Sole trader or limited company? Choosing the right business form in Finland

What is a sole trader (toiminimi)?

A toiminimi (private trader) is the simplest business form. The business and the entrepreneur are the same legal person: the firm’s income is your income and its debts are your debts. Setup is fast and cheap, and no starting capital is required.

You are liable for the business’s debts with all of your personal assets. Low risk and simple operations make a toiminimi a good choice for a new entrepreneur, a freelancer or a side business.

What is a limited company (Oy)?

A limited company (osakeyhtiö, Oy) is a separate legal person from the entrepreneur. You are generally liable only up to the capital you invest — your personal assets are protected. No minimum share capital has been required since 2019 (previously €2,500).

An Oy adds credibility with clients and financiers and suits growth, hiring and multiple owners. In return, there is more administrative work.

The key differences

• Liability: toiminimi is personal and unlimited; Oy is generally limited.
• Starting capital: toiminimi €0, Oy €0 (minimum capital abolished in 2019).
• Bookkeeping: a small toiminimi may use single-entry; an Oy always requires double-entry bookkeeping and financial statements.
• Taking money out: toiminimi via private withdrawals; Oy via salary and/or dividends.
• Administration: toiminimi is light; Oy is heavier (board, shareholders’ meeting, registrations).

Taxation — how do they differ?

A toiminimi’s profit is taxed as the entrepreneur’s personal income. Part is treated as capital income (by default 20% of the return on net assets, taxed at 30/34%) and the rest as earned income on the progressive scale. You don’t pay yourself a salary — you take money out as private withdrawals.

A limited company pays 20% corporate tax on its profit. After that, you take money out as salary (taxed as earned income) and/or dividends. From a non-listed company, dividends up to a certain limit can be taken at a lighter tax rate, which often makes an Oy tax-efficient once profit is high enough.

Tax rates and thresholds change every year. Use these as a guide and confirm your own situation with an accountant. Corporate tax is 20% (2026); a cut to 18% has been proposed from 2027.

Which one should you choose?

A toiminimi suits you when you are starting out, income is small or variable, risk is low and you want simplicity. It is often the best choice for the first year or for a side business.

An Oy is worth it when profit is steadily higher (the tax benefit grows once you pass roughly €30,000–40,000/yr), you want to limit your liability, you plan to grow, hire or take investors, or you need credibility with larger clients.

Can you change the form later?

Yes. Many start as a toiminimi and convert to an Oy as the business grows. Under certain conditions the conversion can be done in a tax-neutral way (continuity principle). Plan the change with an accountant.