Starting your own business or umbrella employment: which suits you?

You have an assignment, a client or an idea that can generate income. Now you face the choice: should you register your own company, or is there an easier way to get started? There are in practice three main routes to invoicing in Sweden, and the best solution depends on your situation. In this guide we compare sole proprietorship, limited company and umbrella employment via Paidin so you can make a well-informed decision.

For a quick overview without diving into the business forms, you can also visit Umbrella employment vs your own company.

Three ways to invoice

The most common options for invoicing for work performed in Sweden are:

1. Sole proprietorship (enskild firma) registered with the Swedish Tax Agency (Skatteverket).
2. Limited company (aktiebolag) registered with Bolagsverket.
3. Umbrella employment via an umbrella employment company such as Paidin.

All three work, but they differ greatly in start-up costs, administration, liability and security. Below we go through each alternative.

Sole proprietorship: pros and cons

A sole proprietorship is the simplest way to start your own business. You register with the Swedish Tax Agency, apply for F-tax, and can then invoice. There is no requirement for start-up capital.

Pros:

• Low threshold. F-tax registration with the Swedish Tax Agency is free of charge. If you want to protect your company name, an additional fee of SEK 1,200 applies at Bolagsverket.
• You own everything yourself and decide freely.
• Simpler bookkeeping than a limited company, especially if turnover is below the threshold for VAT exemption.

Cons:

• You have personal liability for all debts. There is no legal distinction between you and the business.
• You pay self-employment contributions (about 28.97 %) instead of employer contributions. The total tax burden is similar but requires you to calculate and pay the correct amount yourself.
• Bookkeeping, VAT returns and income tax returns are your own responsibility. Even if you hire an accountant, you still need to collect documentation and keep track of deadlines.
• Poorer terms for unemployment insurance compared with an employee, and no employment protection.

A sole proprietorship suits you if you want to build a brand under your own name and are willing to spend time on administration. Paidin sees many who start with umbrella employment and then register a sole proprietorship once they know the client flow is stable.

Limited company: pros and cons

A limited company (aktiebolag, AB) gives you your own company with limited personal liability. It is the most common business form for those who want to grow.

Pros:

• Limited liability. Normally you only risk the share capital, not your private assets.
• Possibility to take dividends with lower tax via the 3:12 rules.
• Often perceived as more credible by larger customers and in procurements.
• You can bring in part-owners and build a business value that can be sold.

Cons:

• The minimum share capital is SEK 25,000. A registration fee at Bolagsverket also applies.
• You must have a board (at least one ordinary member and a deputy if you have no further members).
• Annual report, general meeting and submissions to Bolagsverket each year. Missing deadlines means late fees.
• Corporate tax (20.6 %) on profit, plus tax on salary or dividends. Tax planning requires foresight.
• Ongoing bookkeeping, employer declarations, VAT returns and contact with the Swedish Tax Agency.

A limited company suits you if you have a stable business with high turnover, want to hire, or plan to build a company with long-term value. It does, however, require time and knowledge, or a skilled accountant.

Umbrella employment via Paidin: pros and cons

With Paidin you get paid for your assignments without starting a company. You perform your assignment, register the invoice with Paidin, and we handle the rest. Paidin acts as your employer, which means you are employed by us during each assignment.

Pros:

• No start-up cost and no fees in advance. Your first invoice with Paidin is also completely free.
• All administration is handled by Paidin: invoicing, bookkeeping, employer contributions, tax payments and pay slips.
• As an employee you receive a sickness-benefit-qualifying income (SGI) and can qualify for unemployment benefits in the same way as other employees. Contact your unemployment fund to learn what applies for them.
• You can choose to set aside part of your salary to occupational pension in Paidin's portal. You decide the percentage yourself.
• You can get started in minutes, not days or weeks.
• No personal debts or liability tied to the activity.

Cons:

• Paidin charges a service fee: 4.8 % for invoices under SEK 20,000, 3.6 % between SEK 20,000 and 49,999, and 2.9 % from SEK 50,000. That is the cost of avoiding all administration.
• You build no business value of your own. The activity is tied to you as a person, not to a company you own.
• If you want to hire others or take on investments, you need your own company.

Paidin suits you if you want to focus on doing the work and getting paid, without spending time on paperwork. It is also an excellent way to test a business idea before deciding to start your own.

Comparison table

When does what suit you?

There is no alternative that is best for everyone. The right choice depends on where you are.

Umbrella employment via Paidin suits you best if you:

• Are taking your first assignment and want to get started immediately.
• Have varying assignments and unpredictable turnover.
• Value being employed with SGI, possibility of unemployment benefits and optional occupational pension.
• Do not want to spend time on bookkeeping, declarations and contacts with authorities.
• Want to test an activity before possibly starting your own company.

A sole proprietorship suits you best if you:

• Have a stable client flow and turn over enough for administration to be worthwhile.
• Want to build your own brand and have full control.
• Are comfortable handling bookkeeping and tax declarations, or have an accountant.

A limited company suits you best if you:

• Turn over more than SEK 500,000 per year and want to optimise tax via the 3:12 rules.
• Plan to hire, bring in part-owners or seek financing.
• Want to build a business value that can be sold or transferred.
• Take on assignments where the client requires you to have a limited company.

Many of Paidin's users start with umbrella employment to get going quickly, and then start their own company once they know the volume and the customers are there. One does not exclude the other: you can use Paidin in parallel with a sole proprietorship or a limited company, for example for assignments that fall outside your company's area of activity.

Frequently asked questions

Can I use Paidin at the same time as I have my own company?

Yes. Many of Paidin's users have a sole proprietorship or a limited company on the side. You can choose to invoice some assignments via Paidin and others via your own company. This can be practical if you want to keep different types of activity separate, or if you have a temporary assignment that does not fit your company's profile.

What happens to my unemployment insurance if I start my own business?

As a self-employed person with a sole proprietorship or a limited company, different rules apply for unemployment insurance than for employees. You often need to close down the activity entirely to qualify. As an umbrella-employed worker via Paidin you are an employee, and your right to unemployment benefits works in the same way as for other employees. That is one of the most common reasons freelancers choose Paidin.

When does it pay off economically to start your own business instead of using Paidin?

It depends on your turnover and how much time you spend on administration. As a rule of thumb, running a limited company starts to pay off when you turn over more than SEK 500,000 per year and can use the 3:12 rules for tax-efficient dividends. But factor in the cost of an accountant (often SEK 2,000 to 5,000 per month) and the time you spend on administration. The actual break-even point is individual.