In Sweden your business can be organized in a number of different ways. You can work on your own, together with others in a cooperative, or alongside one or more associates.
The types of company you can choose from are:
sole trader (enskild firma);
trading partnership or limited partnership (handelsbolag/kommanditbolag);
limited company (aktiebolag);
economic association/cooperative (ekonomisk förening).
Non-profit associations and foundations also engage in business activities, although they are usually not started up for this purpose.
Natural person or legal entity?
All of the above types of company are legal entities, with the exception of sole traders. Strictly speaking, a sole trader is not a type of company, but a business activity run by a natural person.¨
A legal entity, for example a limited company, can own things, loan money, be sued in a court of law, or employ staff, just like a natural person. Crucially, if you own a limited company, there is a clear dividing line between yourself and the company.
Yet for sole traders, this is not the case. Here, your own finances are interwoven with those of the business in a totally different way.
In trading partnerships, each individual partner has personal liability for the partnership’s obligations, in spite of the fact that a partnership is a legal entity. You can read more about owner’s liability for the different company types later in the chapter.
Most people starting a business for the first time choose to start as a sole trader, making it easy to get the business up and running in a short time. In most cases, sole traders do not have to register their business name (read more about mandatory registration in the chapter, Registering your business name).
A non-registered partnership is a form of collaboration whereby several different companies work together on a single project or business idea. So-called “consortia” are normally non-registered partnerships.
Non-registered partnerships can comprise a combination of sole traders, trading partnerships, and limited companies operating externally as one single company (e.g. jointly-owned farming operations). Every company retains liability for its own debts and owns its own assets. Certain liabilities can be jointly held, although this must be stated on the relevant credit documentation.
If you run a business together with your spouse, you are not necessarily obliged to set up a partnership. If you are a sole trader, you can choose to divide your company’s profit/loss between yourself and your spouse in your income tax return.
Do not choose a limited company if you expect to make a loss in the beginning
If you anticipate making a loss during the first years of trading, a limited company is not the right choice for you. The moment your total losses exceed 50% of share capital, you are only given eight months to restore share capital to its previous level. Fail to do this, and the company must be liquidated, so that you to avoid becoming personally liable for the company’s debts.
Tax subjects or not?
Sole traders are not classed as tax subjects. Instead, the company’s owner declares and pays tax on the surplus from business activities. This declaration is made in a business appendix (NE) on the annual income tax return.
Partnerships are considered tax subjects only for certain taxes (property tax, yield tax from pension funds, and special payroll tax from pension funds), despite being a legal entity. This is what makes a partnership such a complicated form of enterprise. In a partnership, every partner reports their share of profit/loss in an appendix (N3A or N3B) on their own income tax return, while the partnership itself is required to submit a special declaration (form 4).
Economic associations are tax subjects, and for tax purposes, function in much the same way as limited companies.
Equal for tax purposes
Owing to the rules governing expansion funds (read more in the chapter, Tax provisions), sole traders and partnerships are treated the same as limited companies for taxation purposes.
Consequently, your choice of company form has no great significance from the point of view of taxation.
There are other key differences, however, which make it more advantageous to choose one type of company over another. For example, the rules concerning dividends and staff welfare benefits favour limited company owners, while the rules for tax allocation reserves and interest distribution benefit sole traders and partners in trading partnerships.
There are two alternatives for dealing with a car in the business:
You can own the car privately and choose not to record car-related costs in the company’s bookkeeping. You may then deduct a standard amount for business trips (SEK 18.50 per 10 km travelled) on your income tax return.
You can allow the company to own the car, and record all car-related costs in the company’s bookkeeping. If choosing this option, you must pay tax on the car as a company benefit if it is also used privately to more than a negligible extent.
When it comes to the car, the same rules apply, regardless of which type of company you choose. Read more in the chapter, Tax deductions.
The financial year
Sole traders, non-registered partnerships, and trading partnerships must keep accounts for business activities using the calendar year.¨
Limited companies and economic associations can choose to use a split financial year.
You may never loan money from your own limited company. However, there is no corresponding rule governing the other types of company.
For further reading we recommend the book Start Up and Run a Business in Sweden.