Sole proprietorship or limited company?

Now that you know the different legal forms, let us sharpen the choice down to the one most founders actually face: sole proprietorship or limited company? The answer is not about which is "fanciest", but about risk, capital needs, the number of owners and where you want to go. Let us take it systematically.

When an ENK fits

A sole proprietorship works well when you are starting alone, with low financial risk and a simple need. Typical examples are the consultant selling their own time, the tradesperson going out on their own, or someone testing an idea alongside a job. The advantages are clear: getting started is fast and cheap, there is no share-capital requirement, administration is light, and you can take money out of the business without formal resolutions.

The price you pay is personal liability and weaker social rights. If your private finances cannot absorb a loss should the business go badly, an ENK is a poor choice. And if you plan to grow with employees and investors, you quickly hit the ceiling of what the form is suited for.

When an AS fits

A limited company fits when there is real risk involved, when there are several owners, when you plan to raise external capital, or when you want to clearly separate your private finances from the business. An AS gives you limited liability, a tidy structure for ownership through shares, and often more trust from larger customers, suppliers and banks.

The downsides are more administration: you have to formally establish the company, keep a board, maintain full accounts and file annual financial statements. If you work in the company, you are an employee with a salary, tax withholding and employer's contributions. For many, this is a worth-it cost as soon as the business becomes more than a cautious experiment.

A useful rule of thumb: choose an ENK to test cheaply and simply, and an AS when you are ready to build something meant to last, grow or withstand risk.

Share capital as a mechanism

An AS must have share capital — a legally set minimum that the owners pay in before the company is registered. It is easy to misread this as a fee, but it is not: the share capital becomes the company's own money. You can use it in operations to buy equipment, pay the first bills or cover start-up costs. It is not locked away on an account forever.

The share capital can be contributed as cash or as assets (a contribution in kind), and the payment must be confirmed — for example by a bank, an auditor, a lawyer or an authorised accountant — before registration. The minimum amount itself is set in law and is adjusted from time to time, so check the current requirement at the Brønnøysund Register Centre or Altinn. The mechanism to remember is that the share capital is both a ticket to limited liability and start-up money the company can actually use.

Switching legal form later

You are not bound forever. The most common transition is from ENK to AS as the business grows. Under certain conditions such a conversion can be done tax-free, so you are not hit with tax simply for changing the form of an ongoing business — but the rules are detailed, and this is where it pays to use an accountant. The other way, from AS to ENK, is rarer and more cumbersome.

The point is that the choice does not have to be perfect from day one. But because a switch costs time and money, it is worth thinking one step ahead: if you are starting a cautious experiment, an ENK is often right; if you already picture employees, investors or real debt, you may as well start as an AS straight away.

Do this now

Pull out the four points you wrote down in the previous lesson. Set a provisional conclusion: ENK or AS? Write one sentence about what decided it. If you are unsure, note the single concrete risk or ambition that pulls you toward an AS — that is often the most important signal.