Buying an OY and related questions

[Marsh04]

I am planing to buy an OY and it's a moving company. The current owners are a husband and a wife and they own it 55% and 45% repectively. The company's only property is a Van worth around 25000 and I'll also pay them something to buy their running business.

I'll buy the business in two steps, first 45% in that company and then the rest after some time.Now I have the following questions

1- Can I own the company 100%? Or there must be anybody else who owns part of it? I'll have a worker to work with me but at this point not planning to make him a partner.

2- If I take a loan from the bank to buy this business, will I be able to deduct my investment as a cost later from the money the business makes? Or will I need to pay that loan from my own pocket? (Profits/salary)?

3- Will tax office have any objection if I make my salary as 1000 and take 3-4k as a profit? Or vice versa?

4- Will my income from profits have any bearing on my tax percentage for my salary? How much tax I'll be paying on the profit?

5- How much contribution I'll need to make for the pension fund? How many % eläkemaksu, työttömyysvakuutusmaksu on salary and dividends?

6- And the time period when I'll be owning the 45% share, if I work for that company at the same time, will I get a normal salary as an ordinary worker after all deductions or will I need to take care of my contributions to pension fund etc because of holding shares in that company?

7- How often can I take out profits from the company's account?

8- If I state my salary as 1000 can I change it again after a couple of months to let's say 2000? And then again to some other amount after some time?

I know it's too much work to answer all these questions but please answer what you can easily.

Thanks

[Rip]

(I don't know nearly all relevant answers)

1- Can I own the company 100%?

Yes.

2- If I take a loan from the bank to buy this business, will I be able to deduct my investment as a cost later from the money the business makes? Or will I need to pay that loan from my own pocket? (Profits/salary)?

I assume that loan in your name is YOUR loan, but you can deduct interest payments from any capital income you receive from the property (= the business) you purchased with it.

3- Will tax office have any objection if I make my salary as 1000 and take 3-4k as a profit? Or vice versa?

I'll pass that one.

4- Will my income from profits have any bearing on my tax percentage for my salary? How much tax I'll be paying on the profit?

Salary and capital income are taxed separately (as noted, I skipped any potential complications rising with question 3).
I can think three potential ways of extracting money from OY you own:
Your company pays you salary (that is an expense to the company. You pay taxes, the company pays various employer fees)
You borrow money to your own company and collect interest (That is an expense to the company. You pay capital income taxes)
You collect dividends from the company (That is not a (bookkeeping) expense to the company, the company must have paid taxes on those profits you collect as dividends, there are separate rules for (your personal) dividend taxation)

5- How much contribution I'll need to make for the pension fund? How many % eläkemaksu, työttömyysvakuutusmaksu on salary and dividends?

I only say that you or the company don't pay those those other fees on dividends
(you also never get paid pension or sic day compensation based on them)

6- And the time period when I'll be owning the 45% share, if I work for that company at the same time, will I get a normal salary as an ordinary worker after all deductions or will I need to take care of my contributions to pension fund etc because of holding shares in that company?

I THINK you do not personally need to take care of those payments (unless of course your work description includes to take care of the payroll)

[betelgeuse]

2- If I take a loan from the bank to buy this business, will I be able to deduct my investment as a cost later from the money the business makes? Or will I need to pay that loan from my own pocket? (Profits/salary)?

I assume that loan in your name is YOUR loan, but you can deduct interest payments from any capital income you receive from the property (= the business) you purchased with it.

If there's no capital income, it will be deducted from income taxes (but there's a cap):

http://www.vero.fi/fi-FI/Henkiloasiakka ... essa(9667)

3- Will tax office have any objection if I make my salary as 1000 and take 3-4k as a profit? Or vice versa?

I'll pass that one.

The tax office probably doesn't have an objection (but it's easy to check). However, your YEL (pension) level must match what it would cost to hire someone else to do your job. As a practical matter it always pays off to pay at least salary that matches taxation for dividends.

4- Will my income from profits have any bearing on my tax percentage for my salary? How much tax I'll be paying on the profit?

