Company Forms in Sweden and Legal Forms of Companies

Legal forms of Companies in Sweden and what company forms in Sweden to choose from. A common question among entrepreneurs is what company form to choose. Like so many other questions about business and taxes, the answer is often “it depends”. Here some of the pros and cons of the different types of companies are sorted out; below you will find a summary of legal Swedish company forms and comparison of advantages in relation to disadvantages.

Summary of Legal Swedish Company Forms

Limited (Ltd)

Separate legal entity (i.e. legal entity that can enter into contracts). Sometimes requires the accountant (if you exceed certain limits) and demands 50.000 SEK in deposited funds in the form of share capital. Risk is limited to invested capital (assuming that all accounting rules and laws are followed). An Ltd becomes a holding company when they only own in to other companies and has no ongoing business activity of its own.

Private Company

Not a separate legal entity, but an individual conducting business. No accountant requirements or capital adequacy and unlimited risk.

Partnerships

Separate legal identity. No accountant requirements or capital adequacy. Unlimited risk and must have at least two part owners.

Limited Partnerships

Variant of a partnership in which one partner is fully liable while others may limit the liability to capital invested.

Comparison of Swedish Legal Forms of Companies

Accounting Requirements

The only Swedish legal form of companies that requires an accountant is the Ltd, above certain limits. Other types of companies may have an accountant and if they are very, very big must have an accountant.
Recently accountant requirement were removed for smaller companies. All fiscal years beginning after October 31, 2010 do not needs the accountings to be audited. An Ltd company must still have an accountant if it reaches the following limits any of the two latest financial years:

• More than 3 employees (as an average)
• More than 1.5 million SEK in balance sheet total (assets)
• More than 3 million in net sales

The annual cost for an accountant starts somewhere between 8.000 and 12.000 SEK and continues upwards depending on location, company and accountant.

Capital

The only company form that requires deposited funds is the Ltd Company. Date of effect April 1, 2010 the requirement was changed to 50.000 SEK in share capital (previously 100.000 SEK). Companies with 100.000 SEK in share capital who want to bring it down to 50.000 SEK must follow the current regulations concerning the reduction, which means a little administration work, contacts with the Companies Registration Office and a fee.

A common misconception is that the share capital is a cost or that the money must be unused and kept on a separate account. This is of course not true. The funds can be invested in assets or can be used to cover operating expenses.

What is important is that the capital is not to be consumed. And what that exactly means; in short you have to keep an eye on that the negative result does not become so large that it eats up all the share capital. In addition, the owner can never borrow money from the company. These two points needs no concern with the private companies or partnerships.

Responsibility

Many are attracted to companies to limit their personal liability for any insolvency, and it makes sense. If you start to incur higher fixed costs in the form of, for example, premises and professionals, it is sensible to consider the Ltd Company. So what do the responsibilities include and what does it not include?

If you in your private company cannot pay the firm’s costs a creditor can collect them with you personally. You are fully responsible for all the companies’ obligations. For a partnership, it works the same, adding that the partners are jointly and separately liable for its obligations. A creditor may choose to require the entire partnership’s debt from one of the owners. This owner is then entitled to require the other partners on their share of the dept. The somewhat unclear question of liability in a partnership could be a reason to avoid this legal form of company.

A limited company however can be declared bankrupt, without affecting its owners. The only shareholders are likely to lose is the invested capital. Remember, this requires that all rules are followed in terms of accounting, etc., otherwise the company’s representative (i.e., CEO, Board and in some cases the owner) will be personally liable for the companies obligations.

Administration & Costs

A private company is easy to set up. You do not need to register this form of company with the Company Registration Office, but if you still want to do that it costs 900 to 1.200 SEK and your business name will then be protected in the Sweden. You need an F-tax form and possibly VAT registration with the tax authorities, which is free. You do not need an accountant and you do not need to make any annual financial statement. The annual financial statement consists of a K10-form attached to your personal tax return. It can be a bit tricky to keep track of your tax liabilities and to separate the private and firm accountings.

