What is the main source of law authorising this entity form?

Limited Liability Companies Act (624/2006, the “Companies Act”)

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

Yes. A limited liability company is a separate legal person from its shareholders, related parties and potential other group companies.

(Maximum) period of existence

No maximum period of existence, limited liability companies are perpetual.

Governing document(s)

The articles of association, the Companies Act

Liability of incorporators / shareholders

As the main rule, the liability of the shareholders is limited to their capital contributions into the limited liability company and the shareholders are not liable for the company’s obligations. A shareholder may face liability, if it causes damages to the company, another shareholder or any other person by violating the Companies Act or the articles of association intentionally or through negligence.

(Governing) bodies

The main governing body is the Board of Directors, which each limited liability company is required to have under the Companies Act. The Board of Directors sees to the administration of the company and the appropriate organisation of its operations (general competence). The Board of Directors is responsible for the appropriate arrangement of the control of the company accounts and finances. By default, the members of the Board of Directors are appointed by the shareholders by a majority vote.

A limited liability company may also have one (1) managing director (responsible for day-to-day operations under the instructions of the Board of Directors) and/or a Supervisory Board (supervising the Board of Directors’ and managing director’s governance of the company). A managing director is very common, particularly for operative companies, whereas Supervisory Boards are seldomly used and mainly in large cap companies.

Other particularities

Due to the fact that the Companies Act is, to large extent, dispositive legislation and provides the shareholders broad freedom to act as well as the general practice of drafting the articles of association to only meet the statutory minimum requirements (due to being a public document), a shareholders’ agreement is usually the de facto governing document in case of multiple shareholders.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions and divestitures, equity acquisitions, conversions etc.)?

Yes. The Companies Act does not pose any unusual restrictions to international transactions or restructurings.

Can this type of entity be publicly listed or held, or its securities be issued to members of the public?

The number of shareholders in a private limited liability company is not limited. However, offering a limited liability company’s shares to the public (through a listing or otherwise) requires the said private limited liability company to be transformed into a public limited liability company. The fundamental nature of both a private and public limited liability company are the same, with the public limited liability company being subject to, e.g., minimum share capital requirements as well as certain administrative requirements.

Can this type of entity be used for a non-profit or charitable organization?

According to the Companies Act, the purpose of a limited liability company is to generate profits for the shareholders, unless otherwise provided in the articles of association. Hence, technically a limited liability company could be used for a non-profit or charitable organization, however, such organizations tend to favour other entity types (e.g., foundations) due to, e.g., tax benefits.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Memorandum of association, resolving upon the initial share subscriptions and Board of Directors

Founding articles of association

Involvement of notary, company register, governmental authorities

No notarial involvement required, the above documents and registration forms filed with the Finnish Trade Register and the Tax Administration (filings to both authorities made on single electronic or paper form).

Timing (estimate)

The incorporation of a limited liability company is typically registered within one to two weeks from filing for incorporation (if done electronically). The business identification code of the limited liability company to be registered is available immediately upon filing.

Main costs, including registration and similar fees (excluding legal fees)

Registration fee of EUR 370,00.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

Yes, however, such description can be fairly general.

Minimum number of incorporators / shareholders and residency requirements

No minimum number or residency requirements for shareholders.

Minimum number of directors (or other applicable officers) and residency requirements

The Board of Directors must have at least one (1) ordinary member. If less than three (3) ordinary members are appointed, at least one (1) deputy member must be appointed.

If none of the ordinary members of the Board of Directors have permanent residency within the European Economic Area (the “EEA”), all ordinary members must apply for and receive a special permit to act as an ordinary member of the Board of Directors. If at least one (1) ordinary member of the Board of Directors has permanent residency within the EEA, no permits are required.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

No minimum share capital or equivalent requirements. Technically, no bank account is required.

Is the physical presence of incorporators/directors/shareholders required in the jurisdiction for incorporation, formation, or organisation?

A limited liability company must have an address in Finland (can be arranged through virtual office services).

Is a tax identification number, or equivalent, required? If so, how is it obtained?

The business identification code serves also as the tax identification number.

What is the title of the applicable company registry?

Finnish Trade Register (Fi: kaupparekisteri), which is upkept by the Finnish Patent and Registration Office (a governmental agency, Fi: Patentti- ja rekisterihallitus)

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles or other formation document, Articles or other formation document, Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)

• Articles or other formation document

Memorandum of association and articles of association are filed with the Trade Register. The articles of association are publicly available in a paid database. The memorandum of association is also publicly available but must be specifically requested from the Trade Register.

• Ownership identification (direct and/or indirect ownership, and/or 'beneficial owners')

Each limited liability company must upkeep a shareholder register. The shareholder register is not filed with the Trade Register, but it is a public document to the extent that it must be provided to anyone requesting it at the company’s headquarters.

Ultimate beneficial owners (as defined below) must be registered, available to public on a justified need-to-know -basis, e.g., for banks.

