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Comparing Limited Liability Companies and Sole Proprietorships in Denmark

When deciding on the type of company to establish in Denmark, it's essential to ask yourself if you want to be personally liable or if you prefer to create a limited liability company structure. It's important to take into account the specific details of your business and the associated risks, such as the nature of your business, the target customers, and potential liabilities. You may also want to consider whether you want to fully commit to the new business or test your business idea/concept first.

How different limited liability company is from sole proprietorship?

Limited liability companies in Denmark operate differently from sole proprietorships as any deficits are contained within the company, providing protection against losses. If you receive wages from a limited liability company to cover personal expenses, the company will need to generate a payslip and withhold taxes for payment to the government. However, if you have a deficit and require a payslip to cover your bills, you will not only lose money on the deficit but also be required to pay taxes on that personal income. It is advisable to start with a limited liability company if you have liability, a few customers, and can see that the business will break even or make money. In the event of business failure, only the company would be lost, and personal assets would be protected, although an ApS requires an initial investment of 20,000 DKK and cannot use personal income to cover the company's deficit.

Legal structure and registration requirements for ApS, IVS and sole proprietorships in Denmark

In Denmark, the legal structure you choose determines how your business is registered, regulated and perceived by banks, partners and the Danish authorities. The three most common forms for small and medium businesses are the private limited company (ApS), the now‑discontinued entrepreneurial company (IVS) and the sole proprietorship. Although IVS can no longer be formed, many foreign entrepreneurs still encounter it when buying or taking over existing Danish companies, so it is useful to understand how it differs from ApS and a sole proprietorship.

Private limited company (ApS)

An ApS (Anpartsselskab) is a separate legal entity with limited liability. The company, not the owner, is responsible for its debts and obligations, which is one of the main reasons many entrepreneurs choose this structure.

To establish an ApS, you must register it digitally with the Danish Business Authority (Erhvervsstyrelsen) through the Virk.dk portal. The company is created when it is registered in the Central Business Register (CVR). You must prepare a memorandum of association and articles of association, and appoint a management body (at minimum one director; a board of directors is optional for small companies). The company name must be unique and include the designation “ApS”.

The minimum share capital is 40,000 DKK. It can be paid in cash or, under specific conditions, contributed as non‑cash assets that are valued and documented. The capital belongs to the company and is recorded in the balance sheet; it is not a personal bank account of the owner. Ownership is represented by shares (quotas) that can be transferred, sold or pledged, subject to any restrictions in the articles of association.

Once registered, the ApS receives a CVR number, which is used for all communication with SKAT (the Danish Tax Agency), banks and other authorities. Depending on expected turnover and activities, the company may also need to register for VAT, employer obligations and payroll taxes. The ApS must keep formal company records, hold at least one annual general meeting and file annual financial statements with the Danish Business Authority.

Entrepreneurial company (IVS)

The IVS (Iværksætterselskab) was introduced as a low‑capital limited liability company and could be formed with a share capital starting from 1 DKK. However, new IVS formations are no longer allowed under current Danish law. Existing IVS companies must either be converted into ApS or dissolved within the deadlines set by the authorities.

Although you cannot register a new IVS, many of the legal principles are similar to an ApS: it is a separate legal entity, owners have limited liability, and the company is registered with a CVR number and governed by articles of association. Historically, IVS companies were required to retain a portion of their profits each year until they reached a capital level comparable to an ApS. When reviewing or acquiring an existing IVS, it is important to check whether it has already been converted to ApS and whether the capital and formal requirements have been fulfilled.

Sole proprietorship

A sole proprietorship (enkeltmandsvirksomhed) is the simplest form of business in Denmark. Legally, there is no separation between the owner and the business: the owner is personally responsible for all obligations, contracts and debts. This structure is often chosen by freelancers, consultants and very small businesses that want minimal formalities and low start‑up costs.

To start a sole proprietorship, you register the business with the Danish Business Authority via Virk.dk and obtain a CVR number if required. Registration is mandatory if you conduct independent business activities on a commercial basis, especially if you expect a certain level of turnover or need VAT registration. There is no minimum capital requirement and no share capital; you can start with any amount of funds or assets you choose to invest personally.

The business name can be your personal name or a trade name. Unlike an ApS, there is no requirement to include a legal form designation in the name. However, the name must still be unique enough to avoid confusion with existing registered businesses. The sole proprietor makes all decisions and signs all contracts personally, which simplifies governance but increases personal responsibility.

Key differences in legal structure and registration

The most important distinction between an ApS and a sole proprietorship is the existence of a separate legal entity. An ApS has its own legal personality, assets and liabilities, while a sole proprietorship is legally identical to its owner. This affects not only liability, but also how contracts are signed, how banks and investors assess the business, and how ownership can be transferred.

From a registration perspective, both ApS and sole proprietorships are created online via Virk.dk and receive a CVR number used for VAT, tax and employer registrations. However, forming an ApS requires formal founding documents, a defined share capital of at least 40,000 DKK and a management structure, whereas a sole proprietorship can be registered quickly without capital and without corporate governance formalities.

Although IVS can no longer be formed, existing IVS companies are still treated as limited liability entities until they are converted or dissolved. When comparing structures, IVS historically sat between a sole proprietorship and an ApS: it offered limited liability like an ApS, but with a much lower initial capital requirement and stricter rules on profit retention and conversion.

When choosing between these forms, it is crucial to consider not only tax and accounting aspects, but also the legal structure, registration requirements and the level of protection and credibility each form provides in the Danish market.

Minimum capital requirements and ownership rules for Danish limited liability companies

In Denmark, the most common limited liability company forms used by entrepreneurs and small businesses are the private limited company (ApS) and the public limited company (A/S). Both offer protection of personal assets, but they differ significantly in minimum capital requirements, ownership rules and governance structure. Understanding these differences is essential when comparing them with a sole proprietorship.

Minimum share capital for ApS and A/S

The minimum share capital for a Danish private limited company (ApS) is DKK 40,000. This capital can be contributed in cash or as non-cash contributions (assets), provided that the value of the assets can be documented and approved in accordance with the Danish Companies Act.

For a Danish public limited company (A/S), the minimum share capital is DKK 400,000. As with an ApS, the capital may consist of cash or eligible non-cash contributions, but the documentation and valuation requirements are stricter, and an independent valuation is typically required for non-cash contributions.

The share capital does not have to remain as cash in the company’s bank account. Once the company is registered, the capital can be used to finance business operations, as long as the company remains solvent and complies with the rules on capital protection and distribution of funds.

Paying in capital: cash vs. non-cash contributions

When establishing an ApS or A/S, founders can choose between contributing capital in cash or in kind:

It is not permitted to use personal services or future work as non-cash capital. The contribution must be an asset with a measurable, transferable value.

