 2/3 of the votes cast and 2/3 of the shares represented in the meeting

Possible only in companies with share capital > € 80,000 2. Supervisory Board Possible only in companies with share capital > € 80,000 By virtue of the Articles of Association Supervises the Board of Directors and other company directors Elects the Board of Directors, unless otherwise stipulated by the Art. of Assoc. May have extensive decision-making power stipulated by the Art. of Assoc.

3. Board of Directors Responsible for administration and organisation of company operations Represents the company Min 3 members if share capital > € 80 000 Elected by the Shareholders’ Meeting Art. of Assoc. can stipulate that less than 50% can be appointed some other way Duly convened when 50% of members present

4. Managing Director Responsible for day-to-day operations and administration Represents the company by virtue of his position in the company Compulsory if share capital € 80 000 Appointed by Board decision, unless otherwise stipulated by Art. of Assoc.

ESTABLISHING A BUSINESS 1. The Trade Act - governs the general provisions for carrying out a trade 2. Specific Acts - govern the different legal forms of corporation Private Enterprise General Partnership Limited Partnership Limited Company Private Limited Company Public Limited Company Cooperative Society Foundation Economic society

The main principle: Freedom of trade Forms of Trade: 1) Free THE TRADE ACT (Elinkeinolaki) The main principle: Freedom of trade Forms of Trade: 1) Free - no permission required nor any other regulations - most trade is unrestricted 2) Regulated - a permission is required or a notification to the appropriate authority before beginning the trade activity - governed by Trade Act and specific legislation E.g. Banking, insurance, private security companies, travel agencies, restaurant and catering services

Trade Activities by Foreigners 1) Natural persons resident in the European Economic Area (EEA) and Juristic persons of the EEA countries do not need a special permission 2) Others need a special permission from the Ministry of Trade and Industry

CHOOSING FORM OF BUSINESS normally free choice Issues to consider: - tax considerations - number of owners - decision-making - amount of capital needed - liability for the obligations of the enterprise - acting on behalf of the company - amount of obligatory paper work

Conversion of business form: - private enterprise can be converted to any type of business - partnership can be converted to any other type of business - limited company can’t be converted Dissolution of business: - simple, except limited company

PROFIT PROFIT PROFIT TAX TREATMENT OF FINNISH BUSINESS FORMS PROFIT Company tax Company tax PRIVATE ENTERPRISE PUBLIC LIMITED COMPANY OYJ PARTNERSHIP LIMITED 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 PROFIT IN YEAR XX 70.000 18% ENTERPRISE TAXABLE EARNED INCOME 34.000 TAXABLE CAPITAL INCOME 36.000 Modified from: Hulkko - Hyvärinen - Varjola-Vahvelainen - Ohvo 1998. Henkilöstöoikeus. Helsinki. WSOY

1. PRIVATE ENTERPRISE / PRIVATE PROPRIETORSHIP Not a juristic person => the entrepreneur and his enterprise are legally the same => enterprise is classified a natural person Setting up - the simplest form - no written document needed - no minimum capital Owner - one natural person - acts on behalf of the enterprise - is liable for the commitments of the enterprise with his entire personal property Bookkeeping is required but no auditing required

2. GENERAL PARTNERSHIP Setting up Partners’ liability - by an agreement between 2 or more founders => juristic person - no minimum capital required - must be registered Partners’ liability - each partner is liable for the commitments of the enterprise with his entire personal property - unlimited primary, joint and several liability - liability restrictions are invalid

Partners’ authority - each partner may represent the company Restrictions: 1) Legal actions not within company’s line of business => do not bind the company 2) Partner/s entitled to sign on behalf of the company can be subject to agreement => must be registered 3) Restrictions not registered => effective if the third party knew 4) Each partner has a veto right => effective if the third party knew Contractual freedom as to management, division of power, right to veto, share of profit

Position of the partners 1. General partners 3. LIMITED PARTNERSHIP Setting up - one or more general partners and one or more silent partners - other provisions like with general partnership Position of the partners 1. General partners - same as in general partnership 2. Silent partners - liability for debts is limited to the amount of the investment - no managerial power - no right to represent the company - certain decisions can’t be made without his approval

4. LIMITED COMPANY Setting up - one or more founders - must be registered => juristic person Share capital: 1. Minimum € 8 000 fixed 2. Public limited company: Minimum € 80 000 fixed or Variable with min/max limits

Signing on behalf of the company By virtue of Liability - the shareholders’ liability limited to their investment Signing on behalf of the company By virtue of 1. Law: - the Board of Directors 2. Articles of Association - e.g. Board Members individually or jointly, Managing Director 3. Articles of Association - may entitle the Board to grant the right to a named person

SHAREHOLDERS’ MEETING =STOCKHOLDERS’ MEETING) LIMITED COMPANY BODIES SHAREHOLDERS’ MEETING (=GENERAL MEETING =STOCKHOLDERS’ MEETING) AUDITORS SUPERVISORY BOARD BOARD OF DIRECTORS MANAGING DIRECTOR (=CEO)

1. Shareholders’ Meeting - the highest decision-making body on matters stipulated by law Decision-making: - election of Board Members, auditors - discharge from responsibility - approval of financial statements - disposal of profit - changes in Articles of Association 1. Ordinary General Meeting - stipulated by law => Articles of Association 2. Extraordinary General Meeting - by decision of the Board of Directors - on demand of the auditors or the shareholders

The general rule: simple majority of votes Decision making - the meeting is duly convened when one shareholder is present Voting The general rule: simple majority of votes When required by law or Articles of Association: a qualified majority E.g. Amendment of the Articles of Association: 2/3 of the votes cast and of the shares represented in the meeting Equality of the shareholders Each shareholder has as many votes as he has shares (unless otherwise stipulated in the Art. of Assoc.)

2. Supervisory Board Possible only in companies with share capital > € 80,000 By virtue of the Articles of Association Function is to supervise the Board of Directors and other company directors Elects the Board of Directors (unless otherwise stipulated by the Art. of Assoc.) May have extensive decision-making power stipulated by the Art. of Assoc.

3. Board of Directors Body representing the company Min 3 members if share capital > € 80 000 Normally elected by the Shareholders’ Meeting (Art. of Assoc. can stipulate that less than 50% can be appointed some other way) Duly convened when 50% of members present (unless Art. of Assoc. stipulate different) Responsible for administration and organisation of company operations

4. Managing Director Compulsory if share capital € 80 000 Otherwise appointed if Stipulated in Art. of Assoc. By Board decision Represents the company by virtue of his position in the company Responsible for day-to-day operations and administration

The shares Different values: Assignment of shares - nominal, taxation value, market value, mathematical value Assignment of shares - free unless restrictions based on Art. of Assoc.: 1. Consent Clause - not widely used in Finland - concerns only certain acquisitions 2. Redemption Clause - widely used in small companies - may concern any form of acquisition - typical content: if shares are assigned to a non-shareholder the shareholders are entitled to redeem the shares Note: no restrictions on foreign ownership