Operating as a small business owner can be challenging, but by choosing the right business form for your construction enterprise, you can optimise your efficiency, management, and risk.
This article compares three popular business forms in the construction industry: cooperative entrepreneurship, sole proprietorship, and limited company entrepreneurship.
1. Cooperative as a Business Form for Construction Entrepreneurs
Cooperatives are traditional associations of several entrepreneurs that allow for an easy and secure step into entrepreneurship, without the pitfalls that fresh entrepreneurs might face – such as insurance and other administrative costs. Construction cooperatives offer memberships that guarantee entrepreneur status within the cooperative. Members are thus entrepreneurs of the cooperative, operating independently on their own projects using the cooperative’s shared business platform.
Cooperative entrepreneurship enables members to act independently while benefiting from the advantages provided by the community, such as joint marketing, legal assistance, negotiated benefits and discounts, and administrative services.
Advantages:
- Support and Security: Members enjoy the support offered by the cooperative, such as insurance, advice, invoicing, and accounting services, which reduces the administrative burden on individual entrepreneurs.
- Legal Assistance: The cooperative provides support in case of complaints.
- Community: Collaboration with other professionals can bring new opportunities and clients and alleviate the pressures of being a sole entrepreneur.
- Flexibility: Entrepreneurs can regulate their workload and choose projects more freely than in many other business forms.
- Benefits and Discounts: Cooperatives often have agreements and discounts with various parties, and as a member, you are entitled to these benefits.
- Ease: As a cooperative entrepreneur, you do not need to remember forms, notifications, or other fees.
- Cost-Effective: Depending on the cooperative, membership usually costs less than starting a business.
Challenges:
- Dependence on Cooperative Rules and Decisions: An individual entrepreneur's freedom can sometimes be limited, as cooperative entrepreneurs must adhere to the cooperative's values and rules.
2. Sole Proprietorship in Construction
A sole proprietorship is the most popular business form for solo entrepreneurs in Finland. It is easy and inexpensive to establish and is particularly suitable for small-scale operations.
Advantages:
- Simple Administration: Sole proprietorships do not have complex accounting or administrative requirements.
- Tax Flexibility: Broad expense deductions are possible, which can be tax advantageous.
- Tax Flexibility: Broad expense deductions are possible, which can be tax advantageous.
Challenges:
- Unlimited Liability: The sole proprietor is personally liable for the business's obligations, which can be risky, especially in the construction industry.
- Administration and Accounting: Although administration and accounting are simple, they still have requirements. Many sole proprietors have ended up in debt collection due to neglecting these duties.
- Loneliness: Sole proprietors have no advice or support available in challenging situations.
- Legal Challenges: In case of complaints, the sole proprietor must hire a lawyer themselves.
- Sales and Marketing: No support or network for sales and marketing.
3. Limited Company as a Business Form for Construction Entrepreneurs
A limited company (Oy) is a popular business form for larger businesses or entrepreneurs planning to expand their operations. Limited companies are also used for small-scale operations when a reliable person can be included on the board.
Advantages:
- Limited Liability: The owners of the limited company are only liable for the company's debts and other obligations to the extent of their invested capital.
- Credibility and Financing Opportunities: The limited company form can attract investors and facilitate financing.
- Full Freedom to Operate: The company, along with its board, decides entirely on its own operations.
Challenges:
- More Complex Administration: Establishing and maintaining a limited company requires more bureaucracy and accounting accuracy. An accountant is mandatory.
- Taxation: Profits are taxed twice – at the company level and the owners' level.
- Insurance: The operations of the limited company must be comprehensively insured.
- Disputes: Disagreements with the board can lead to challenging situations.
- Sales and Marketing: No support for sales and marketing.
- Legal Challenges: No support in complaints or other disputes.
Conclusion
The choice of business form largely depends on the entrepreneur’s readiness to operate responsibly and independently, ensuring that problems with tax authorities or customers do not arise. If the entrepreneur does not want extensive responsibility and risks, a cooperative is an excellent option that minimises administrative responsibility. If the entrepreneur prefers to work alone, a sole proprietorship can be a functional solution. If the entrepreneur wants to grow the business into hundreds of thousands, a limited company can be a good choice. However, remember that it is possible to change the business form as operations change, and starting safely is often wise!
