How to Choose the Right Company Type in Denmark

How to Choose the Right Company Type in Denmark

Starting a business in Denmark begins with choosing the right legal structure. Your choice affects liability, taxes, and how easily you can run and grow your company. The two most common options for startups are a private limited company (ApS) and a sole proprietorship. Below, we break down the differences and other key considerations for international founders.

ApS vs. Sole Proprietorship

• Liability: An ApS (Anpartsselskab) is a limited liability company. This means the company is its own legal entity, and you generally only risk the capital you invest (minimum share capital of DKK 20,000). In contrast, a sole proprietorship (enkeltmandsvirksomhed) offers no liability shield – you are personally liable for all business debts and obligations. If the business can’t pay a bill, your personal assets could be at stake.
• Taxes: In an ApS, profits are subject to corporate tax (22% in Denmark ^{investindk.com}). You can then pay yourself a salary (deductible for the company) or dividends (which may incur dividend tax). A sole proprietor pays personal income tax on the business profits. This can result in a higher tax rate if profits are substantial (personal income tax in Denmark can exceed 50% at higher income levels). However, sole proprietors can use the tax scheme for self-employed (virksomhedsskatteordningen) to defer some income as business savings taxed at the corporate ^rateskat.dk.
• Startup Costs & Formalities: Starting an ApS requires a minimum capital investment of 40,000 DKK ^martinsen.dk and a registration fee of 670 DKK to the Business Authority ^{businessindenmark.virk.dk}. You’ll need to draft founding documents and submit annual accounts. A sole proprietorship has no share capital requirement and no incorporation fee ^{businessindenmark.virk.dk}. It’s simpler to register and has fewer ongoing reporting requirements (no annual company financial statement to file publicly). For a small, low-risk venture, the simplicity of a sole proprietorship is attractive. But for anything ambitious or risk-bearing, the ApS is the safer choice.

IVS is No Longer an Option

You might have heard of the IVS (Iværksætterselskab), an entrepreneur company that required only 1 DKK in capital. This form was abolished in 2019 ^advodan.dk. It’s no longer possible to create an IVS, and existing IVS companies had to convert to ApS ^advodan.dk. So, new founders in Denmark generally choose between an ApS or a sole proprietorship (a full A/S is an option too, but it’s for larger businesses with a 400,000 DKK capital requirement).

When to Use a Holding Company

A holding company is a parent company (often an ApS) that owns shares in your operating company. Using a holding structure can be beneficial if you plan to expand or eventually sell your business. For example, if your holding ApS owns your operating ApS, dividends paid up to the holding company are tax-free under Danish rules for group companiesinvestindk.com. This means you can move profits to the holding company without paying additional tax, allowing you to reinvest in new ventures or save proceeds from a business sale. A holding company also isolates assets – if your operating business faces risks or goes bankrupt, the holding company (and the funds it holds) is shielded from those creditors.

However, not everyone needs a holding company from day one. It adds some complexity (another company to maintain). If you’re a first-time founder just starting a single business with no immediate plans for multiple ventures or sales, you can start with a single ApS. You always have the option to introduce a holding company later. If your long-term strategy involves owning several companies or seeking investors, discuss the holding structure with an advisor early on.

Foreign Entrepreneurs and CPR Number Rules

Denmark welcomes foreign entrepreneurs, and you don’t need to live in Denmark to form an ApS. You can register a Danish company as a non-resident, but there are a few bureaucratic hurdles to know about. The online registration system on ^Virk.dk (the “Start Company” self-service) requires a Danish CPR number and MitID to log in ^{businessindenmark.virk.dk}. If you don’t have a CPR (social security number), you have options: for EU/EEA citizens, a foreign eID under the eIDAS system can work ^{businessindenmark.virk.dk}. Otherwise, you may register your company by submitting forms to the Danish Business Authority (for example, using a Start 40.112 form for foreign registrations ^{businessindenmark.virk.dk}). Many international founders choose to work with a local corporate service provider or attorney to handle the setup.

What can you do without a CPR? You can establish and own an ApS as a foreigner without a CPR. You cannot, however, operate a sole proprietorship in Denmark without a CPR, since that business type is tied to an individual’s Danish identity. In practice, non-residents almost always opt for an ApS. Keep in mind that other aspects – like opening a bank account or signing up for NemID/MitID for business – may require additional verification when you don’t have a CPR. It’s wise to get professional guidance to navigate these initial steps.

When to Upgrade from Sole Trader to ApS

Many entrepreneurs start as a sole trader (sole proprietorship) and later decide to incorporate as an ApS. How do you know it’s time to make the switch? Here are some common signs:

• Rising Profits or Risk: If your business income is growing, an ApS can shield your personal wealth from business liabilities. When you have more to lose (or larger contracts and debts), the protection of limited liability becomes crucial.
• Tax Optimization: As profits increase, you might benefit from the lower corporate tax rate. In an ApS, you can retain earnings in the company at 22% tax and later pay yourself dividends strategically. Sole proprietors have to take all profit as personal income each year. If you’re hitting high tax brackets, incorporation can reduce immediate tax pressure.
• Bringing in Partners or Investors: An ApS has share capital that you can split with co-founders or sell to investors. It’s much easier to bring others on board with an ApS because you can issue shares or options. Investors generally prefer a formal company structure – they likely won’t invest in a private sole proprietorship.
• Professional Image and Credit: Operating as “YourCompany ApS” can add credibility when dealing with clients, suppliers, or banks. It shows you’ve made a commitment and are running a serious business entity. Banks may be more willing to extend credit to an ApS with financial statements than to an individual.

Fortunately, upgrading isn’t too difficult. You can either start a new ApS and transfer your sole proprietorship’s assets into it, or transform (convert) your business through a structured process. The right method depends on your situation – an accountant or advisor can help plan it in a tax-efficient way.

Soft Reminder: No matter which structure you start with, make sure to fulfill the basic requirements (for an ApS, that means maintaining the minimum capital and filing your annual reports, and for a sole proprietorship, keeping clear accounts for tax filing). You can evolve your business structure as you grow.

Need help deciding between an ApS and a sole proprietorship, or setting up a company in Denmark? We’re here to assist international founders at every step, from choosing the right structure to handling the paperwork. Contact us today or book a free consultation to get personalized guidance on starting your Danish business.