Business forms - what is right for you?

When starting up your own business, you have to decide which type of business you want to establish. Before deciding on the type of business, you should familiarise yourself with the different business forms and what characterises them. Which business form is right for you depends on a number of different factors, such as: the risk you are willing to take, the capital you have available, the accounting requirements you are able and willing to comply with, the tax implications of the business form, etc.

Examples of business forms in Denmark are:

• Sole proprietorship (Enkeltmandsvirksomhed): If you have no plans to start a large enterprise, a sole proprietorship has certain benefits. A sole proprietorship can only have one owner, but you can hire employees. If you have a sole proprietorship, you can submit VAT returns and you can import and export goods both within and outside the EU. In a sole proprietorship, the assets belong to you, the owner of the business, but you are also personally liable for the business' debt. This can be a disadvantage, as it may affect your personal assets. Registering and setting up a sole proprietorship is free of charge, but you need to have a Danish civil registration number (CPR number)

• Partnership (I/S): A partnership (I/S) must have at least two owners, so if you're establishing a business alone, a partnership is not an option. The owners of a partnership are called partners (in Danish "interessenter"), and they have unlimited personal, joint and several liability for the financial commitments of the partnership. This could be seen as a disadvantage because your personal assets may be at risk if something goes wrong in the joint business. The partnership only has to be registered if the partners are companies with share capital, or if tax obligations have to be registered. Therefore, it is advisable to conclude an ownership agreement or a partnership contract laying down the conditions of the partnership.

• Private limited company (ApS): If you want to set up a private limited company (ApS), note that you have to contribute at least DKK 40,000. This can be difficult for many people, and consequently, it may be considered a disadvantage. However, as an owner, you are not personally liable for the company's debt beyond the capital contributed to the company. This is clearly an advantage. However, the company's assets are not your personal assets. They belong to the company. A private limited company (ApS) must have an executive board. You may be the only owner, or share the ownership with several others. This flexibility is an advantage. Establishing a private limited company (ApS) requires articles of association and a memorandum of association.

• Public limited company (A/S): When establishing a public limited company (A/S), you have to contribute DKK 500,000 to start up the company. For many people, having to contribute such a large amount of money can be a disadvantage. As the owner of a public limited company, you will not be personally liable for the company's debt, and this is generally an advantage. However, the company's assets belong to the company, and not to you as the owner. A public limited company can have one or more owners, and this is also an advantage. However, the company must have a board of directors/supervisory board and an executive board. This requirement to find members for the board of directors can be a disadvantage. If you are setting up a public limited company, articles of association and a memorandum of association have to be prepared.

Note!

Please note that the rules regarding the entrepreneurial company IVS have been changed as of April 2019. It is no longer possible to set up an IVS, just as already established IVS companies must be converted to ApS within two years. The capital requirement for ApS is also reduced from DKK 50,000 to DKK 40,000.

You can find relevant information in this article (in Danish).

Which business form best matches your situation depends on many different factors, including the activities of your business, and the tax setup you want.
Remember that you can contact IDA's legal advisors and they will guide you and help you take the next step in the decision-making process.

Contact IDA

As a member, we will help you to start your firm and advise you on ownership and organisational matters. Contact IDA for legal advice.