Salary and capital income are taxed separately (as noted, I skipped any potential complications rising with question 3).
I can think three potential ways of extracting money from OY you own:
Your company pays you salary (that is an expense to the company. You pay taxes, the company pays various employer fees)
You borrow money to your own company and collect interest (That is an expense to the company. You pay capital income taxes)
You collect dividends from the company (That is not a (bookkeeping) expense to the company, the company must have paid taxes on those profits you collect as dividends, there are separate rules for (your personal) dividend taxation)

Borrowing money is either more highly taxed than dividends, or then there must be a real business need (and max market rate) so that it's not considered tax evasion.

5- How much contribution I'll need to make for the pension fund? How many % eläkemaksu, työttömyysvakuutusmaksu on salary and dividends?

I only say that you or the company don't pay those those other fees on dividends
(you also never get paid pension or sic day compensation based on them)

You will have to take YEL regardless of how you pay yourself.

https://www.varma.fi/en/yritykset/yrity ... fault.aspx

The exact level depends on information that's not available from your post but expect to pay at least around 20% of the defined YEL level.

6- And the time period when I'll be owning the 45% share, if I work for that company at the same time, will I get a normal salary as an ordinary worker after all deductions or will I need to take care of my contributions to pension fund etc because of holding shares in that company?

I THINK you do not personally need to take care of those payments (unless of course your work description includes to take care of the payroll)

You can choose whether the company or you yourself pays YEL (deducted in either company or personal expenses). As an owner of more than 30% you will be different from an ordinary worker that you are insured under YEL instead of TYEL.

7- How often can I take out profits from the company's account?

As a salary whenever you choose. For dividends you can distribute them if eligible based on the latest financial statements. Dividends always require a decision from a shareholder meeting (yhtiökokous). When you are the sole owner it's of course easy to draft the paperwork.

8- If I state my salary as 1000 can I change it again after a couple of months to let's say 2000? And then again to some other amount after some time?

If you own 100%, yes but the YEL level will stay constant when you work the same amount monthly. When you are not the sole owner then the salary level needs to take into account that shareholders are treated equally.

[Rosamunda]

So are you buying out the wife´s share in the company? If you only own 45% of the shares then you won't have a controlling interest and all the decisions (re your salary etc) will be made by the current owners. And even if you buy 25% of the husband's shares and 20% of the wife's shares, they will still outvote you. Dividend payments also have to be voted at the Annual General Meeting of the shareholders. You won't really be able to make any decisions about anything until you own 51% of the shares.

Make sure you have a contingency plan for the interim period. For example, if something happens to them (ie if they die) their next of kin will inherit the shares in the company and maybe sell out to a higher bidder...

As a general rule, you and your business are two separate entities, even if you own the business 100%. That is the whole point of having an Oy: your personal assets are protected. So, if your company goes bust and you (personally) have a bank loan that you used to buy the business, you (personally) will still owe the bank. You would have to sell the truck to pay off your debts but the tax man always gets his share first.

[Marsh04]

Thanks for helping things clear for me.

A couple of more questions

1- How the value of the company is calculated? e.g. the van was bought for let's say 25000 euros, the company is still paying back the loan taken to buy it. At the point when I'll be buying 45%, company will still have around 10000 euros to pay back to the bank. So if we suppose that van is the only thing the company owns, then will I be paying 6750 to get the 45%?

2- Let's assume that when I buy the company 100%, there is still an outstanding bank loan of 10000. Will I pay 15000 to buy the company? How depreciation is calculated?

3- If things don't go as planned, and I want to sell off my 45%, can I sell my shares to anybody without any consent from other shareholders?

[betelgeuse]

1- How the value of the company is calculated?

It's a free market so the value of shares is the highest offer anyone is willing to make for the them.

2- Let's assume that when I buy the company 100%, there is still an outstanding bank loan of 10000. Will I pay 15000 to buy the company? How depreciation is calculated?

You pay whatever you can agree with the seller (check 1). I am not an expert in accounting. I know it depends it on the expected lifetime of the van:

http://www.vero.fi/fi-FI/Yritys_ja_yhte ... t_ja_kulut

3- If things don't go as planned, and I want to sell off my 45%, can I sell my shares to anybody without any consent from other shareholders?

Yes unless the sales contract places some restrictions on it.

