Different types of companies

Although a private limited company, or einkahlutafélag in Icelandic, is the most common type of company in Iceland, it’s far from being the only one. We recommend consulting a certified accountant or lawyer before choosing a form of company, so you select the one that best suits your business. The main difference between the different types of companies is in owners’ liability, taxation, start-up costs, and registration and accounting requirements. Below is a summary of the main features of the different types of companies.

Private limited company (ehf.)

A private limited company, einkahlutafélag in Icelandic, is by far the most common type of company in Iceland. In such a company the owners aren’t personally liable for the company beyond the share capital they put into the company. The tax environment is also favourable if income exceeds expenses. However, private limited companies are subject to stricter requirements concerning auditing and accounting and the format for making decisions is fixed.

• Owners: One or more
• Owners’ liability: Owners’ liability is restricted to share capital
• Minimum share capital: ISK 500,000
• Are annual accounts published: Yes
• Audit requirements: Either a certified accountant or two inspectors
• Advantages: Limited individual liability for business and therefore less personal risk. Favourable tax environment.
• Disadvantages: Start-up costs high and strict requirements on format of business and disclosure.

Public limited company (hf.)

Public limited companies, hlutafélag in Icelandic, are subject to many of the same laws as private limited companies. The key difference is that the minimum share capital is far higher for public limited companies. Public limited companies are also not allowed to be owned by a single person, i.e. there must be two or more owners.

• Owners: Two or more
• Owners’ liability: Owners’ liability is restricted to share capital
• Minimum share capital: ISK 4,000,000
• Are annual accounts published: Yes
• Audit requirements: Certified accountant
• Advantages: Limited individual liability for business and therefore less personal risk. Favourable tax environment.
• Disadvantages: Start-up costs high and strict requirements on format of business and disclosure.

Partnership (sf.)

Partnerships, sameignarfélag in Icelandic, are common in Iceland where more than one person or legal entity are in business together. Since the owners bear direct and unlimited liability for the company’s financial obligations, a partnership is a type of business which best suits people or legal entities who have a great deal of trust in each other. There’s no requirement for minimum share capital when starting a partnership and the owners themselves can decide how to arrange the start-up capital. It’s important that agreements between owners are clear, as each owner bears considerable responsibility.

• Owners: Two or more
• Owners’ liability: Owners’ liability is direct and unlimited
• Minimum share capital: No requirement for share capital
• Are annual accounts published: No
• Audit requirements: No audit requirements
• Advantages: The legal framework for this type of business is straightforward and the government makes limited requirements. Start-up costs are low and the tax environment is favourable.
• Disadvantages: Owners’ liability is direct and unlimited

Partnerships limited by shares (slf.)

Partnerships limited by shares, samlagsfélag in Icelandic, are similar to partnerships in that there’s no minimum requirement on share capital and the requirements for auditing and disclosure are more limited than in private limited companies and public limited companies. The thing that sets a partnership limited by shares apart is that the owners are not all directly and financially liable for the company. It’s a minimum requirement that one of the owners is directly and fully liable for the business while other owners are so-called partners. The financial risk of partners is limited in a similar way to associates in limited companies, i.e. to the specific amount they have put into the business.

• Owners: Two or more
• Owners’ liability: The liability of at least one owner is direct and unlimited
• Minimum share capital: No requirement for share capital
• Are annual accounts published: No
• Audit requirements: No audit requirements
• Advantages: The legal framework for this type of business is straightforward and the government makes limited requirements. Start-up costs are low and the tax environment is favourable. Owners’ liability for business can be limited.
• Disadvantages: The liability of at least one owner is direct and unlimited.