Taking up entrepreneurship

A limited liability company differs from the other types of companies in such a way that the liability of the company’s shareholders is limited. In other types of companies, the entrepreneur or partners are liable for the debts to the full extent of their assets.

You can send a draft of the agreement to the Union’s legal counsels for comments, if its contents are unclear. It is advisable to have a shareholders’ agreement drawn up by a professional legal counsel.

A freelancer can operate either in an employment relationship or as a self-employed person. It is possible for a freelancer to be in employment relationships with different companies and to carry out part of their work as commissions or assignments. The organization of social security is nevertheless challenging in freelance work.

From the perspective of social security, a person who is a “light entrepreneur” or works through a cooperative is also often an entrepreneur, even if an invoicing cooperative takes care of the employers’ contributions. From the perspective of unemployment security legislation, a person is either an entrepreneur or an employee. This means that, in the event of unemployment, they may easily have nowhere to turn to.  To learn more about the topic, go to the website of the KOKO unemployment fund or Suomi.fi.

An entrepreneur’s unemployment security is organized under an entrepreneurs’ unemployment fund. In unemployment security, all work not carried out in an employment or public service relationship is considered entrepreneurship. A holding, share of ownership or one’s formal position bears no relevance in such situations. For example, if a person works through an invoicing cooperative (also referred to as “light entrepreneurship”), they are considered an entrepreneur from the perspective of unemployment security.

Even if a person is an entrepreneur from the perspective of unemployment security, they can still fulfill the employment conditions for being a wage earner in other work. Work carried out as an entrepreneur does not accumulate a wage earner’s employment condition, regardless of whether the work in question constitutes part-time or full-time entrepreneurial activities. Meeting the definition of an entrepreneur alone does not make a person a full-time entrepreneur or remove their right to a wage earner’s daily allowance. Further information is available on the website of the KOKO unemployment fund.

An entrepreneur is responsible for organizing their own pension insurance in accordance with the Entrepreneur’s Pension Act (YEL). Such insurance is mandatory if the entrepreneur meets the conditions for falling under the scope of the Pension Act. The insurance must be taken out within six months of the start of the entrepreneurial activity. Entrepreneurs may take out an insurance policy either from a pension insurance company or through a pension fund, if their industry has such a fund.

The pension insurance is taken out on the basis of the entrepreneur’s YEL earnings, which should correspond with the entrepreneur’s labor input. The amount of the pension and the insurance contribution is calculated on the basis of the earnings. The YEL earnings must correspond to a salary that would be paid were the entrepreneur’s work carried out, on behalf of the entrepreneur, by someone possessing equal professional skills or that, on average, corresponds with the remuneration paid for such work. In other words, the YEL earnings are not directly based on the company’s net sales or taxable income. For further information, go to the Työeläke.fi website of the Finnish Centre for Pensions.

Upon its establishment, a company is also registered in the Tax Administration’s register. This is when the company is given a business ID. The company pays withholding tax based on its estimated income. The withholding tax may also be paid in installments. If the income is higher or lower than estimated, the entrepreneur may apply for a change to the withholding tax. The Union does not provide actual tax consulting.  For information on a company’s tax affairs, go to the Tax Administration’s website.

A person who becomes an entrepreneur may be eligible for a start-up grant, and a grant may also be granted when a part-time company expands into a full-time company. A start-up grant is paid only when it is necessary for the person’s livelihood. It is advisable to investigate the prerequisites for a start-up grant before establishing a company. Further information on start-up grants for new entrepreneurs can be found on website of TE Services.

An entrepreneur’s pension insurance (i.e. YEL insurance) is mandatory, unless the earnings fall below the sum insured. Union membership includes professional indemnity insurance. Insurance issues should nevertheless be reviewed with an insurance company, to ensure that the insurance policies taken out by the company are adequate with regard to its operations. If the company intends to hire employees, mandatory insurance policies include the employee’s pension insurance (TyEL) to be taken out for employees, the statutory accident and occupational disease insurance policy, as well as the occupational group life insurance policy. Employers also contribute to employees’ unemployment insurance contributions.

You can find information about employment relationship matters in, for instance, the Employment Relationship Guide available on the Union’s website.  Employers must deduct withholding taxes when paying salaries and take care of pension and social security contributions. The Tax Administration’s website provides instructions on the different payments.