Ownership structure and number of owners

Both ApS and A/S can be established by one or more owners (shareholders). There is no legal maximum number of shareholders, and there is no requirement that shareholders must be Danish residents. Individuals and legal entities from other EU/EEA countries and from most non-EU countries can own shares in a Danish company, subject to general rules on anti-money laundering and sanctions.

In an ApS, ownership is typically more closely held, often by one or a few individuals. An ApS cannot list its shares on a regulated stock exchange. In contrast, an A/S is designed for broader ownership and can list its shares on a stock exchange if it meets the additional listing and reporting requirements.

Share classes, voting rights and shareholder agreements

Danish limited liability companies have flexibility in designing their ownership structure. The articles of association can allow for different share classes with varying voting rights and dividend rights. For example, a company can issue non-voting shares or shares with preferential dividend rights to investors while keeping control with founders through shares with enhanced voting rights.

In addition to the statutory rules, shareholders often regulate their relationship through a private shareholder agreement. This can cover issues such as transfer restrictions, pre-emption rights, drag-along and tag-along clauses, and rules for resolving deadlocks. While such agreements are not registered publicly, they are important for managing ownership in both ApS and A/S structures.

Management and control requirements

Ownership rules are closely linked to management structure. In an ApS, the minimum requirement is a management board (executive management). A board of directors is optional unless the company chooses to have one. In an A/S, a board of directors or a supervisory board is mandatory in addition to the executive management.

There is no general requirement that shareholders or directors must be resident in Denmark, but at least one member of the executive management must normally be resident within the EU/EEA, unless the company obtains a specific exemption from the Danish Business Authority. This can be relevant for foreign owners planning to manage the Danish company from abroad.

Ownership transparency and registration duties

All Danish limited liability companies must register their owners with the Danish Business Authority. This includes:

Changes in ownership, such as transfers of shares that affect who is a beneficial owner, must be reported within the statutory deadlines. Failure to register beneficial owners can lead to enforcement measures and fines.

Ownership and capital protection rules

Limited liability in an ApS or A/S is based on clear separation between company assets and the personal assets of the owners. To maintain this protection, Danish law includes capital protection rules that restrict how funds can be distributed to shareholders. Key principles include:

Owners who breach these rules or who knowingly approve unlawful distributions can, in certain situations, become personally liable towards the company and its creditors.

Comparison with sole proprietorship ownership

In a Danish sole proprietorship, there is no minimum capital requirement and no separation between business and personal assets. The owner is personally and fully liable for all obligations of the business, and there is no share capital or share structure to regulate ownership. This makes a sole proprietorship simple and flexible, but it offers no limited liability protection and no possibility to bring in shareholders through share capital.

By contrast, ApS and A/S structures require a defined minimum capital and formal ownership registration, but they provide limited liability, clearer ownership rules and better options for bringing in investors or co-owners. For entrepreneurs planning to grow, attract external capital or limit personal risk, these ownership and capital rules are often a decisive factor in choosing a limited liability company over a sole proprietorship.

Taxation differences: personal income tax vs. corporate tax and dividend taxation

Taxation is often the decisive factor when choosing between a Danish limited liability company (ApS / A/S) and a sole proprietorship. The key difference is that a sole proprietor is taxed personally on all business profits, while a limited company pays corporate tax and the owner is only taxed personally when taking out salary or dividends.

Personal income tax for sole proprietors

In a sole proprietorship, business profit is treated as the owner’s personal income. There is no separation between the owner and the business for tax purposes. The profit is taxed under the Danish personal income tax system, which consists of:

The top-bracket state tax applies when your annual personal income exceeds approximately DKK 588,900 (after AM-bidrag). Above this level, the marginal tax on additional income can approach 52–56%, depending on your municipality.

Sole proprietors can deduct business expenses directly from their income and may use special schemes such as the business tax scheme (virksomhedsordningen) or capital return scheme (kapitalafkastordningen) to optimise taxation, for example by separating business and private finances and deferring some taxation. However, all profits ultimately end up in the personal tax system.

Corporate tax for ApS and A/S

Limited liability companies in Denmark are separate legal and tax entities. The company itself pays corporate income tax on its profits at a flat rate of 22%. This rate applies to both ApS and A/S, regardless of the level of profit.

Taxable profit is calculated as income minus deductible business expenses, depreciation and other allowable deductions. Losses can generally be carried forward and offset against future profits, subject to certain limitations for very large amounts.

After paying the 22% corporate tax, the remaining profit can be:

This creates a two-level taxation: first at company level, then at shareholder level when profits are taken out.

Dividend taxation for company owners

When you own an ApS or A/S, you are taxed personally on dividends you receive from the company. Danish dividend tax is progressive and has two main brackets:

The threshold of DKK 61,000 applies per individual shareholder. Married couples can effectively double this threshold if both are shareholders and receive dividends.

From the company’s perspective, dividends are paid from profit after the 22% corporate tax. This means that the effective total tax on distributed profits (corporate tax plus dividend tax) depends on whether the dividend falls in the 27% or 42% bracket.

Salary vs. dividends for company owners

As an owner-manager of an ApS or A/S, you can choose to take income as salary, dividends, or a combination of both. The tax treatment differs:

In practice, many owner-managers choose to pay themselves a reasonable salary for their work and use dividends to distribute additional profits, taking into account pension contributions, social security, and marginal tax rates.

Tax planning differences and flexibility

The choice between a sole proprietorship and a limited company has a direct impact on how much flexibility you have in planning your tax burden:

For businesses with stable, modest profits that are largely withdrawn for living expenses, the tax difference between a sole proprietorship and an ApS may be limited. For businesses with higher or fluctuating profits, or where significant reinvestment is planned, the company structure often provides more efficient tax planning options.

Social contributions and mandatory withholdings

In Denmark, there are no separate social security contributions comparable to many other countries. Instead, most welfare benefits are financed through general taxation. However, there are still important differences between the two structures:

Dividends are not subject to AM-bidrag or ATP, but they also do not build up employment-based benefits. This is another factor to consider when deciding on the mix of salary and dividends from a company.

Advance payments, reporting and deadlines

Sole proprietors report their business income through the annual personal tax return (årsopgørelse / udvidet selvangivelse). They usually pay tax on account during the year based on expected income, with the possibility to adjust voluntary on-account payments to reduce interest and surcharges.

Limited liability companies must file a corporate tax return each income year and pay corporate tax in two on-account instalments, with a possible third voluntary instalment. Dividends are subject to withholding tax when paid out, which the company must report and pay to the Danish tax authorities.

Understanding these taxation differences between personal income tax for sole proprietors and corporate plus dividend taxation for limited liability companies is crucial when choosing the right business form in Denmark. The optimal structure depends on your expected profit level, reinvestment needs, personal income situation and long-term plans for the business.

Social security, ATP and pension implications for company owners and sole proprietors

Social security, ATP and pension obligations in Denmark are structured differently for owners of limited liability companies (typically ApS) and for sole proprietors. Understanding these differences is crucial, because they affect your total tax burden, net income and long‑term retirement savings.

