Finnish law makes a distinction between private and public companies limited by shares. The mark “Oy” stands for private companies limited by shares, and “Oyj” for the public ones. The private company limited by shares is the most common form of limited company in Finland, and its economic function is the equivalent of GmbH in Germany and Ltd in England.

The minimum capital in a private company limited by shares is €2,500, and in a public one €80,000. Since the 2006 reform of the Limited Companies Act, it is no longer necessary for the shares to have a nominal value. The share capital also does not need to be fixed in the articles of association, but is formed by treating amounts paid by shareholders or free capital of the company as share capital in the company’s financial accounts.

Founders can be one or more natural or legal persons. Following registration the shareholders’ responsibility is limited to the share capital.

The central managing organ of the company is the board (hallitus), consisting of one or more members. Unless the company has been granted an exceptional permission, at least one member of the board must be a resident of the European Economic Area. If fewer than three regular members of the board are nominated, one substitute member must also be appointed. This substitute member must also be a resident of the European Economic Area.

Although it is frequently the case that the board does not work on a continuous basis in the company, it is, however, the organ actually responsible for the management of the company. It has responsibility for supervising the managing director and giving the managing director instructions as to how to fulfil his or her duties. The prominence of the board also has consequences as to liability.

The company’s articles of association stipulate the term of office for the board members. In many old articles a limited term is provided for, as this was previously a legal requirement. However, nowadays it is both permissible and reasonable to appoint the board without stipulating a fixed term of office. In both cases, the meeting of shareholders may dismiss from office any board member at any time.

In addition to the board, the company may appoint a managing director (toimitusjohtaja). In practice, the vast majority of Finnish companies have a managing director. If a managing director has been appointed, he or she runs the usual business of the company. The authority of the managing director is limited to the usual course of business, insofar as the articles of association do not provide otherwise.

A managing director must have his or her residence in the European Economic Area unless a special permission is obtained.

The top organ of a company limited by shares is the shareholders’ meeting. The shareholders’ meeting must be convened within six months of the end of a fiscal year. The meeting decides on the accounts, the discharge of directors and management, as well as on the handling of profit or loss (e.g. distribution of dividends).

The law no longer requires the shareholders’ meeting to be held as an actual meeting. Instead, the shareholders can make their decisions in writing, as long as they are made unanimously, dated and signed.

One important requirement for foreign enterprises forming limited companies in Finland is that all companies must have at least one representative that is a resident of Finland. It is, however, not compulsory that such representative be a member of the board or a managing director. If none of these persons live in Finland, then a separate representative resident in Finland must be appointed.

Such specific representative does not have any authority to act on behalf of the company unless specific authorisation is given to him or her. The function of this representative is to accept service of official documents, i.e. to receive tax bills, court summons, or the like on behalf of the company. For companies that do not have own representatives in Finland, this position is often taken by attorneys.

In general, limited companies must appoint at least one auditor, who must not be a member of the company’s management or an employee of the company.

Since a change of the Auditing Act that entered into force on 1 July 2007, very small companies do not need an auditor any more. A company is very small if all of the following criteria are fulfilled: (1) balance sum not more than 100,000 Euros, (2) turnover not more than 200,000 Euros, and (3) not more than three regular employees. If a company is very small in this meaning, appointment of an auditor is optional.

The appointment of a supervisory board (hallintoneuvosto) is optional for all limited companies. If the articles of association provide for a supervisory board, it may entrust the latter with the appointment of the board and/or tasks falling within the scope of competences of the board. However, the supervisory board cannot legally represent the company.

A limited company may be founded by means of an entirely written procedure. The National Board of Patents and Registration of Finland provides all the forms needed for the foundation of a company.

The central task in the foundation of a company is the drafting of the articles of association in accordance with the needs of the company. The law leaves the founders of the company leeway for customised provisions. The mandatory content of the articles consists only of the company’s business name, its place of business and its purpose. Therefore, the articles may be very short in extreme cases, and all detailed questions can be left to the default provisions of the Limited Companies Act. However, in many cases the specific purpose of the company, its relation to the shareholders and their relation to each other will necessitate detailed individual provisions, e.g. with regard to voting rights, distribution of profits, pre-emption rights, or formalities in respect of shareholders’ meetings.

The power of representation can also be regulated in the articles of association. It is quite common for the articles to provide that the managing director is entitled to sign for the company in all matters. This is an essential enlargement of the managing director’s legal authority. In most cases it is reasonable to regulate the authority in the statutes, especially when a managing director has been appointed. But even in other cases an explicit regulation provides clear evidence of the power of representation. For example, when planning to found a subsidiary company abroad, in certain cases it might become necessary to provide legal opinions on Finnish law in order to prove proper representation.

Only after registration does the company become subject to rights and duties. Until registration the shareholders are personally liable for deals previously completed. Registration must follow within three months of foundation. For the time being, the registration fee amounts to €330. At the same time as the company is founded the declarations concerning income tax, VAT and social security fees must be made. The corporate identification mark (y-tunnus), company name, address and seat must be named in the correspondence and in all forms used by the company.

For the registration the agreements of the persons appointed and their social security numbers (foreigners’ date of birth) must be submitted to the authority. Prior to foundation it is reasonable to clarify with the National Board of Patents and Registration of Finland whether the planned company name is admissible and sufficiently distinguishable as against other business names already in existence. In addition to the actual company name, it is possible to register subsidiary company names, which may be advisable if the company has different fields of activity.

The company must keep a list noting the division of the shares between the shareholders.

In many cases, the details of the relationships between the shareholders are regulated in a shareholders’ agreement. It is normal practice to agree on such issues as pre-emption rights, regulations about financing responsibility, distribution policy, prohibition of competition, and the means of settlement of litigation. In this area there is usually large freedom of contract, limited only by certain mandatory legal regulations concerning limited companies’ obligations for the protection of creditors.

The Finnish law on limited companies contains a number of regulations to protect the minority shareholders. The most important of these concern the distribution of dividends. A shareholder holding at least 10 % of the company shares can demand – after certain deductions – the distribution of half of the confirmed profit for the fiscal year. However, the articles of association may provide for exceptions to this right.

The founders, members of the board and the supervisory board as well as the managing director are liable in damages for any loss they cause the company in their work whether wilfully or negligently. Furthermore, the board and possibly even the managing director are liable towards third party creditors in damages for loss caused by continuing to transact business in a situation in which the law requires that they file a petition for bankruptcy or winding-up.

The company management is obliged to follow the development of the equity. At least half of the share capital must be saved. If more than half of the share capital is lost, a shareholders’ meeting must be convened within two months. If the situation cannot be resolved in this meeting, a petition for winding-up must be filed no later than one year after the shareholders’ meeting. If the company’s own capital falls below zero, the board must notify the trade registry of this fact.