Sole proprietorship or limited company – which should you choose?

There is no turnover threshold at which a limited company suddenly becomes right. What decides it is how much risk the business carries, how much of the profit you need privately, whether you will have employees or co-owners, and how much employee rights matter. A sole proprietorship is taxed on the owner in the year the profit is earned whether or not the money stays in; a limited company pays 22% and can leave the rest.

The main differences

A separate legal person: no for a sole proprietorship, yes for a limited company. Personal liability: unlimited in a sole proprietorship, normally limited for the shareholder in a company. Minimum share capital: none for a sole proprietorship, NOK 30,000 for a company. The owner can be an employee: no in a sole proprietorship, yes in a company. Profit is taxed on: the owner in a sole proprietorship, the company in a limited company. Profit can stay in after 22% corporation tax: no in a sole proprietorship, yes in a company. Public annual accounts: normally not for a small sole proprietorship, always for a company. Several owners and investors: not possible in a sole proprietorship, possible in a company.

A sole proprietorship means personal liability

A sole proprietorship (enkeltpersonforetak) is not a legal person separate from its owner. You and the business are the same legal person. Where the business cannot pay suppliers, damages or other debts, creditors can pursue you personally under the ordinary enforcement rules. That is often the strongest argument against a sole proprietorship in a business with high financial or legal risk – and it is independent of turnover.

A limited company gives a separate legal person – but not a free pass

As a shareholder you are as a general rule not liable to the company's creditors for its debts. The minimum share capital is NOK 30,000, and it is not a registration fee: the money belongs to the company and can be used in the business after registration – see Share capital in a limited company But personal liability can arise on other grounds. Where you have personally guaranteed a bank loan or a lease, the creditor can pursue you under the guarantee. And as a director or general manager you can be liable in damages where you intentionally or negligently cause a loss to the company, shareholders or others – see Directors' liability and personal liability A limited company is an important limitation of liability, not a licence to trade unsoundly.

A sole proprietorship is taxed even where the money stays in

In a sole proprietorship the profit is taxed on the owner in the year it is earned – including where the money sits in the business account and is meant for growth. The personal income from the business can, on top of tax on general income, attract national insurance contributions and bracket tax. The contribution on other business income is 10.8% in 2026, against 7.6% on salary.

A limited company can leave the profit in after corporation tax

A limited company pays ordinary 22% tax on taxable profit. Where the company earns NOK 1,000,000 before tax and the whole amount can stay in, the corporation tax is NOK 220,000 and NOK 780,000 remains in the company. The owner pays no personal dividend tax on that until the company actually distributes a taxable dividend. That gives a tax credit where the money is to be reinvested.

But a company does not necessarily mean lower total tax

Where the whole profit is eventually taken out privately, the owner taxation has to be counted too. In 2026 the tax on a taxable dividend to a personal shareholder is 37.84% after shielding. Simplified: the company earns NOK 100, NOK 78 remains after corporation tax, the dividend tax is about NOK 29.52, and the total tax is roughly NOK 51.52. So it is misleading to say a limited company is always cheaper for tax. The advantage can be the timing of the personal tax, not the final amount – see Salary or dividend from your own company

There is no magic turnover threshold

You may hear advice like «once you turn over 500,000 you should switch to a limited company». There is no such statutory rule. Turnover alone says little. What matters is how large the profit is, how much you need privately, how much risk the business carries, how much capital is to be reinvested, and whether the business will take on employees or new owners. If you already run a sole proprietorship, see When should a sole proprietorship become an AS?

A loss can make a sole proprietorship attractive at the start

This is often forgotten. Where the business makes a genuine tax loss, it can normally be set against other general income in the same year. If you have employment income from another employer and the sole proprietorship makes a NOK 100,000 tax loss, that loss can reduce your other general income. Unused losses can be carried forward. In a limited company the loss stays in the company and is used against future profits there. The owner gets no corresponding personal deduction that year. For a business expecting losses in the first couple of years, that is a real argument for starting as a sole proprietorship.

The owner cannot be an employee of their own sole proprietorship

The owner of a sole proprietorship is not an employee of it. Money you transfer to yourself is a private withdrawal, not salary, and it does not reduce the business's taxable profit. The business can still have other employees. In your own limited company, by contrast, you can be an employee where there is a genuine employment relationship. The company then has to treat you as an employee with salary, a tax card, advance deductions, employer's contributions and the a-melding – see Your first employee

Sick pay is a real difference

A self-employed person has under NAV's ordinary rules a right to sick pay from day 17 of the absence, has to have worked at least four weeks immediately before the sick leave, and has to have an average annual income set over the last three years of at least NOK 68,274.50 – half the basic amount. The coverage is lower than for employees, and better cover can be bought through NAV. An owner who actually works as a paid employee of their own limited company follows the employee rules instead: the company has the employer's responsibility in the employer period, and NAV takes over under the ordinary rules – see Sick pay and reimbursement from NAV Unemployment benefit follows the same pattern: business income in a sole proprietorship does not in itself give a right to benefit if the business disappears, while salary from your own company can give rights as an employee.

Holding structures, investors and a sale point to a company

A sole proprietorship can have only one owner, and cannot be owned by a holding company. Where an investor is to get 20%, you cannot «issue 20% of the sole proprietorship». A limited company can have several shareholders, carry out share issues, create share classes and sell existing shares. A holding company can own the shares in the operating company, and dividends and gains between companies can fall within the participation exemption On a sale the difference is practical: a sole proprietorship is not a legal person that can be sold as a shareholding, so the business or the assets have to be transferred. In a limited company the buyer can buy the shares instead of each asset and agreement – see Due diligence when selling a business

Three situations

A consultant with high margins. NOK 1.5 million turnover, NOK 1.3 million profit, private needs far lower. In a sole proprietorship the whole profit is taxed on the owner. With a company, a suitable salary can be paid and the rest left in after corporation tax. Where the consultant takes out almost everything privately each year anyway, the advantage is much smaller. A tradesperson with liability risk. One mistake can produce a claim larger than the year's profit. In a sole proprietorship the owner is personally liable. Here a company can be right from day one, even at modest turnover. A retail business with employees and stock. Five employees, leased premises, goods on credit and financing. That is lawful in a sole proprietorship, but the total personal exposure becomes substantial.

The questions that actually decide it

How much risk am I taking? How much of the profit do I need privately each year? Is the capital to be reinvested? Do I need employees, co-owners or investors? How important are employee rights to me? Will the business later be sold or form part of a holding structure? For a simple, low-risk business a sole proprietorship can be both cheap and practical. For a business with more risk, retained capital or growth plans, a limited company can be far more suitable – even at relatively low turnover. Greenleaf keeps the accounts for both: see accountant for a sole proprietorship and accountant for a limited company

This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.

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