How to make a difference between a private limited company, a sole proprietor and Arveteenus.ee?

Arveteenus.ee provides management of light entrepreneurship – a form of entrepreneurship for which it is not necessary to find a business or register oneself as a sole proprietor (FIE). When it is reasonable to implement light entrepreneurship and when register as a legal person?

At first it is necessary to know that all legal persons are obliged to maintain accounting according to the Accounting Act (RPS). It means that both – a private limited company and a sole proprietor have to maintain accounting and document business transactions, submit the annual report and when the turnover exceeds the limit of 40 000 EUR consider the additional obligation after becoming liable to VAT. The above-said means that you have to become familiar with accounting and the corresponding legislation and hire an accountant to perform corresponding activities if necessary. Light entrepreneur does not have to deal with reflecting and storing documents or filling out different declaration forms – the corresponding activities are performed by Arveteenus.ee.

On the other hand it is important to know how the employee can start using the money earned. The private limited company and the sole proprietor are legal bodies or separate bodies standing apart from the founder or the registered natural person. It means that when a person works for his enterprise, the earned income is not the persons’ but the enterprise’s income. When using the money of the enterprise or the sole proprietor, it is necessary to make a difference between the expenses connected with the entrepreneurship and the expenses not connected with the entrepreneurship – the occurrence of a possible tax liability depends on that.

In order to purchase products/services for personal use by the earned money, the money has to be taken out of the enterprise. It can be done by paying salary or taking dividends. In order to pay salary, you have to conclude an employment contract with yourself, register as an employee, calculate salary and declare and pay taxes. As far as dividends are concerned, it is assumed that it is a passive form of income and can be paid once a year or once in a quarter. When paying dividends it is important that the enterprise has made a contribution in the share capital in the amount of 2500 EUR. In addition, when dividends are paid, it is necessary to apply the income tax of the enterprise.

When being a light entrepreneur, it is necessary to be concerned about that and the money accrued on the account can be used at once. The registration of the employee (for the payment day) and the declaration and paying taxes from the salary will be done for you. In addition, it is not necessary to think about the transactions six months or a year later, when the annual report has to be submitted.

There is more information about the foundation of different forms of entrepreneurship, tax obligation and management in the State portal www.eesti.ee and the homepage of the Tax and Customs Board www.emta.ee. The main differences between the private limited company and the sole proprietor are presented in Figure 1. The given requirements do not concern the light entrepreneur – light entrepreneurship enables to provide services as a private person and receive income ready for use.

Comparative table of the forms of entrepreneurship. Source: www.eesti.ee and www.Arveteenus.ee

We find that for some time and increasingly the paid employment does not remain the only income for people.  We believe that the constant increase of entrepreneurship enriches the range of products and services provided to us. Arveteenus.ee encourages everybody to become familiar with the different forms of entrepreneurship and find a suitable one.

Photo: Andrea Piacquadio