Light entrepreneurship vs trade name
A trade name is the second most common company form in Finland, right after a limited company. When it comes to starting and doing business, operating under a trade name is notably lighter compared to other official company forms. Despite its lightness, a trade name is still an official company form that requires understanding accounting and taxation, not to mention navigating complex bureaucracy. Light entrepreneurship is an excellent alternative in many cases, thanks to its lightness and simplicity.
As an entrepreneur, both a trade name and light entrepreneurship have their own advantages. Choosing the right company form should always be made on a case-by-case basis, as one company form is not the right fit for everyone. In this article, we walk you through the pros and cons of light entrepreneurship and operating under a trade name to help you choose the right alternative for you.
Let’s begin our comparison by looking at the first steps of operations. In this respect, light entrepreneurship and a trade name differ greatly.
A trade name is officially also known as a private entrepreneur. To start your business under a trade name you first need to make a start-up notification for the Finnish Patent and Registration Office, PRH. You can do this online at the YTJ-service (The Business Information System) for the price of 60 euros. You can do the notification also on paper but this is a slower process and costs 115 euros instead of the 60 euros charged for the electronic notification. While you are at it, you need to also enter your business into the Tax Administration registers.
While making the start-up notification, you will also register a trade name for yourself for doing business. You need to check that the name in question is available before making the notification. You can do this for example in PRH’s name checking service. After this, you will receive a business ID and can start doing business, as long as your application is approved.
Taxation is one matter that can confuse many who are just getting started on their entrepreneurship journey. And for a good reason. Regardless of your company form, the taxation of a business and an entrepreneur is usually quite different than when getting paid for your work as an employee.
An entrepreneur operating under a trade name pays their taxes as prepayments in 2, 3, 6 or 12 instalments depending on the amount of taxes paid throughout the year. When starting out as a private entrepreneur, you need to estimate your business’s taxable income for the first year of operations. This refers to the amount left over after deductible expenses. Keep in mind that the “salary” a sole trader pays for themselves is not deductible. Other personal income, such as salary and start-up grants, may have an effect on your prepayment.
With a trade name, you also have to take value-added tax (VAT) into account. In case your revenue under a trade name exceeds 15 000 euros in a year, you are required to pay VAT. For a revenue of less than 30 000 euros, you can get a VAT relief. In practice, this is a small discount on the amount of VAT you have to pay.
Trade name is the lightest of official company forms but requires detailed accounting and taking care of prepayments and VAT. It is entirely legal to take care of all this by yourself, but in most cases, this is not an effective way to spend your time. With a trade name, the most likely situation is that you have to outsource your accounting to someone else. This leads up to additional expenses and extra hassle for you.
Do I need a business ID?
A trade name is an official company form and makes you entitled to a business ID. On top of that, a business ID comes with many commitments for taxation and accounting, as well as a broader right to tax deductions. With a trade name, you can deduct all deductible expenses directly from your profits which lowers the amount of prepayment to pay. A trade name also enables you to deduct the business’ overheads.
As a light entrepreneur, you can do deductions for billable work directly via a service and get the full benefit directly when getting your salary. The one downside is that you can deduct only expenses that are directly associated with your billable work.
- You do not have to start up a business when getting started as a light entrepreneur. With a trade name, on the other hand, you need to make and pay for a start-up notification, as well as register a company name for yourself.
- A light entrepreneur does not need to worry about the ins and outs of taxation or the time it takes to do the taxes, unlike someone operating under a trade name would.
- As a light entrepreneur, you do not own a business ID, so there are no requirements for accounting. Using a trade name comes with these time-consuming requirements that most likely need to be outsourced to someone else.
- If you want to end operations with a trade name, you need to make a separate notification of this. Such notification is not needed as a light entrepreneur.