A Limited Liability Company is owned by one or more shareholders who can be both natural or legal persons . The advantage of a Limited Liability Company is that the owners have no personal responsibility and only the invested capital is at risk. As Aktiebolaget becomes a legal entity when it is registered, it can itself be included in agreements, have employees and own.
4 Advantages and Disadvantages of Limited Liability Companies
There are advantages and disadvantages to running a limited company. Before you choose to change company form to a limited company, it is good to be aware of these to be sure that you are making the right choice. We listed some of them.
Benefits of running a limited company
- With a limited company, it is easier for you to distinguish between your personal finances and the company’s assets. It is also forbidden to borrow money from a limited company, which means that the money is automatically kept apart, at the same time as the risk of borrowing too much is reduced.
- Limited companies give a serious impression. When you trade with the bank, talk to customers or other stakeholders, many people think that it is an advantage to have a limited company as a company form because it gives a positive overall impression.
- With a limited company, several expenses for employees are reduced. Among other things, you do not have to be personally responsible for your employees in the event of illness and you get access to tax-free benefits for things such as wellness and Christmas gifts.
- Selling a business or changing ownership becomes easier. In comparison with an individual company or a trading company, a change of ownership when selling becomes much easier with an AB. The same applies if the company has several shareholders. The company form is simply better adapted to be able to handle more owners and change of ownership in a business. If one day you felt like selling your holdings, the process would be smoother for both buyers and sellers.
The disadvantages of running a limited company
- The requirement for capital investment cannot be avoided when forming a limited company. Previously, the share capital contribution was SEK 100,000, but was reduced to 50,000 a few years ago. This meant that more people could afford to start a limited company. Although the amount has decreased, this means that if the company should collapse and the company has debts, this amount will be lost.
- A limited company has a loan ban , which means certain restrictions for the limited company. Should the debts in your individual company be greater than the assets when you form your limited company, this will create a claim on the limited company. Since a claim is taxed as a service income, this will violate the loan ban. As an owner, you can solve this by adding the difference with the amount that is missing for the assets to weigh evenly.
- Auditor requirements apply to the slightly larger limited companies. The requirement for an auditor arises if you meet two or more of the following points:
- SEK 3 million in net sales
- 3 or more employees
- SEK 1.5 million in total assets (sum of assets, sum of equity and liabilities in the company’s balance sheet)
- Running an AB means that you risk a very low compensation from the Swedish Social Insurance Agency if you should become ill. If you run a company, it is common to have a very small income in the beginning. In the event of illness, the social insurance office therefore pays out a standard agreement, based on the corresponding profession you have, so that you do not have to be completely without compensation. If you are the owner of a limited company, you are instead counted as an employee and this benefit does not apply. The sickness benefit-based salary is only calculated on the salary you had, which can be very small if the company has had a bad year.
Requirements and regulations
A limited company needs to have a board and even in some cases a managing director. The Board is appointed at a Annual General Meeting. There is also a requirement for an authorized or approved auditor to take care of the company’s audit. At the annual accounts, an annual report must also be submitted to the Swedish Companies Registration Office containing the administration report , income statement, balance sheet and auditor’s report.
To form a limited liability company
To form a private AB, a start-up capital of at least SEK 50,000 is required and for public ones, a minimum of SEK 500,000 is required. The capital investment can later be used to buy assets in the company. You can have one or more owners and these can be both physical and legal. If you are already sure that you want to start an AB, you can easily register this on the site Verksamt.se, which is an e-service run by the Swedish Tax Agency, the Swedish Companies Registration Office and the Swedish Agency for Economic and Regional Growth.
When it’s time to start rebuilding, there are two ways to go about it. First and foremost, you can apply for company formation with the Swedish Companies Registration Office. It can be done on your own, but if you are unsure of how to do it, you can ask an accountant for help. Another approach is to buy a so-called warehouse company. A stock company is a fully formed limited company that has been created for the purpose of being sold and that has not previously conducted any business. Anyone who buys a warehouse company thus receives a completed AB with an organization number that is registered with the Swedish Companies Registration Office.
If you are considering changing company form from sole proprietorship to limited liability company , you should consider the above points but also seek more information on your own. For questions and execution of the conversion, you can get help from an accountant. Find out what it would cost by collecting quotes from 3 different auditors with Agera’s service. It can be a first step on the road. Good luck!