Which business structure suits you?

When starting a business, choosing a business structure is one of the first choices you face. There is really no right or wrong when it comes to choosing a business structure, but which structure you choose will affect things like start-up capital, taxes and legal liability. To make it easier for you to know which business structure would suit your business, we have compiled information about each business structure, what distinguishes them and which one fits in which situations.

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Sole trader
A sole trader is a type of business in which a person owns and operates the business in his or her own name. It is easy to start and requires no start-up capital to get started. One of the biggest advantages of a sole proprietorship is that it is simple and has less administrative requirements. Since it does not require you as an owner to enter with any capital, an individual firm also has minimal start-up costs. As the owner of an individual firm, you have full control over the company and all decisions, but you are also personally responsible for all debts and contracts. In an individual firm, there is also no difference between the company and the owner's finances. An individual company may only have one owner. It is basically a business structure where you, as the owner, is given permission to conduct business in your name and is suitable for sole proprietors, consultants and small-scale businesses that do not require large investments or employees. If you want to test a business idea without making big financial commitments from the start, an individual company can also be an easy way to get started, and then turn it into a limited company at a later date.

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Limited  company
Limited companies are the most common business structure in Sweden and to start a limited company requires a starting capital of at least SEK 25,000. Unlike an sole trader, a limited company is its own legal entity, which is one of the main advantages. The fact that a limited company is its own legal entity means that the company is responsible for its own contracts and debts. The owners instead have limited liability. Their private finances are protected from the company's liabilities and only risk the capital that they have invested in the company. A limited company can also have several owners, which makes it possible to spread risks and share responsibilities, and that it can be transferred or sold. However, since there are more extensive requirements for a limited company when it comes to administration and accounting, it may be better suited for companies that require larger investments, have multiple owners or employees.

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Trading partnerships
A trading partnership is a business structure in which two or more people run the business together. A trading partnership is its own legal entity, but the shareholders are jointly and severally liable for the company's debts and contracts. This means that each shareholder can be held liable for the entire debt. One advantage of trading partnerships is that there is no start-up capital required to get going, making it easy to start. In addition, the owners can spread the responsibility and benefit from each other's competencies and that limited companies can be partners in a trading company. The downside is the personal liability, which can pose a financial risk to the co-owners. Trading partnerships are therefore best suited for smaller businesses where the owners know each other well and are willing to share both responsibility and profits.

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Limited partnership
Limited partnerships are similar to trading partnerships but have one important difference. There are two types of owners: general and limited partners. General partners have unlimited liability for the liabilities and contracts of the business, while limited partners only risk their invested capital. This allows limited partnerships to attract investors who do not want to risk more than their invested capital. Like trading partnerships, limited partnerships require no start-up capital and can therefore be started quickly. The downside is that the general partner has unlimited liability, which always involves some risk. Limited partnerships are therefore suitable for companies that want to benefit from both active co-ownership and passive investors.

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Economic association
An economic association is a type of business in which members cooperate and conduct activities to further their economic interests. The association is its own legal entity and its members have limited liability, but three or more legal entities are required to form an economic association. One of the advantages of an economic association is that it can have unlimited number of members and is democratic, with one vote per member. However, the association requires a more extensive administration and accounting. An economic association is suitable for activities where members want to work together for common economic goals, such as housing associations, cooperatives or member-owned businesses.

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Nonprofit association
A non-profit association is an association that is run for no profit and instead to promote the non-profit interests of its members. For example, culture, sports or social work. The association is its own legal entity and the members have no personal responsibility for the association's debts or agreements. One of the main advantages of a non-profit association is that it can conduct business without paying taxes on its earnings, as long as they are used to further the purpose of the association. The disadvantage is that a non-profit association cannot conduct for-profit activities in the same way as other business structures. Non-profit associations are suitable for groups of people who want to work together to promote common interests without having a financial profit purpose.

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Choosing the right business structure
The type of business structure that suits you depends on several factors and is influenced by the scale of the business, the number of owners, the capital needs and the propensity to risk. Many people think that limited companies are the obvious choice because of the limited liability, but for some businesses, the cost of starting one outweighs the benefits of it. It is important to carefully review your needs and goals before deciding which business structure is right for you.

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By understanding the differences between different business structures, you can make an informed choice and lay the foundation for a successful and sustainable business.

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