Public social security and health coverage

Both company owners and sole proprietors who are tax residents in Denmark are covered by the general Danish welfare system. This includes access to public healthcare, unemployment benefits (if you are a member of an a‑kasse and meet the conditions), maternity and paternity benefits, and other social benefits.

There is no separate “social security contribution” comparable to many other countries. Instead, social protection is financed mainly through income tax and certain labour‑market contributions. The key element is the labour market contribution (AM‑bidrag) of 8%, which is paid on almost all types of earned income:

In both cases, paying AM‑bidrag is mandatory and is a prerequisite for accruing certain social rights linked to the Danish labour market.

ATP – Danish Labour Market Supplementary Pension

The ATP (Arbejdsmarkedets Tillægspension) is a mandatory supplementary pension scheme for employees in Denmark. Contributions are relatively modest but provide a lifelong, state‑administered pension on top of the public old‑age pension.

ATP for owners of a limited liability company (ApS)

If you own an ApS and pay yourself a salary through payroll, you are generally treated as an employee of your own company for ATP purposes, provided the employment relationship is genuine and reported correctly to the authorities. In that case:

If you only receive dividends from the ApS and no salary, you are not considered an employee and no ATP contributions are paid. This can reduce your current costs, but it also means you do not build up ATP rights on that income.

ATP for sole proprietors

Sole proprietors are not employees and therefore do not pay ATP contributions on their business profit as such. However, there are two important exceptions:

The absence of ATP contributions on self‑employed income means that sole proprietors need to pay particular attention to building sufficient private pension savings.

Occupational and private pension schemes

In Denmark, a large part of retirement savings is built through occupational pension schemes agreed in collective agreements or individual employment contracts. How you participate depends strongly on whether you operate as a company owner drawing a salary or as a sole proprietor.

Pension for ApS owners receiving salary

If you are employed by your own ApS, you can set up an occupational pension scheme in which the company pays contributions on top of your salary. In practice, you have two main options:

Typical arrangements involve the company paying a fixed percentage of your gross salary into the pension scheme (for example 10–15%), sometimes with an additional employee contribution. For tax purposes:

This structure can be tax‑efficient, especially if your marginal tax rate when working is higher than the expected tax rate in retirement.

Pension for sole proprietors

Sole proprietors do not have an employer to fund an occupational pension, so they must arrange pension savings privately. The main options are:

Contributions to tax‑deductible pension schemes are usually deducted in your personal tax return and reduce your taxable income from the sole proprietorship. However, they do not reduce the 8% AM‑bidrag base, which is calculated before pension deductions.

Because there is no automatic employer contribution, sole proprietors often need to contribute a higher share of their income to pension savings to reach the same pension level as employees with occupational schemes.

Disability, survivors’ benefits and insurance aspects

Both company owners and sole proprietors are covered by basic public benefits in case of illness, disability or death, provided they meet the general conditions (for example previous income, residence, and membership of an unemployment fund where relevant). However, the level of public benefits is often not sufficient to maintain the same standard of living.

Occupational pension schemes for employees typically include additional insurance components such as disability coverage and survivors’ pensions. As an ApS owner with an employee‑like pension scheme, you can usually include similar coverage. Sole proprietors must actively purchase such coverage through private pension or insurance products if they want comparable protection.

Practical implications when choosing a business form

From a social security and pension perspective, the choice between an ApS and a sole proprietorship has several practical consequences:

When comparing business forms, it is therefore not enough to look only at corporate and personal tax rates. The value of ATP, occupational pension contributions and associated insurance coverage should be included in the calculation, as they can significantly affect your long‑term financial security.

Liability and risk exposure: protection of personal assets in practice

In Denmark, the choice between a limited liability company (typically an ApS) and a sole proprietorship has a direct impact on how well your personal assets are protected against business risks. Understanding where the liability “stops” in each structure is crucial before you sign contracts, take loans or hire employees.

Limited liability in ApS: what it really means

A Danish private limited company (ApS) is a separate legal entity. In principle, the company is liable for its own obligations, and the owners (shareholders) only risk losing the capital they have contributed, for example the minimum share capital of DKK 40,000.

This limited liability protection generally covers:

However, limited liability is not absolute. In practice, Danish banks and landlords often require personal guarantees from owners of small ApS companies, especially in the first years of activity. If you sign such a guarantee, your personal assets can be targeted up to the guaranteed amount, even though you operate through an ApS.

When ApS owners can become personally liable

Under Danish law, shareholders and directors can in some situations become personally liable despite the limited liability shield. Typical examples include:

For owner-managers, it is therefore essential to separate private and company finances, document decisions and ensure that the company is always able to meet its obligations as they fall due.

Sole proprietorship: full personal liability

A sole proprietorship (enkeltmandsvirksomhed) is not a separate legal entity. Legally, there is no distinction between the business and the owner. All assets and liabilities belong to you personally, and all profits are taxed as your personal income.

This means that:

In practice, this exposes your entire personal wealth to business risks, including long-term contracts, disputes with customers and unexpected tax or VAT adjustments.

Protection of personal assets in practice

Regardless of the chosen structure, there are practical steps you can take in Denmark to protect your private finances:

How creditors and banks view each structure

From a creditor’s perspective, a sole proprietorship is often seen as less risky because the owner is personally liable with all assets. For this reason, banks may be more willing to offer small overdrafts or credit lines to sole proprietors without complex documentation.

For an ApS, creditors know that the company’s liability is limited to its assets. As a result, Danish banks and leasing companies often require:

In practice, this means that the theoretical liability protection of an ApS can be partly reduced by contractual guarantees, especially in the early stages of the business. Over time, as the company builds a strong balance sheet and credit history, the need for personal guarantees may decrease.

Liability in tax and VAT matters

For a sole proprietorship, the owner is always personally liable for income tax, AM-bidrag and VAT. If the business cannot pay, the Danish Tax Agency (Skattestyrelsen) can collect from the owner’s personal assets.

In an ApS, the company is primarily liable for corporate tax and VAT. However, in cases of deliberate or grossly negligent non-compliance, the Danish authorities can hold the responsible individuals (typically directors) personally liable, and in serious cases impose fines or criminal sanctions. Examples include:

Proper bookkeeping, timely filing of tax and VAT returns and professional accounting support are therefore key elements of risk management in both structures.

Choosing structure based on risk profile

When deciding between an ApS and a sole proprietorship in Denmark, it is useful to assess your business risk profile:

In many cases, entrepreneurs start as sole proprietors and later convert to an ApS once turnover, contractual obligations and risk exposure increase. The conversion can be done in a tax-neutral way if specific conditions in Danish tax law are met.

Ultimately, liability and protection of personal assets are not determined only by the legal form, but also by how you manage contracts, guarantees, taxes and bookkeeping in practice. A well-structured ApS with clear separation between private and business finances, combined with professional accounting and legal advice, usually provides the strongest overall protection in the Danish environment.

