Do you have friends or colleagues you want to join and start a business with? Then the business form trading company can be something for you! It is also very convenient if you don’t want to put a large amount directly at the start up of the company. In this article, we will tell you more about what a trading company is and how to proceed if you want to start a company. We also give tips on what should be included in a partnership agreement.
What is a trading company?
Trading companies are a form of business that suits those who want to start a business together with one or more people. The partners in the trading company are called partners and can be either natural or legal persons. A trading company is its own legal entity; This means that the company can enter into contracts with others, employ staff, and participate in lawsuits. However, it is the partners in the trading company who are financially responsible for any debts. Unlike limited liability companies where the company itself is responsible for the economy.
The profits of the trading company are distributed among the partners as agreed. Either by oral or written agreement. To start a trading company, no start up capital is required. Instead, the partners can agree to deposit some capital into the company. The only mandatory cost is the one for registration of the trading company, which is SEK 1,100 if you choose to apply through verksamt.se e-service. Other registration for F-tax, VAT and employer registration is free. The word “trading company” must be included in the company name.
Advantages of a trading company
The main advantage of a trading company is that it is easy to start and requires no start-up capital. Which makes it very easy for you who want to quickly and easily start a company with one or more people. As the trading company is a legal entity, the trading company can enter into agreements and be a partner in other companies.
In addition, only current bookkeeping and financial statements in trading companies are usually required. Only larger trading companies or trading companies with at least one legal owner need to submit an annual report to the Swedish Companies Registration Office. If you want to bring in more partners in the trading company, this is easier than in other forms of company.
Disadvantages of a trading company
It is the co-owners of the trading company who bear financial responsibility for the business. So if the trading company shouldn’t succeed in paying its debts, it is the shareholders who have to pay. In addition, you need the permission of the other shareholders purely legally to be able to leave the trading company.
If you join an already started trading company as a partner, you are responsible for both previous and future debts. So it is important to research the trading company carefully before signing any agreements. When you register the name of the trading company, it is only protected in the county where you register the company, which means that other companies can take the same name in other counties.
The difference between trading companies and limited partnerships
The difference between a trading company and a limited partnership is the responsibility of the shareholders in the company. Limited partnerships are another form of trading company where one or more of the shareholders has limited financial responsibility in the company. The person or persons are then called limited partners and are only responsible for the capital investment invested in the company.
In each limited partnership, there must be at least one general partner who has unlimited liability in the company and one limited partner. Limited partnerships may sign agreements, be part of lawsuits and hire staff. As with commercial companies, the company name must contain the word “limited partnership”.
There is no law that says you have to create a partnership agreement when you form a trading company. But we strongly recommend that you do! It will help you and your partners know who is responsible for what and how much each owns in the trading company and how the profits should be distributed. Since you are financially responsible for the trading company’s debts, it is extra important to know who is responsible for what.
It is best to sit down together and write everything down on a piece of paper. Oral works as well, but it is always best to have it written on a piece of paper that all concerned sign. Then make sure to save the paper, make copies or upload it electronically so everyone can get their own copy.
So what should be included in a partnership agreement? First of all, one should start by describing who are the partners and how much of the company they are responsible for. For example, what work they will do, working hours and who has the right to do what.
Then one should also include how the profit is to be distributed or invested, own withdrawals and other benefits as well as measures if tasks are not handled. In addition, it is good to include how to do if you want to bring in new partners or if a partner decides to leave If you feel insecure, you can bring in a counselor who will help you with what should be included.
Payroll and tax in trading companies
As a partner in a trading company, you haven’t any payroll instead you withdraw your own withdrawals from the company. If you want to deposit money in the company, this is called your own deposits. It is the partners in the trading company who pay taxes and deductibles on the trading company’s profits.
How large a share of the profit each partner must pay depends on how large a share of the company they own. If each partner owns the same share, the sum is divided equally between all shareholders. The shareholders must submit a preliminary income tax return that describes the expected profit in the trading company.
How to start a trading company
To start a trading company, there must be at least two partners who agree to start a company together. But before starting the process, there are certain requirements that must be met in order to become partners in a trading company. You may not become a partner if you are bankrupt, have a business ban or have a trustee under the Parental Code. If this is not a problem for you, the next step is to agree on running a trading company together with one or more partners.
The agreement can be either oral or you can write a partner agreement that we recommended earlier. If you choose to make a written agreement, all partners must sign the agreement. The agreement doesn’t need to be sent anywhere, but be sure to save it if needed in the future if any questions arise.
After that, you must notify the trading company to verksamt.se through their e-service. When you register the company, the name of the trading company is protected in the county you are in. If you want, you can register the company name in more countries , however, this costs and an extra fee is added for each country you choose to add.
You will then wait for a registration certificate where you will receive an organization number. This often takes between one to two weeks and you then check all information and whether the company name is available. When the registration is approved, the trading company is a legal entity that may sign agreements, employ staff and be part of lawsuits.
The last step is to report the real principal for the trading company within 4 weeks after registration with the Swedish Companies Registration Office. The real principal of the trading company is the person who ultimately owns or controls the trading company. Then you can apply for F-tax, VAT registration and employer registration for the company. The partners in the trading company usually apply for special A-tax.
If you have more questions about trading companies or want help with current accounting for your trading company, just get in touch with us at Simsons Accounting firm. We have extensive experience in current bookkeeping and financial statements for individual companies, trading companies and limited companies.