Dif­fer­ent forms of busi­ness op­er­a­tions

Despite private limited companies being the most common business form in Iceland, there are several other options available. It's advisable to consult with a certified accountant or lawyer regarding the choice of business form to ensure you select the one that best suits your operations. The differences between company types mainly lie in owner liability, taxation, startup costs, and requirements for registration and accounting. Here you can learn about each business form, but for more detailed information, we refer you to the website of the Icelandic Tax Authority where you can find more comprehensive information about the laws and regulations associated with each type of company.

Private Limited Company (ehf)

Private limited companies are by far the most common business form in Iceland. In such companies, the owners do not bear personal liability for the company's operations beyond the share capital they contribute. The tax environment is also favorable if revenues exceed costs. On the other hand, there are greater requirements for private limited companies regarding auditing and accounting, and the decision-making structure is more formalized.

Overview of Private Limited Companies

• Owners: One or more

• Owner liability: Limited to share capital

• Minimum share capital: 500,000 ISK

• Public disclosure of annual accounts: Yes

• Audit requirement: Either a certified auditor or two inspectors

• Advantages: Limited personal liability for operations, thus reducing personal risk. Also, the tax environment is favorable.

• Disadvantages: High startup costs and significant requirements regarding operational form and information disclosure.

Public Limited Company (hf)

Public limited companies follow many of the same principles as private limited companies, but the main difference lies in the minimum share capital amount, which is considerably higher for public limited companies. Also, a public limited company cannot be owned by a single individual; it must have two or more owners.

Overview of Public Limited Companies

• Owners: Two or more

• Owner liability: Limited to share capital

• Minimum share capital: 4,000,000 ISK

• Public disclosure of annual accounts: Yes

• Audit requirement: Certified auditor

• Advantages: Limited personal liability for operations, thus reducing personal risk. Also, the tax environment is favorable.

• Disadvantages: Very high startup costs and significant requirements regarding operational form and information disclosure.

General Partnership (sf)

General partnerships are common in Iceland when more than one individual or legal entity is involved in business operations. Since the owners themselves bear direct and unlimited liability for the financial obligations of the company, general partnerships are best suited as a business form for individuals or legal entities that have a high level of trust in each other. There is no requirement for minimum share capital when establishing general partnerships, and the owners can decide for themselves how the initial capital should be structured. It is important that agreements between owners are clear, as each owner bears significant responsibility.

Overview of General Partnerships

• Owners: Two or more

• Owner liability: Direct and unlimited

• Minimum share capital: No requirement

• Public disclosure of annual accounts: No

• Audit requirement: No audit requirement

• Advantages: Simple legal environment for operations with few government requirements. Low startup costs and favorable tax environment.

• Disadvantages: Owners' liability for operations is direct and unlimited.

Limited Partnership (slf)

A limited partnership is basically similar to a general partnership in that there is no requirement for minimum share capital, and requirements for auditing and information disclosure are not as extensive as for private and public limited companies. What is special about a limited partnership is that not all owners need to bear direct and financial liability for the company. There is a minimum requirement that one of the owners bears direct and full liability for the operations, but other owners can be so-called limited partners. The financial risk of limited partners is restricted in a similar way to shareholders in limited companies, i.e., to a certain amount that they contribute to the operations.

Overview of Limited Partnerships

• Owners: Two or more

• Owner liability: At least one owner has direct and unlimited liability

• Minimum share capital: No requirement

• Public disclosure of annual accounts: No

• Audit requirement: No audit requirement

• Advantages: Simple legal environment for operations with few government requirements. Low startup costs and favorable tax environment. Some owners can have limited liability for operations.

• Disadvantages: At least one owner's liability for operations is direct and unlimited.