Accounting, bookkeeping and audit obligations for each business form

Accounting and bookkeeping obligations in Denmark differ significantly between limited liability companies (ApS and A/S) and sole proprietorships (enkeltmandsvirksomhed). The level of formality, documentation and reporting increases with the size of the business and the degree of limited liability.

Bookkeeping obligations for all business forms

All Danish businesses, regardless of legal form, must comply with the Danish Bookkeeping Act. This means you must:

From a practical perspective, this usually means using an approved digital accounting system, especially if you issue many invoices or are VAT-registered.

Accounting and annual report for ApS and A/S

Limited liability companies (ApS and A/S) are subject to the Danish Financial Statements Act. They must prepare an annual report in a prescribed format and file it with the Danish Business Authority (Erhvervsstyrelsen) every year.

Key obligations for ApS and A/S include:

Most small ApS companies fall into accounting class B. They can use simplified reporting rules, but they still need a formal annual report and must comply with recognition and measurement rules under the Financial Statements Act.

Accounting for sole proprietorships

Sole proprietorships are not automatically covered by the Financial Statements Act. In most cases, the owner does not have to file an annual report with the Danish Business Authority. Instead, the owner reports business results through the personal tax return (oplysningsskema) and the business tax scheme used (for example, the business tax scheme or capital return scheme).

However, the bookkeeping requirements are still strict. A sole proprietor must:

Larger sole proprietorships may voluntarily prepare an annual report, for example to satisfy bank requirements or to improve transparency towards partners. If the business reaches certain size thresholds and is required to register as a limited liability company, the more extensive accounting rules will then apply.

Audit requirements and exemptions

Whether a company needs a statutory audit depends mainly on its size. Sole proprietorships are not subject to statutory audit, but limited liability companies may be.

Small ApS companies can opt out of audit if they stay below at least two of the following thresholds for two consecutive financial years:

If a company exceeds these thresholds, it must normally have its annual report audited by a state-authorised or registered public accountant. The audit requirement also applies from the start to certain regulated industries and to larger companies in higher accounting classes.

Even if an ApS is exempt from statutory audit, banks, investors or other stakeholders may require a review engagement or voluntary audit to gain assurance on the figures. This is rarely the case for small sole proprietorships, where the owner’s personal liability already provides some comfort to creditors.

Practical differences in ongoing compliance

In practice, a limited liability company will usually face:

A sole proprietorship typically has:

When choosing between a limited liability company and a sole proprietorship in Denmark, it is important to weigh the benefits of limited liability and professional image against the higher accounting, reporting and potential audit obligations that come with an ApS or A/S.

VAT registration, reporting and compliance differences

In Denmark, VAT (moms) rules apply in broadly the same way to limited liability companies (ApS, A/S) and sole proprietorships, but the practical impact and compliance burden can differ. Understanding when you must register, how to report, and what records to keep is essential when choosing between the two structures.

When VAT registration is mandatory

Both limited liability companies and sole proprietors must register for VAT with the Danish Business Authority (Erhvervsstyrelsen) once their taxable turnover exceeds DKK 50,000 over a 12‑month period. This threshold applies per business, not per owner, so you cannot avoid registration by splitting activities between several entities.

You can also opt for voluntary VAT registration below the threshold. This is often attractive for ApS companies and growth‑oriented sole proprietors that incur significant input VAT on start‑up costs, equipment or professional services, as it allows earlier VAT deduction.

VAT rates and scope

Denmark applies a single standard VAT rate of 25% on most goods and services, regardless of whether they are supplied by an ApS or a sole proprietorship. There are no reduced VAT rates, but some activities are VAT‑exempt, for example certain financial services, insurance, health services and education. If your main activity is VAT‑exempt, you may not be able to register for VAT or deduct input VAT, which can influence the choice of business form and pricing strategy.

Reporting frequency and deadlines

VAT reporting to the Danish Tax Agency (Skattestyrelsen) is done electronically via TastSelv Erhverv. The reporting frequency depends primarily on the size of the business, not on whether it is an ApS or a sole proprietorship:

Newly established ApS companies are often placed on quarterly or monthly reporting, especially if they expect higher turnover. Many sole proprietors start with half‑yearly or quarterly reporting and may be moved to monthly reporting as they grow.

Compliance and bookkeeping differences in practice

From a legal standpoint, VAT rules on invoicing, documentation and deadlines are the same for ApS and sole proprietorships. In practice, however, limited liability companies are more likely to be subject to stricter internal controls and, in some cases, audit requirements, which can improve VAT compliance but also increase costs.

Key VAT compliance obligations for both structures include:

For sole proprietors, the main practical challenge is often the mixing of private and business expenses. This increases the risk of incorrect VAT deductions and can trigger corrections or penalties during a tax control. In an ApS, the separation between company and owner is clearer, which usually makes VAT bookkeeping more straightforward and more acceptable to banks and investors.

VAT and cross‑border activities

Both ApS and sole proprietors must follow EU VAT rules when trading with customers and suppliers in other EU countries or outside the EU. This includes:

For businesses selling digital services or goods to consumers in other EU countries, the choice of business form does not change the underlying VAT rules, but an ApS may find it easier to manage multiple foreign VAT registrations and OSS/IOSS schemes due to more formalised accounting processes.

Penalties and risk of non‑compliance

Late VAT registration, late filing or late payment can lead to interest, surcharges and, in serious cases, fines. These sanctions apply to both ApS and sole proprietorships, but the risk profile is different:

Overall, VAT registration, reporting and compliance obligations are largely identical for limited liability companies and sole proprietorships in Denmark. The main differences lie in how easy it is to separate business and private finances, the level of internal control, and how attractive the business appears to banks, investors and partners from a compliance perspective. For many entrepreneurs, these practical aspects are just as important as the formal VAT rules when deciding which business form to choose.

Hiring employees: payroll, holiday pay and employer obligations in each structure

When you start hiring employees in Denmark, your obligations are largely the same whether you operate as a sole proprietorship (enkeltmandsvirksomhed) or a limited liability company (ApS). The main differences relate to who is considered an “employee”, how you pay yourself as the owner, and how banks and authorities view your business. In all cases, you must comply with Danish employment, tax and social security rules from the moment you hire your first employee.

Registering as an employer

Before paying any salary, the business must be registered as an employer with the Danish Tax Agency (Skattestyrelsen) via the online system (Virk/MitID). This applies equally to ApS and sole proprietorships. Once registered, you receive access to the eIncome (eIndkomst) system, where all salary information must be reported.

In a sole proprietorship, the owner is not treated as an employee and does not receive salary through payroll. Only hired staff are reported as employees. In an ApS, the owner-manager can be employed by the company and receive a salary like any other employee, with normal withholding of tax and labour market contributions.

Payroll and tax withholding

All Danish employers must calculate and withhold:

Withheld A‑tax and AM‑bidrag must be reported and paid to Skattestyrelsen, typically on a monthly basis. Reporting is done through eIndkomst, and payment deadlines depend on whether you are classified as a small, medium or large employer based on your total payroll.