An “ultimate beneficial owner” is a natural person meeting any of the following criteria:

• The person owns more than 25% of the company shares directly or indirectly through another company.
• The person holds more than 25% of the voting rights in the company directly or indirectly through another company.
• The person exercises actual control over the company on other grounds. Other grounds may refer to a partnership agreement, for example.
• Group structure

Group structure is not required to be registered.

• Share capital

Share capital as well as number of shares and any changes thereto are registered with the Trade Register and publicly available on a free database (included on the Trade Register extract). To be noted, however, that the share capital is generally not increased in connection with share issues (proceeds booked in the reserve for unrestricted invested equity).

• Directors

Directors are registered with the Trade Register and are publicly available on a free database (included on the Trade Register extract).

• Accounts

Annual financial statements are registered with the Trade Register and are publicly available on a paid database.

• Insolvency, good-standing, liquidation

Any insolvency or liquidation proceedings will automatically lead to a publicly available entry into the Trade Register and/or the Insolvency Register.

Up-to-date information required to establish good-standing (existence, no tax debt, etc.) available on public databases. No separate registrations or entries for good-standing.

• Liens and encumbrances on the shares

Liens and encumbrances on the shares are not registered with the Trade Register (the company to register liens and encumbrances on the shareholder register).

• Liens and encumbrances on assets of the entity

Business and real estate mortgages are registered with the Trade Register and are publicly available on a paid database.

• Other (e.g. litigation, tax matters)

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The main governing body is the Board of Directors (required under the Companies Act). The Board of Directors sees to the administration of the company and the appropriate organisation of its operations (general competence). The Board of Directors is responsible for the appropriate arrangement of the control of the company accounts and finances.

How are the members of the executive body appointed, dismissed and replaced?

By default, the members of the Board of Directors are appointed (as well as dismissed and replaced) by the shareholders through a majority vote. However, the appointment rules and procedures can be altered by the articles of association. Furthermore, contractual nomination rights through shareholders’ agreements are common.

Is it possible to appoint corporate directors or must all directors be natural persons?

All directors must be natural persons.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

The only governing body required by the Companies Act is the Board of Directors, hence appointment of non-executive directors is not required. A two-tier structure can be applied by setting up a Supervisory Board, but such structure is generally applied only at larger companies.

While by definition the members of Board of Directors are executive directors, it is generally the case that, in their roles as such, the members of the Board of Directors are not actively involved in the operations of the company and the management of the company is de facto carried out by the operative management, consisting of the managing director (CEO) and other C-level directors under the instructions and supervision of the Board of Directors.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The shareholders exercise their power of decision at the general meeting, being the highest decision-making body in a limited liability company. The general meeting’s competence is defined in the Companies Act, including, e.g., appointment of the Board of Directors, adoption of financial statements, resolutions on use of profit as well as any distributions of assets and dividends, and resolutions on issuance of shares or other equity securities. The general meeting can delegate its competence to the Board of Directors to certain extent through authorizations. Furthermore, the shareholders may unanimously resolve on matters falling under the general competence of the Board of Directors or the managing director.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Quorum at general meeting is formed through the general meeting having been convened in compliance with the formal requirements (e.g., notice periods, contents of the summons).

The default decision-making threshold at the general meeting is simple majority of the votes represented at the general meeting. Resolutions on certain matters, such as directed share issues and amending the articles of association, require a two-thirds qualified majority. Furthermore, there are other special majority and consent requirements for certain specific matters, such as amending the rights of a share class.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Public limited liability companies (which are not the subject of this questionnaire) are subject to certain stricter administrative obligations, such as notice periods and reporting obligations. Furthermore, the Helsinki Stock Exchange as well as First North Helsinki impose certain obligations and requirements on the public limited liability companies listed on the said markets.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The accounting obligations of a private limited liability company arise from the Finnish Accounting Act (1336/1997, Fi: kirjanpitolaki), according to which each transaction shall be entered to an account corresponding with the nature of the transaction and each account must be consistently maintained. Furthermore, each limited liability company must maintain a clear and sufficiently detailed chart of accounts for each financial year, explaining the contents of the accounts (chart of accounts).

Financial statements must be prepared for each financial year and submitted to the Trade Register as well as the Tax Administration.

Is the entity permitted to determine its own financial year?

Yes (statutory 12-month length). The first financial year after the establishment or changing the company’s financial year may be shorter or longer than 12 months, but in any case, a minimum of 6 months and a maximum of 18 months.

Is the entity subject to any statutory (external) auditor obligations?

An auditor must be appointed, and the financial statements audited, if the limited liability company met more than one of the following conditions in both the last completed financial year and the financial year immediately preceding it:

• the balance sheet total exceeds EUR 100,000.
• the net sales or comparable revenue exceeds EUR 200,000; or
• the average number of employees exceeds three.

An auditor shall always be appointed for a company whose principal activities consist of the owning and holding of securities and which exercises significant influence over the operating and financial policies of another entity that is obliged to keep accounting records.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No other statutory appointment requirements.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Different classes of shares are possible, and the Companies Act provides quite wide freedom of design. Typical examples of different share classes:

• Non-voting shares and multi-vote shares.
• Shares with liquidation preference, e.g., typical venture capital (non-participating / participating) waterfall structures or shares with a liquidation preference to a fixed amount + interest.