[Rosamunda]

A starting point to calculate the cost of the company is the net worth of the company as per the Balance Sheet. There are several ways of looking at assets. One way is to look at their net book value on the balance sheet (purchase price less accumulated depreciation) irrespective of any loans. Another way is to estimate their net realisable value (ie how much you could sell them for). In theory there shouldn't be a big difference between the two but it depends on how the assets have been depreciated in the accounts and also how well they have been cared for, maintained and repaired.

Trucks aren't the only assets. You need to look at outstanding receivables (what your customers owe you - are there, for example, any bad debts which won't be recovered? ).

Then you can look at the liabilities. For example you need to look at the outstanding payables: how much does the company owe to its suppliers? And then, as you mentioned, outstanding loans eg on the truck. There might be other liabilities such as a VAT bill, dividends due etc.

And then there is goodwill. Goodwill is basically a premium over and above the share price. It includes things like customer loyalty, branding, logos, patents, reputation etc and that is what the buyer will want to negotiate. It represents the blood,sweat and tears they have ploughed into the company over the years.

There are more complicated methods of valuing a business (eg based on estimates of future earnings etc) in which case I would strongly advise you to ask an accountant for some help.

[Marsh04]

Thanks everybody so much for helping.

@Roger: Goodwill is very important in any business. People pay huge amounts for running businesses or just to use a name . And Yes, the advantage of OY is that it frees you from personal liabilities.

Now my next question is where to get money to buy this business? Not really buy but become a partner initially. Any chance of getting something from TE toimisto as a starting money?

Which bank to go for asking a loan? What kind of loan should I ask for? I have accounts in Nordea and S-bank. Does having an account makes any difference? I would need something like 15000e. I'll go and get information personally but it is always very useful to have some advice from somebody who has gone through it already.

[Upphew]

I guess in :tmi you cannot separate business and person like OY, not entirely sure though. someone here can point this out....

That is the whole point of tmi. You are the business, you back it up with everything you own.

[Rip]

Thanks everybody so much for helping.
@Roger: Goodwill is very important in any business. People pay huge amounts for running businesses or just to use a name .

It can be, but has the moving company "name" in that sense (good word of mouth)? Sure, the fact it is legally all set up has some value.

And Yes, the advantage of OY is that it frees you from personal liabilities

Though the loan you'll use to buy it will be yours personally.

If things don't go as planned, and I want to sell off my 45%, can I sell my shares to anybody without any consent from other shareholders?

Answered already, but note that finding a buyer in practice may be hard (idea of becoming a non-controlling shareholder in very small company (that you have on connection otherwise) is not enticing to most)

What kind of loan should I ask for?

I think the bank will tell that.

Which bank to go for asking a loan?

Do you own your own home with partly paid mortgage? If so, I'd start with that bank - The company itself is very small, so to get a loan, and preferably with favorable conditions, I'd expect the bank to be interested to see what you'd have as a collateral. I would be to your benefit if you had something else than the shares of the company itself.

[Rosamunda]

You could take a look at http://www.finnvera.fi for small business loans.

[Marsh04]

If there are two share holders and I have only 45% share but I own all the assets in the company (van in this case), and in agreement it is stated that I am the owner of the van, can I take van out of the company or sell it without the agreement of the majority shareholder?

[Marsh04]

Or this ownership only comes into play when it's time for liquidation?

Can it be written in the agreement that the minority share holder can decide about liquidation? I mean when to end business?

[betelgeuse]

If there are two share holders and I have only 45% share but I own all the assets in the company (van in this case), and in agreement it is stated that I am the owner of the van, can I take van out of the company or sell it without the agreement of the majority shareholder?

To own the assets, the company needs to sell it to you. When it's sold to you then it's out of the company.

Or this ownership only comes into play when it's time for liquidation?

You seem to be imagining some type of ownership that does not exists so liquidation is irrelevant.

Can it be written in the agreement that the minority share holder can decide about liquidation?

Yes the agreement can force the seller to behave in certain way. For example, to vote in matters of liquidation in the same way as the buyer does. However, do note that breaches are handled according to contract instead of company law.

[Marsh04]

So you mean whatever is in company is the ownership of the company. Doesn't matter how those things are acquired. So if a normal liquidation happens, everything is divided according to %age of shares?

Is it not possible to write in the agreement that in case of liquidation all assets will be transferred to one specific shareholder given there are no liabilities? Or whatever is left after paying all liabilities would go to one specific shareholder?