Most businesses use a payroll system or an accountant to handle calculations of gross salary, AM‑bidrag, A‑tax, holiday pay, pension and other deductions. This is highly recommended both for ApS and sole proprietors, as penalties apply for late or incorrect reporting.

Holiday pay and the Danish Holiday Act

Employees in Denmark earn 2.08 days of paid holiday for each month of employment, corresponding to 25 days per year. Under the current concurrent holiday system, employees earn and take holiday in the same period.

As an employer, you must either:

Holiday pay obligations are identical for ApS and sole proprietorships. The difference is that the sole proprietor as owner does not earn statutory holiday pay from their own business, while an owner employed by an ApS can earn holiday pay like any other employee.

Employer social contributions and ATP

Denmark does not have high employer social security contributions as in many other countries, but there are several mandatory schemes with fixed or relatively low rates per employee. Key obligations include:

These contributions apply regardless of whether the employer is an ApS or a sole proprietorship. The practical administration is the same: you must register, calculate and pay the contributions on time.

Pension, benefits and collective agreements

Many employees in Denmark are covered by collective agreements (overenskomster) that set minimum standards for salary, working hours, pension and other benefits. Even if your company is not a member of an employers’ organisation, you may still be bound by an agreement if you sign one or if it is made generally applicable in your sector.

Typical obligations under collective agreements include:

These rules apply equally to ApS and sole proprietorships. However, limited liability companies are more often members of employer organisations and therefore more frequently bound by sectoral agreements, especially in larger or more regulated industries.

Employment contracts and working time rules

All employers must comply with Danish employment legislation, including the rules on employment contracts, working time, rest periods, notice periods and protection against unfair dismissal. For most employees working an average of at least 8 hours per week and employed for more than one month, you must provide a written employment contract with all key terms.

The rules on maximum weekly working hours, rest periods, overtime compensation (if agreed), parental leave and sickness absence are the same for ApS and sole proprietors. The legal status of the business does not change your obligations towards employees.

Owner’s status: employee or self‑employed

The main practical difference between ApS and a sole proprietorship concerns the status of the owner:

This can make an ApS more attractive for owners who want a clear separation between personal and business finances and access to the same employment benefits as their staff.

Administrative burden and risk of errors

From an administrative point of view, hiring employees creates a similar workload for ApS and sole proprietors. Both must:

However, banks and authorities often perceive ApS as a more “formal” employer structure, especially when you have several employees. This can influence access to business banking products, credit and public support schemes, but does not change the underlying legal obligations towards your staff.

Whether you choose a sole proprietorship or an ApS, hiring employees in Denmark requires careful compliance with payroll, holiday and employer obligations. Using a professional accountant or payroll service significantly reduces the risk of errors, penalties and disputes with employees or authorities.

Access to financing and investors: how business form affects funding options

Access to financing is one of the areas where the difference between a Danish limited liability company and a sole proprietorship becomes very visible. The legal form you choose affects how banks, investors and public institutions assess your business risk, what collateral they require and which funding instruments are realistically available.

Bank loans and credit facilities

Danish banks generally prefer to lend to limited liability companies such as an ApS rather than to sole proprietors, because the company structure provides clearer financial reporting and governance. An ApS must keep separate company accounts and a dedicated business bank account, which makes it easier for the bank to assess cash flow, profitability and risk.

In practice, however, especially for small and newly established ApS companies, banks often require personal guarantees from the owner or managing director. This means that even though the company has limited liability, the bank may still secure the loan against your private assets. Over time, as the ApS builds a solid credit history and equity, it becomes easier to negotiate better terms and reduce personal guarantees.

Sole proprietors can also obtain business loans and overdraft facilities, but the bank always assesses the owner and the business as one and the same legal person. The credit decision is based on your personal income, assets, existing private loans and overall household economy. This can be an advantage if you have strong personal finances, but a disadvantage if your private borrowing capacity is already used or if you want to separate business risk from your personal life.

Equity financing and external investors

For equity investors, the choice of legal form is crucial. Professional investors in Denmark, such as venture capital funds, business angels and corporate investors, almost exclusively invest in limited liability companies. An ApS can issue shares, create different share classes and formalise ownership through a cap table and shareholders’ agreement, which is the standard framework investors expect.

Sole proprietorships cannot issue shares and cannot have co-owners in the legal sense. Any “investment” in a sole proprietorship is effectively a loan to the owner or a profit-sharing agreement without real ownership rights in the business. This makes it very difficult to attract serious equity investors and significantly limits growth potential if you plan to scale with external capital.

Even for smaller, informal investments from friends and family, an ApS offers clearer protection and structure. Investors can receive a defined percentage of shares, dividend rights and voting rights, while their liability is limited to the amount invested. In a sole proprietorship, such arrangements are much harder to document and enforce, and may create tax and legal uncertainties.

Public funding, guarantees and innovation schemes

Denmark offers various public support schemes, guarantees and innovation grants that can improve access to financing. Many of these instruments are open both to ApS companies and to sole proprietors, but the practical access and the amounts available can differ.

Innovation and growth programmes, including those co-financed by the EU or administered through Danish business promotion agencies, often favour companies with a clear corporate structure, scalable business model and the ability to bring in additional investors. An ApS is typically better positioned to meet these criteria and to co-finance projects through equity or convertible instruments.

Guarantee schemes that reduce bank risk may also be easier to obtain for limited liability companies with proper governance and accounting routines. While sole proprietors can still apply, the assessment is again closely tied to the owner’s personal finances, which can limit the size of the guarantee or loan.

Supplier credit and leasing

Access to supplier credit, leasing of equipment and long-term rental agreements is also influenced by your business form. Leasing companies and larger suppliers usually prefer dealing with an ApS, because it signals a more formal and stable business setup. They may still ask for a personal guarantee, but the contractual relationship is with the company, not directly with you as a private person.

Sole proprietors can obtain leasing and trade credit as well, but the contracts are often based on personal creditworthiness. This can blur the line between business and private obligations and may reduce your flexibility if you later want to separate your personal and business finances.

Retained earnings and reinvestment

Another important financing aspect is the ability to retain profits in the business. An ApS is taxed with Danish corporate income tax at 22% on its profits. After paying this tax, the company can keep the remaining earnings as equity and reinvest them into growth, equipment, marketing or new employees without triggering additional personal tax until dividends are paid out.

In a sole proprietorship, all business profit is taxed as personal income. Depending on your total income, this can mean a combined marginal tax burden (including labour market contribution) that is significantly higher than 22%. This reduces the amount of after-tax capital available for reinvestment and can make it harder to build up substantial equity inside the business. For entrepreneurs who plan to grow and reinvest over several years, the ApS structure is often more efficient from a financing perspective.

