Comparing Limited Liability Companies and Sole Proprietorships in Denmark

The first step in deciding on the type of company you want to establish in Denmark is to consider whether you prefer to assume personal liability or to set up a limited liability company. To make an informed decision, you should carefully consider the specifics of your future company and the potential risks involved. It’s important to take into account what your company will do, who your customers will be, and whether there are any potential liabilities to be aware of. Additionally, before committing fully to your new business, it may be a good idea to test your business idea or concept.

How different limited liability company is from sole proprietorship?

A limited liability company offers protection against personal liability for any company debts or deficits. Even if the company incurs a deficit, it remains separate from the owner’s personal finances, thus safeguarding personal assets. However, if the owner receives wages from the company to cover personal expenses, the company must prepare a payslip, deduct taxes, and pay them to the government, which could be problematic in the event of a deficit. Starting a limited liability company is advisable if there is a reasonable chance of breaking even or making a profit, if there is some customer base, and if liabilities are limited. In the case of an ApS (Aktieselskab) company, personal assets are protected, but a minimum of 40,000 DKK is required to start the business, and any company deficits cannot be covered by personal income.

Deciding between sole proprietorship and a limited liability company

In Denmark, the simplest form of business to set up is a sole proprietorship, which is a good option for those who don’t have much money or responsibility to begin with. It’s easy to register for free and doesn’t require a minimum deposit or equity. With a sole proprietorship, you can use other sources of income to offset any initial deficits and gain tax refunds. However, one of the drawbacks is that you are personally liable for any debts or legal issues that may arise, which could lead to significant personal financial losses. If you plan to grow your business and hire employees, it may be worth considering a limited liability company to protect yourself and your personal assets. When comparing the two types of companies, it’s important to consider the amount of liability involved and worst-case scenarios. To limit your liability, you can create contracts that hold up in court and consult with a lawyer to stay competitive. Ultimately, the decision between a sole proprietorship and a limited liability company depends on your individual circumstances and financial situation.