Benefits of Sole Proprietorship
Most small enterprises in Norway are individual companies. The enterprise form is both easy to start, affordable (registration in the Unit Register is free) and easier to operate than, for example. a corporation.
You do not have to auditor unless the turnover is over NOK 5 million, the company has very expensive assets or many employees. Most individual companies also do not have an accounting obligation (accounting only), which means that you eg. no need to prepare and deliver annual accounts (a fairly comprehensive affair with minimum income statement, balance sheet and notes). Another great advantage if you do not have any employees is that you do not have to pay employer tax.
Advantages of ENK:
Free registration in the Unit Register. Tip: Although there are services on the web that offer assistance in completing the registration forms for a fee, this is a fairly simple matter that most people manage on their own.
You control the business money the way you want. There is no comprehensive administration to withdraw money for “salary”. In principle, you can use everything you get paid for a job, to something private ten minutes later (though it may not be wise. Separate bank accounts for the company and the private economy are definitely recommended). As a manager of an individual company, you do not have wage income in the ordinary sense, but business income. You are not employed by your company and are taxed on the profits of the industry every year. That said, be sure to put in enough money so that you have enough to pay the next down payment or any tax return next year.
Flexible and effective: There is no board, with requirements for board meetings, annual meetings and record keeping, in an individual company. In other words, it is a short distance from idea to decision can be made.
No capital requirements at start-up, such as in a limited company, where you have to make a minimum of 30,000, – in share capital. (Really no obvious benefit, since you are in a ENK personal liability for all debts. In a corporation, it is basically only the share capital that can be lost).
The money from the profits in the business that you choose to spend privately does not trigger AGA (employer tax) (which in 2019 is 14.1% in large parts of the country). If you are married, they can also work and receive their share of the profits without AGA.
No audit obligation if annual turnover does not exceed NOK 5 million, the company has assets in the balance sheet worth more than 20 million and / or employees who carry out more than 20 man-years. (Note: After changes to the Companies Act over the past decade, many small corporations can now opt out of auditing as well).
Accounting obligation only, and not accounting obligation, if the enterprise does not have assets worth more than NOK 20 million and / or employees who carry out more than 20 full-time equivalents. (Some professions, such as accountants have an accounting obligation). Note: Not having an accounting obligation must not be confused with believing that you do not have to keep accounting. You have to keep an account even if you do not have an accounting obligation. to submit annual accounts. (All corporations have automatic accounting obligation).
Having said all that, the corporate form also has some drawbacks (especially when it comes to personal responsibility), which you can read about in this article.
Disadvantages of sole proprietorship
As the holder of an individual company, you have few of the rights employees have, and no strong unions that meet your requirements. In short: You have to arrange most yourself.
In a previous post I wrote about the benefits of running a one-man business. Here’s the drawbacks…
The biggest disadvantage is the personal responsibility that comes with it. If you are so unlucky to go bankrupt, it is not only your company that runs the doll, but you also run the risk of taking your private finances with you. You are personally responsible for all debt and risk (this also applies to corporate forms ASA and DA). To avoid this, start an AS or NUF.
Another major drawback is poorer schemes for illness. If you become ill, you will not be paid anything for the first 16 days, and only 75% of the sickness benefit basis after that. This may seem unfair, especially considering that self-employed people are responsible for much of the value added in society and pay an insane amount of tax (higher social security contributions and no lower income deduction such as wage earners have).
Disadvantages of ENK
Poor social schemes. You get e.g. no unemployment benefit should you become unemployed (read: your company is unable to make money and you are left there without income).
You are not entitled to sickness benefit until the 17th day of sick leave from NAV, and then only 75% of the sickness benefit basis. However, NAV offers a voluntary sickness insurance scheme (with a maximum coverage of 6 G), with three alternatives (and different costs):
- Right to sickness benefit from day 1 (75% of the sickness benefit basis) – Premium 1.9% of expected annual income.
- Right to sickness benefit from day 17, but with 100% of the sickness benefit basis – Premium 2.6%.
- Right to sickness benefit from day 1, with 100% of the sickness benefit – Premium 9.6%.
If you do not save yourself, you will only receive pension payments from the National Insurance Scheme (savings based on your business income). Read more about pension for self-employed persons.
High personal risk. Holders of individual companies are personally liable for all debts in the enterprise. This means that you are not exempt from a claim even if the enterprise has ceased to exist.
Hard to attract investors. If you have big plans to revolutionize the world with a new product or service that requires capital from external investors, then an individual company may not be the easiest starting point.
Higher social security contributions and no bottom-line deduction for business income. Instead, you can deduct actual expenses as long as they can be documented (the maximum minimum deduction for the 2019 fiscal year is NOK 100 800. In other words, if you have lower demonstrable expenses than this, a payee may receive a higher tax deduction than you, even if they were to have few actual expenses associated with their job.)
Insurance for sole proprietorship
Unfortunately, the sickness benefit scheme for those of us who run single-family businesses is, to put it mildly, bad.
You get nothing for the first 16 days of a sick period, after which only 65%. Fortunately, it is possible to apply for Social Security for voluntary supplementary health insurance.
Insurance for sickness allowance.
Those who want a better sickness scheme than the compulsory can, according to the individual’s needs, take out insurance for supplement to sickness benefit according to the following alternatives:
- a) 65 per cent of the sickness benefit basis from the first day of illness
- b) 100 per cent of the sickness benefit basis from the 17th day of illness
- c) 100 per cent of the sickness benefit basis from the first day of illness
Only one of the options can be selected. An self-employed person is usually not entitled
to sickness benefit from the supplementary benefit if he or she becomes incapacitated for the first four weeks from the day NAV locally received the application. They must pay a special premium for the additional benefit. The premium is set as a percentage of the expected pensionable annual income as self-employed persons. We note that there are separate rules for fishermen and fishermen, for farmers and for reindeer herding. ”