Business valuation and exit options

From a financing and investor point of view, the possibility of a future exit is also relevant. An ApS can be valued independently of its owner, and shares can be sold partially or fully to new investors or buyers. This clear exit route makes it more attractive for investors to provide capital at earlier stages, because they can see how and when they might realise a return.

In a sole proprietorship, the business is legally inseparable from the owner. You can sell assets, customer contracts or goodwill, but not “shares” in the business. This usually results in a less transparent valuation and fewer financing options linked to future exit scenarios.

Which form is better for financing?

If you plan to run a small, low-risk business financed mainly from your own savings and modest bank facilities, a sole proprietorship can be sufficient, especially in the early years. However, if your strategy involves growth, attracting investors, applying for larger loans or participating in innovation programmes, a limited liability company such as an ApS usually offers significantly better access to financing and a more professional framework for both you and your financiers.

Administrative costs and ongoing compliance burden comparison

When comparing administrative costs and ongoing compliance obligations in Denmark, the gap between a sole proprietorship and a limited liability company (typically an ApS) is significant. The choice of business form directly affects how much time and money you will spend on bookkeeping, reporting to the Danish authorities and professional advisory services.

Fixed registration and annual fees

Registering a sole proprietorship with the Danish Business Authority (Erhvervsstyrelsen) is free when done online, and there are no mandatory annual company fees. You only need a CVR number if you carry out VAT liable activities or employ staff, and the registration itself does not generate recurring state fees.

For a private limited company (ApS), online incorporation with Erhvervsstyrelsen is subject to a state registration fee, and any later structural changes (for example capital increases, mergers or demergers) also trigger additional registration fees. While these fees are not extremely high on their own, they add to the overall cost of maintaining the company compared with a sole proprietorship.

Bookkeeping and accounting workload

Both sole proprietors and ApS companies must comply with the Danish Bookkeeping Act, including requirements for timely registration of transactions, secure storage of accounting records and use of a digital bookkeeping system that meets statutory standards. However, the practical workload differs:

Audit requirements and related costs

Most small ApS companies can opt out of statutory audit if they remain below two of the following thresholds for two consecutive financial years:

If an ApS exceeds these limits, a statutory audit becomes mandatory. Audit fees can easily become one of the largest fixed administrative costs, depending on the size and complexity of the company. Even when audit is not required, many banks and investors expect reviewed or audited financial statements, which can lead to voluntary audit or extended review engagements.

Sole proprietorships are not subject to statutory audit, regardless of turnover or number of employees. The owner may still choose to engage an accountant for quality assurance or tax optimisation, but this is voluntary and usually less formal and less costly than a full audit.

Tax reporting and interaction with authorities

A sole proprietor reports business income as personal income via the annual tax return (årsopgørelse/udvidet selvangivelse). There is no separate corporate tax return, and there are no obligations to calculate or pay corporate tax or dividend tax. This simplifies the compliance process and reduces the need for specialised tax advice.

An ApS is a separate taxable entity and must file a corporate tax return (selskabsselvangivelse) with the Danish Tax Agency (Skattestyrelsen). Corporate tax is levied at 22% on the company’s taxable profit. If the owner wishes to withdraw profits, dividends must be declared and dividend tax handled correctly. This two-level taxation structure (company and shareholder) increases the number of calculations, deadlines and forms to manage, and often leads to higher advisory costs.

VAT, payroll and other periodic filings

VAT obligations are largely the same for both forms once the business is VAT registered. However, the complexity and frequency of filings often increase with the size and structure of the business, which is more common among ApS companies:

Management, corporate governance and documentation

An ApS must maintain formal corporate governance documentation. This includes:

Failure to comply can lead to personal liability for management or compulsory dissolution of the company. Preparing and storing this documentation correctly often requires legal or accounting support.

A sole proprietorship has no formal corporate bodies, no requirement to hold general meetings and no obligation to keep minutes of decisions. The owner can make decisions informally, which significantly reduces administrative overhead.

Use of professional advisers and software

Because of the higher compliance burden, ApS owners are more likely to rely on:

These services and tools improve compliance and reduce risk but also create recurring annual costs. Sole proprietors, especially with simple business models, can often manage with a basic accounting system and limited external assistance, keeping fixed costs lower.

Overall cost and compliance comparison

In summary, a sole proprietorship in Denmark generally has:

An ApS offers limited liability and a more professional image, but at the price of:

When choosing between the two, it is important to weigh the benefits of limited liability and easier access to investors against the higher administrative costs and ongoing compliance burden that come with operating a Danish limited liability company.

Changing business form: converting a sole proprietorship into a limited liability company

Many entrepreneurs in Denmark start as sole proprietors and later decide to convert into a limited liability company, most often an ApS. The main reasons are better protection of personal assets, easier cooperation with banks and investors, and more flexible tax planning. The conversion can be done either as a tax-neutral transfer of the existing business to a company or as a regular sale of business assets to a newly formed company.

When does it make sense to convert?

Conversion from a sole proprietorship to an ApS is usually worth considering when:

Two main ways to convert in practice

In Denmark, there are two typical approaches to changing from a sole proprietorship to a limited liability company:

  1. Tax-neutral contribution of the business (skattefri virksomhedsomdannelse)
  2. Ordinary sale of assets to a new company (skattepligtig omdannelse)

The tax-neutral method is usually preferred if the business has built up significant value, goodwill or assets, because it avoids immediate taxation of hidden gains. The taxable method can be relevant for very small or new businesses where hidden gains are limited.

Tax-neutral conversion (skattefri virksomhedsomdannelse)

A tax-neutral conversion allows you to transfer your entire sole proprietorship to an ApS without triggering immediate income tax on hidden gains, provided specific conditions in the Danish Tax Assessment Act are met. Key conditions include:

In a tax-neutral conversion, the company takes over the tax values of the assets and liabilities from the sole proprietorship. This means that depreciation bases, tax losses carried forward and other tax positions are continued in the company. You do not pay tax at the time of conversion; taxation is postponed until you later sell the shares or the company sells the assets.

Taxable conversion (sale of business assets)

In a taxable conversion, you first establish a new ApS and then sell the assets and liabilities of your sole proprietorship to the company at market value. This is treated as if you had sold the business to an independent third party. The consequences are:

This method can be simpler from a legal and administrative perspective, but it may result in a significant immediate tax bill if your business has increased in value.

Step-by-step: practical process of converting to an ApS

The practical steps are similar for both methods, but the tax-neutral route requires more documentation and planning.

  1. Initial assessment and planning

    Start with an analysis of your current business: assets, debts, contracts, employees, VAT position and expected future profits. Based on this, you decide whether a tax-neutral or taxable conversion is more advantageous. At this stage, it is important to check whether you use the Danish business scheme (virksomhedsordningen) and how this affects the conversion.

  2. Valuation of the business

    You need a realistic valuation of the business, including tangible assets, receivables, inventory and possible goodwill. For a tax-neutral conversion, the valuation must comply with tax rules; for a taxable conversion, it must reflect market value, as this will be the basis for taxation and for the company’s tax values.