What documentation is required for the transfer of ownership interests?

Provided that no share certificates have been issued (as is the standard practice), the documentation required consists of a deed of transfer between the transferor and the transferee.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The transfer of shares is formalised through entry of the new holder into the company’s shareholder register by the Board of Directors. The Board of Directors must make the entry without undue delay after having received reliable evidence of the acquisition (signed deed of transfer) and, if applicable, the payment of the transfer tax (payment receipt).

Are there any applicable stamp duties imposed when transferring ownership interests?

No.

How are shares issued? (including information on payment obligations, registration requirements)

Shares are issued by a resolution of the general meeting or by a resolution of the Board of Directors by virtue of an authorisation received from the general meeting. For rights issues (pro rata) the decision-making threshold is simple majority, for directed issues the threshold is two-thirds qualified majority.

The issued shares must be subscribed for by the subscriber in writing. The payment term for the subscription price can be freely agreed upon, however, the shares are not registrable with the Trade Register prior to having been fully paid.

The registration of the shares requires formally compliant corporate resolutions, proof of payment (or if the company is obligated to appoint an auditor, the auditor’s statement on full payment) as well as a declaration signed by each member of the Board of Directors and the managing director to the effect that the provisions of the Companies Act have been complied with in connection with the share issue in question.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Non-cash payments (in-kind contributions) are possible. The value of the in-kind contribution is primarily determined between the company and the subscriber. The statutory requirement is that the value of the in-kind contribution for the company at the time of the contribution equals to the subscription price paid by virtue thereof. Furthermore, regardless of whether the company is obligated to appoint an auditor, shares paid with in-kind contribution can only be registered with a statement on the equal value by an authorised public accountant.

Finnish limited liability companies very rarely implement a nominal value for their shares as this is not statutory requirement. Furthermore, as share capital requirements no longer exist (a company can be established with EUR 0 share capital), the company may freely price its shares in each issue (without there being share premium contributions as such).

Each share must be fully paid prior to registration, hence partially paid shares are not permitted.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Only shares held by the limited liability company itself (treasury shares) can be cancelled. The cancellation is made through a resolution by the Board of Directors.

Repurchases of treasury shares are considered as a form of distribution of the company’s assets. Therefore, shares may not be repurchased if it is known or should be known at the time of the repurchase decision that the company is insolvent or that the repurchase will cause the insolvency of the company (the insolvency test). Furthermore, the repurchase price payable may not exceed the company’s distributable assets shown on the company’s latest adopted financial statements, i.e., the company’s unrestricted equity, less the assets that are to be left undistributed under the articles of association and the amount entered in the balance sheet as development expenditure in accordance with the Finnish Accounting Act.

Repurchases in proportion to the shares held by the shareholders must be resolved upon by the general meeting by a simple majority of the votes. Repurchases in a proportion other than that of the shares held by the shareholders (directed acquisition) must be resolved upon by the general meeting by a two-thirds qualified majority of the votes. The general meeting may authorise the Board of Directors to carry out repurchases by resolutions in accordance with the above decision-making thresholds (i.e., an authorisation for a directed acquisition requires a two-thirds qualified majority vote).

If the limited liability company has a registered share capital of more than EUR 0, the general meeting may make a decision on the distribution of share capital, the reduction of the share capital in order to transfer assets to reserves of unrestricted equity, and the use of the share capital to cover at once such losses that cannot be covered from unrestricted equity (loss coverage). The share capital may not be reduced below EUR 0.

The reduction of the registered share capital is subject to a creditor protection procedure, including a public notice process.

Any requirements with respect to distributions to shareholders?

In line with the above, any distribution of assets to the shareholders must survive the insolvency test and may only be made to the extent the company has distributable assets based on its latest adopted financial statements.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. Shareholders’ agreements are very common and recommendable in case of multiple shareholders. As mentioned above a shareholders’ agreement is usually the de facto governing document due to the Companies Act being, to large extent, dispositive legislation and providing the shareholders broad freedom to act as well as the general practice of drafting the articles of association to only meet the statutory minimum requirements (due to being a public document).

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

In addition to the establishment costs, technically there are no statutory annual maintenance costs as the mandatory annual filings (financial statements) can be made free of charge (when made electronically). Filings related to, e.g., changes in the Board of Directors and share issues must be made without undue delay of the relevant resolutions and carry processing fees ranging from EUR 50 to EUR 370 per filed item.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

Private limited liability companies are subject to corporate income tax at the rate of 20%. The taxable income comprises of the profit made during the relevant tax year less any adopted losses from previous tax years.

Where applicable, private limited liability companies are also subject to value added tax at a rate of up to 25,5% (determined based on the products or services provided).

Furthermore, where a private limited liability company acts as an employer, the company is liable to make withholdings with regards to the income taxes payable by its employees.

Summary of any specific matters, e.g. recent or prospective major legal developments

No substantial changes to the Companies Act or other relevant legislation are expected.

A Finnish private limited liability company is a fairly flexible entity type and allows a broad freedom of contract with regards to the administration and maintenance of the company.