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Establishing a business in Iceland

Establishing a business in Iceland

When you establish a business you must make sure to choose the form most suitable to the scope, purpose and type of operations. Laws and reglulations, f.ex. on taxation, bookkeeping and accounts, owner's liability, decision making, establishing costs etc., differ between business forms.  

The most common types of businesses are:

 

Sole proprietorships (firms)
Liability: A sole proprietorship is a firm run and owned by an individual and registered under his personal identity number (kennitala). The owner bears full and unconditional liability for all commitments entered into by the business.

Registration:  A sole proprietorship must be registered into the Firm Registry held by the Director of Internal Revenue (DIR) at Laugavegur 166, Reykjavík. Registrations take place at the office of the local Commissioner (sýslumaður) in the community/municipality where the business keeps its office. 

 

Joint ownership companies
Liability: Joint ownership companies are owned by two or more parties. The owners' liability for all business commitments is direct, undivided and unlimited. Direct liablility means that each owner bears full liability for all commitments made by the company; undivided means that each owner is responsible for all debt incurred by the business; and unlimited means that all the owners' possessions are accessible to the crediors.

It is important to make a detailed establishment agreement on each owners' initial contribution, how to divide losses/dividends, how to make decisions etc. The agreement is usually only binding for the owners, not creditors or others


Registration: A joint ownership company must be registered into the Firm Registry held by the Director of Internal Revenue. Registrations take place at the office of the Local Commissioner (sýslumaður) in the community/municipality where the business keeps its office. The Director of Internal Revenue issues an identity number for the firm upon receving a receipt for registration from the district commissioner.

 

Limited companies

Liability: A limited company is the form of business where none of the owners bears a personal liability for the companies' commitments. The liability is limited to the initial capital they pay into the business. The owners of limited companies are called share holders and their contributions are divided into shares and their right and influence share the same ratio as their ownership (shares) in the company.

There are two forms of limited companies; public limited company (hf.) and private limited company (ehf.)  The hf.-form is mostly suitable for larger companies that are to be registered at the stock exchange. 

Number of shares and minimum share capital: Share capital for a public limited company must amount to at least 4 million krónur and be divided into 2 or more shares.

A private limited company can have one or more owners, and the share capital must at least amount to 500.000 krónur (also payable in computers, office furniture, technical equipment etc.)

Establishment and payment of share capital: Upon establishing a limited company the share holders commit themselves to paying the share capital they subscribe to within a specific time limit. When paying in other than cash, it must be specified in the memorandum of and impartial specialist assessors must evaluate the asset payments. Share capital is thus also payable in computers, office furniture, technical equipment etc.)

In public limited companies special shares are issued that usually meet with all requirements for commercial papers. In private limited companies no shares are issued, a certificate from the share register on ownership or a mutual fund certificate.

Registration: A public limited company must be registered into the Limited Company Register, held by the DIR within 6 months from the date of the Memorandum of Association. At least 50% of the share capital must be paid and the rest within one year.

A private limited company must be registered within 2 months from the date of the Memorandum of Association/Charter and all the share capital must be paid. A special registration form must be used and a registration fee be paid.

A limited company has no rights or obligations until it has been registered. Until registration the owners bear full liability for all commitments.

Various decisions and changes to registered information (such as regarding board of directors, purpose, increase/reduction of share capital) must also be notified to the Limited Company Register. Annual accounts and reports must also be sent to the DIR.

Law required documents: Upon establishing and registering a limited company a Memorandum of Association/Charter, Articles of Association and a Record of Minutes for the establishment meeting must be handed in to the Limited Company Register along with the registration form. Where applicable, assessments for shares paid in other valuables than cash must also be presented. In a private limited company owned by one owner the Memorandum of Association is called a Charter.

Share holders: The main rule for limited companies is that all shares have equal rights in the Company, and you usually go by the share value/amount. It may, however, be determined in the Articles of Association that shares shall be divided into special classes, i.a. a class having no voting rights.

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