  3. Establishing the ApS

    You register the new ApS with the Danish Business Authority (Erhvervsstyrelsen). The minimum share capital is DKK 40,000, which can be contributed in cash or, in some cases, as a contribution in kind (apportindskud) consisting of the business assets. In an in-kind contribution, you normally need a valuation statement from an accountant or auditor describing the assets transferred and confirming that their value at least matches the share capital.

  4. Transfer of assets, liabilities and contracts

    All business assets and liabilities are transferred from you personally to the company. This includes bank accounts, inventory, equipment, receivables, payables, leases and other contracts. In many cases, you must obtain consent from banks, landlords and key customers to transfer agreements to the company. For a tax-neutral conversion, the transfer must be comprehensive and follow the specific rules for continuity of tax values.

  5. Registration changes and notifications

    You must update registrations with Erhvervsstyrelsen and the Danish Tax Agency (Skattestyrelsen). The ApS must be registered for VAT, payroll tax and as an employer if you have employees. The sole proprietorship is then deregistered for VAT and as an employer once all activities have been transferred and final settlements have been made.

  6. Accounting and closing of the sole proprietorship

    You prepare final accounts for the sole proprietorship up to the conversion date. After that date, all income and expenses belong to the company. For the ApS, you start a new financial year and keep separate accounts according to the Danish Financial Statements Act. From now on, you must file annual financial statements for the company with Erhvervsstyrelsen and corporate tax returns with Skattestyrelsen.

Tax and social security after conversion

After the conversion, your income structure changes. Instead of being taxed as a sole proprietor on the full business profit, you are now taxed on:

You are no longer automatically covered as a self-employed person; instead, you are an employee of your own company and may need to adjust your ATP contributions, pension schemes and insurance coverage accordingly. It is important to review your social security, unemployment insurance (A-kasse) and pension arrangements when changing business form.

Typical pitfalls and how to avoid them

Common issues when converting a sole proprietorship into an ApS in Denmark include:

Thorough planning, clear separation of personal and company finances and proper documentation are crucial. Professional assistance from an accountant familiar with Danish conversion rules significantly reduces the risk of costly mistakes.

Strategic benefits of converting

Once the conversion is completed, you benefit from limited liability, more flexible profit distribution and a more professional structure. You can retain profits in the company at 22% corporate tax and decide later whether to pay them out as salary or dividends, depending on your overall tax situation. This often provides better long-term tax planning options compared to continuing as a sole proprietor.

Impact on business image, credibility and cooperation with Danish partners and banks

In Denmark, the legal form you choose – a limited liability company (typically an ApS) or a sole proprietorship (enkeltmandsvirksomhed) – has a clear impact on how your business is perceived by Danish customers, suppliers, banks and potential partners. Beyond tax and liability, the business form sends a signal about professionalism, financial stability and long‑term commitment.

Perceived professionalism and seriousness

Doing business as an ApS generally gives a stronger impression of professionalism than operating as a sole proprietorship. An ApS must have a minimum share capital of DKK 40,000, be registered with the Danish Business Authority (Erhvervsstyrelsen) and comply with the Danish Companies Act. This framework signals that the owners have committed capital and are subject to stricter rules on accounting, management and corporate governance.

A sole proprietorship is quicker and cheaper to start, but is often seen as more informal and closely tied to the individual owner. For many Danish B2B customers, especially larger companies and public institutions, a limited liability company appears more reliable, scalable and easier to cooperate with in the long term. For freelancers, consultants and very small local businesses, a sole proprietorship can still be fully acceptable, but for contracts with higher value or risk, an ApS is frequently preferred.

Trust and risk perception among Danish partners

Business partners in Denmark typically assess risk based on both financial figures and legal structure. With an ApS, the liability is limited to the company’s capital, and there are clearer rules on management responsibility, annual reports and disclosure. This makes it easier for partners to evaluate your company’s financial health and risk profile using public records from the Danish Business Authority and the Danish Business Register (CVR).

In a sole proprietorship, the owner is personally liable for all obligations. While this can be seen as a strong personal commitment, it also means that the business is more vulnerable to the owner’s private financial situation. Danish partners may worry about continuity if the owner becomes ill, retires or faces personal financial problems, because there is no legal separation between private and business assets.

Cooperation with Danish banks

Danish banks generally treat ApS and sole proprietorships differently when assessing creditworthiness, granting loans and offering business banking products. An ApS is often viewed as a more structured and transparent entity, especially when it submits annual financial statements to the Danish Business Authority. Banks can analyse equity, solvency ratios, liquidity and earnings over time, which can improve your chances of obtaining:

For a sole proprietorship, banks focus heavily on the owner’s personal income, assets, private debt and credit history. Business and private finances are closely linked, and the bank may require personal guarantees even for relatively small credit lines. Interest margins can be higher, and the available credit limit may be lower than for a well‑capitalised ApS with solid financial statements.

Regardless of the form, Danish banks expect proper bookkeeping, timely tax and VAT payments and clear documentation of income and expenses. However, an ApS that follows formal accounting standards and presents audited or reviewed financial statements (where required) often finds it easier to negotiate better terms and higher credit limits.

Access to corporate banking services and payment solutions

Many Danish banks and payment providers offer more advanced solutions to limited liability companies than to sole proprietors. An ApS is more likely to be approved for:

Sole proprietors can also access business accounts and payment terminals, but providers may impose stricter turnover requirements, personal guarantees or additional documentation. When operating in sectors with higher chargeback or fraud risk, payment acquirers often prefer dealing with limited liability companies, as they consider them more stable and easier to assess.

Image towards customers and suppliers

In many Danish industries, customers and suppliers pay attention to whether they are contracting with an ApS or a sole proprietorship. An ApS can strengthen your brand when:

Suppliers may be more willing to offer trade credit and longer payment terms to an ApS with a solid balance sheet than to a sole proprietorship, where the risk is tied to one person. For international partners, the ApS form is also easier to understand and compare with similar limited liability structures in their own countries.

Attracting investors and strategic partners

Equity investors, business angels and venture funds in Denmark almost exclusively invest in limited liability companies. An ApS allows for the issuance of shares, different share classes, shareholder agreements and clear rules on ownership transfer. This makes it possible to bring in new investors, co‑founders or strategic partners without changing the basic structure of the business.

A sole proprietorship cannot issue shares and is legally inseparable from its owner. Any investor would effectively have to become a co‑owner of the entire business and share personal liability, which is rarely acceptable. As a result, if you plan to seek external capital or build a scalable company with multiple owners, starting or converting to an ApS is almost always necessary to be taken seriously by Danish investors.

Long‑term credibility and continuity

Danish partners value continuity and predictability. An ApS is a separate legal entity that can continue operating even if the original owner sells shares, retires or passes away. This continuity can be important for long‑term contracts, service agreements and maintenance obligations. It reassures partners that the business will not automatically cease if something happens to the founder.

