Converting a sole proprietorship into a limited company – agreements, assets, and liabilities

Short answer: A sole proprietorship cannot "change organization number" and become a limited company. Instead, a new limited company is formed, and the business's assets, agreements, and any debts are transferred through, for example, a transfer of business assets (inkråmsöverlåtelse) or a non-cash issue (apport).

Two common ways to convert

Verksamt describes two main paths. In a transfer of business assets, the sole proprietorship sells the business's assets to the limited company. In a non-cash issue, assets other than cash are used as payment for shares when the company is formed, which, among other things, requires an auditor's certificate regarding the value of the non-cash property.

What does the transfer agreement need to regulate?

• which assets are being transferred
• inventory, fixtures, and intellectual property rights
• accounts receivable and accounts payable
• agreements, subscriptions, and licenses
• purchase price and form of payment
• any promissory note to the former sole proprietor
• date of transfer and transfer of risk
• VAT and tax handling

Under-pricing can have tax consequences

A transfer at a price below market value can normally trigger withdrawal taxation. There are exceptions under certain conditions, so the price and tax structure should be checked before the transfer is carried out.

Agreements do not always transfer automatically

Rental agreements, leasing, financing, supplier agreements, insurance, and customer agreements may require consent or a new agreement with the limited company. Therefore, perform an inventory of agreements well in advance of the conversion date.

Bank, tax, and administration

The new limited company needs its own bank accounts, registrations, and accounting. At the same time, the sole proprietorship needs to be closed correctly once the business has been moved. Periodization, VAT, inventory, and equity should be reconciled so that the opening balance sheet in the company is understandable.

Practical checklist

1. form the limited company
2. inventory assets, debts, and agreements
3. decide on the transfer method
4. value the assets
5. draw up a transfer agreement
6. handle payment and any promissory note
7. move agreements and insurance
8. update invoicing and customer information
9. reconcile taxes and accounting
10. deregister the sole proprietorship when everything is finished

See Mallbutiken's transfer agreement for sole proprietorship to limited company. If the purchase price is left as a debt, a promissory note for business takeover may also be relevant.

FAQ

Must all assets be transferred?

No, but it must be clear which assets remain and which are moved.

Can a customer agreement simply be moved over?

It depends on the agreement. Some agreements require the counterparty's approval.

Is an auditor needed for a transfer of business assets?

Not generally in the same way as with a non-cash issue, but valuation, tax, and accounting issues may justify professional assistance.

This article provides general information and does not replace tax, accounting, or legal advice.