It only takes a couple of days to establish a business or a company in the Faroe Islands. There are several different kinds of companies, and each kind requires a different capital investment.
Sole proprietorship or private enterprise
The Faroese shorthand term for sole proprietorship or private enterprise is FA. In a private enterprise the founder as a private individual and the company are considered as one unit. The founder needs to be registered to pay taxes (certain exceptions can be made, i.e. if the company’s turnover is not particularly high), as well as with a VAT-number. In addition, it is also a good idea to create a company account. There are certain advantages and disadvantages to sole proprietorship of a company. As such, it is of uttermost importance to be conscious of what kind of business one is engaged in, as perhaps a different kind of company might be better suited for one's business needs. Sole proprietorship or private enterprise is most fitting for companies or businesses founded and run by one single individual.
The Faroese shorthand term for an entrepreneurial company is ÍVF. As from 1 January 2017 it was possible to establish entrepreneurial companies in the Faroe Islands. Compared to companies that are run as private enterprises (i.e. the founder and the company are considered as one single unit), an entrepreneurial company is a legal entity. Multiple individuals can own an entrepreneurial company. The capital investment in this kind of company ranges all the way from DKK 1 to DKK 49.999, making the low investment demand one of the main advantages of establishing an entrepreneurial company. The share capital is only as high as the amount that the founder invests in the company. Should the company go bankrupt the founder only loses the invested amount – unless the founder in other ways is held personally responsible for the investment in the company. The profit from an entrepreneurial company cannot be divided until the reserve capital, along with the joint capital, exceeds DKK 50.000. Each year at least 25 % of the profit has to be tied-up in the reserve capital. An entrepreneurial company is best suited for companies with few staff members, or for businesses that do not require a large initial capital investment. Finally, an entrepreneurial company can have a board, as well as one or several directors.
The Faroese shorthand term for this kind of company is Sp/f, and it demands a higher capital investment than an entrepreneurial company. Until recently the investment demand was DKK 80.000. However, as from 1 January 2017 the demand was lowered to DKK 50.000. A private company is a legal entity, and it can in many ways be compared to an entrepreneurial company. Private companies are well suited for businesses that require more capital and a big investment in working equipment. Like an entrepreneurial company, a private company can have a board, as well as one or several directors.
The Faroese shorthand term for a limited company is P/F. The investment demand is DKK 500.000, and in many ways this kind of company resembles the above-mentioned Sp/f. A limited company is well suited for larger companies that require more capital than private companies.
The Faroese shorthand term for this kind of business partnership is Í/F. A partnership can be composed of two or more participants. These participants can either be individuals or legal entities. All participants take on shared responsibility, both directly and solidarity, with total assets towards the company’s creditors.