Limited companies require a little more work. It must be registered with the Company Registration Office which requires some documentation and costs from 1.900 to 2.200 SEK. You do the same registration with the tax authorities as with a private company. Some companies require an accountant and each year must end with real financial statements, an annual report and an Annual General Meeting. The reporting is in return quite simple once the statements are made. Each partner also does a K10-form and attaches their personal tax return. The calculation of shareholders’ tax situation for dividends and capital gains (the so-called 3:12 rules) can sometimes be quite tricky – if an Ltd have employees it should be done by professionals. A major benefit of Limited Companies is that the separation between the company and the person is very clear.

The Partnerships is a cluttered combination between the private company and the Ltd. It must be registered with the Company Registration Office at a cost of 900 to 1.200 SEK. The same data with the tax authorities, as other types of companies, is needed plus individual registration of the owners. No accountant or financial statements are required. The reporting can be really difficult! To calculate each year’s profit and tax is not so bad, and similar routine for the private company (only multi-partners), but keeping track of the so-called adjusted acquisition cost can be very difficult.

The easiest and cheapest legal form of company in Sweden is the private company.

If you are using an administrator in Sweden to incorporate a company you will also need to provide all the know your customer compliance documentation.

Tax Situation

A limited company pays a corporate tax simply put to 26.3% of its profit before tax. If an owner takes out a salary, employment taxes and taxes on wages are paid, as with any employee at any time. Dividends and capital gains on sale of shares in the company are a bit trickier. The simple version is that a partner each year can take out a dividend of 2.5 income based amounts to 20% in tax, everything above is taxed as income. If you have had a high cost for the shares and/or have a number of employees and are charging a decent salary for yourself, this amount can be higher, sometimes even much higher. But the calculation is not to be played with – consult a professional advice if you don’t have full control. This company form has even greater potential for more sophisticated corporate tax planning with holding companies, etc. The tax rate for a company owner is about 45-67% on salary (social costs + tax) and about 41% on dividends within the 20% limit – (corporate tax + tax on dividends).

A private company or partner in a partnership pays tax on the profit generated during the year, after adjustments for provisions, etc. This means that how much is taken out of operation does not affect the tax. Your own withdrawal does not affect your taxes! From the profits each personal withdrawal and what’s left of business income, are added to the income of service when your local tax income and possible state income tax is calculated. Custom fees are equivalent employment taxes and taxes on wages paid when an Ltd company owner takes out a salary. Overall, the margin tax rate are somewhere between 45% and 67% depending on the local tax rate and income level.

The difficulty in private companies and partnerships is to calculate the current tax liability, which we do not really know for sure until the year is over and you can make a hefty tax calculation, Inc. all provisions, etc.

Which is the most advantageous company form with best tax benefits then? The starting point of the law is neutral between types of company, i.e. no one should be better than the other. It’s impossible to achieve 100%. And as always, it depends a little on the circumstances. But if we simplify it all into a single consultant who takes it all out and uses all profits, there is lower tax on a private company up to an annual profit of around 600.000 SEK. Then the Ltd is better up to somewhere around 1.400.000 SEK, and then the private company would be more advantageous again. But the higher operating costs in an Ltd has not been taken into account, the different rules for the tax allocation funds, and if any salary limits was reached by the 3:12-rules, etc.

In general the Ltd becomes considerably more favorable when the business starts to get employees and make good profits. If you earn good money and want the company to be used as a “piggy bank”, the Ltd or Swedish Holding Companies also is the superior company form – private companies may not hold securities. With the right corporate tax planning Sweden can compete with the top most favorable tax havens in the world.

Click here to read more about Swedish Holding Companies.

[button_round color=”green” url=”http://siguientecap.com/our-services/swedish-holding-companies/”] Read more about Swedish Holding Companies [/button_round]

More Partners and Growth

A private company may enter into a contractual partnership with another legal company form, but legally it is always the private company owner. Only partnerships or Ltd companies may have more owners. For a company that grows, has or will have several partners and maybe take in external capital, an Ltd is the only sensible company form. One can easily bring in new partners and one can easily buy, be acquired by or merge with other companies. Larger businesses often increase the risk, which suggests the use of limited company.

Changing Company Form

It is usually no major problems to change company form. Usually business’s transform from a private company, or partnership, into a limited company. Transferring provisions (tax allocation funds, expansion fund) to a corporation is usually no problem, but the rules can be a little tricky, so taking on professional help is recommend.