In a sole proprietorship, the business is legally tied to the individual. Succession, sale or transfer of activities is possible, but more complex and less transparent. For long‑term collaborations, especially in regulated or capital‑intensive sectors, this can weaken the perceived stability of the business compared to an ApS.

When a sole proprietorship is sufficient for image purposes

Despite the advantages of an ApS, a sole proprietorship can still be fully adequate in many situations. For local service providers, freelancers, small online businesses or early‑stage entrepreneurs with low risk and modest turnover, Danish customers often focus more on personal recommendations, price and service quality than on legal form.

If you maintain professional invoicing, clear contracts, proper insurance and transparent communication, a sole proprietorship can build a strong reputation. However, as soon as you target larger corporate clients, public sector contracts or external financing, the limited liability company form usually becomes an important factor in how credible and trustworthy your business appears in the Danish market.

Exit strategies: selling the business, succession and closing down in each structure

Exit planning should be considered already when choosing between a Danish limited liability company and a sole proprietorship. The legal form determines how easily you can sell the business, transfer it to family members or partners, and how complex and costly it is to close everything down in compliance with Danish rules.

Selling a limited liability company (ApS / A/S)

In a Danish limited liability company, the most common exit is a share deal. The buyer acquires the shares in the ApS or A/S, while contracts, employees, assets and liabilities remain in the company. This is usually simpler for customers and suppliers, because the legal entity does not change.

From the seller’s perspective, the key tax point is that gains on shares held as a private individual are taxed as share income. In Denmark, share income is taxed at 27% up to a certain annual threshold and 42% above that threshold (the threshold is adjusted regularly). If the shares are held through a holding company, it may be possible to sell the operating company tax‑exempt under the Danish participation exemption rules, provided ownership and holding‑period conditions are met.

Before selling, the company should have up‑to‑date financial statements, clear documentation of assets and liabilities, and properly maintained corporate records. Buyers often require a vendor due diligence, including review of VAT compliance, payroll taxes (A‑skat, AM‑bidrag), ATP contributions and pension agreements, as well as confirmation that there are no outstanding liabilities to Skattestyrelsen or Erhvervsstyrelsen.

In some cases, a buyer may prefer an asset deal, where specific assets, contracts and employees are transferred out of the company. This can trigger corporate tax on hidden reserves in the company and may also have VAT implications, unless the transfer qualifies as a transfer of a going concern (virksomhedsoverdragelse) and is therefore outside the scope of VAT. The choice between share deal and asset deal should always be evaluated together with a Danish tax adviser.

Selling a sole proprietorship

A Danish sole proprietorship (enkeltmandsvirksomhed) is not a separate legal entity, so you cannot sell “shares”. Instead, you sell the business assets and goodwill directly as a private person. This includes inventory, equipment, customer contracts, intellectual property and the business name, if transferable.

The profit on the sale is taxed as personal income. Gains on depreciable assets are included in your taxable income, while any goodwill is typically treated as business income. Depending on your overall income, this can be taxed at marginal rates that can exceed 50% when labour market contribution (AM‑bidrag) and top‑tax are included. If you use the Danish business tax scheme (virksomhedsordningen), the sale must be handled carefully to avoid unintended taxation of previously retained profits.

Because the business and the owner are legally the same, the buyer will usually not take over your existing liabilities. Instead, you remain personally responsible for any debts and obligations that are not explicitly transferred and settled. For this reason, it is important to prepare a detailed transfer agreement, settle outstanding supplier balances, and clarify responsibility for warranties and ongoing contracts.

Succession and generational transfer

For owners planning to transfer the business to children or other successors, a limited liability company is usually more flexible than a sole proprietorship. In an ApS or A/S, you can gradually transfer ownership by gifting or selling shares, for example by issuing new shares to the next generation or by transferring existing shares at a discounted value, subject to Danish gift and inheritance tax rules.

Denmark allows certain reliefs for business succession, but the conditions are strict and the valuation of the company is crucial. If the transfer is structured incorrectly, the successor may face significant gift or inheritance tax, and the seller may trigger capital gains tax on the shares. A well‑planned structure, often involving a holding company and shareholder agreements, can make it easier to separate ownership, management and voting rights, and to protect the company’s continuity.

In a sole proprietorship, succession is more complicated because the business is tied directly to the owner. To transfer the business, you must transfer the individual assets and contracts, and the successor starts a new business in their own name. This can lead to immediate taxation of hidden reserves and goodwill for the current owner. In practice, many entrepreneurs convert the sole proprietorship into an ApS before a planned generational transfer to simplify the process and improve tax efficiency.

Closing down a limited liability company

When you decide to stop operating a Danish ApS or A/S, you can either liquidate the company or, in some cases, use a simplified procedure if the company is solvent and has no outstanding obligations.

A voluntary liquidation (frivillig likvidation) requires a shareholders’ resolution, appointment of a liquidator and notification to the Danish Business Authority (Erhvervsstyrelsen). The company must settle all debts, including taxes, VAT, payroll obligations, ATP and pension contributions, before any remaining assets can be distributed to the shareholders. The liquidation process typically takes several months, as creditors must be given time to file claims and final tax returns and VAT reports must be submitted.

If the company has no activity, no debts and only cash or minor assets, it may be possible to close it through a simplified dissolution, but only if all shareholders agree and the company can confirm that there are no outstanding liabilities. In all cases, annual reports must be filed up to the closing date, and the company remains subject to bookkeeping and documentation requirements for a number of years after dissolution.

If the company is insolvent and cannot pay its debts, it may be placed into bankruptcy (konkurs) by the court. In that case, a trustee handles the estate, sells assets and distributes proceeds to creditors. While shareholders normally lose their investment, the limited liability structure generally protects their personal assets, unless they have provided personal guarantees or acted in a way that triggers personal liability under Danish company law.

Closing down a sole proprietorship

Closing a sole proprietorship is procedurally simpler but can have significant tax consequences. You must deregister the business with the Danish Business Authority and Skattestyrelsen, file final VAT returns, and submit a final tax return including any gains on assets and goodwill. Depreciation recapture and gains on the sale or withdrawal of business assets are taxed as personal income.

Because the business and the owner are the same legal person, there is no formal liquidation. However, you remain personally liable for all business debts, including bank loans, supplier balances, tax arrears and lease obligations. These must be settled or re‑negotiated with creditors. It is important to keep accounting records and documentation for the statutory retention period, as Skattestyrelsen can still audit previous years after the business has been closed.

Choosing between a limited liability company and a sole proprietorship in Denmark therefore has long‑term consequences for your exit options. A company structure usually offers more flexibility for selling, succession and risk management, while a sole proprietorship is easier to start and operate but can be less favourable when you want to transfer or close the business. Careful planning with a Danish accountant or tax adviser can significantly reduce the overall tax burden and administrative complexity of your eventual exit.

Deciding between sole proprietorship and a limited liability company

The simplest type of company to establish in Denmark is a sole proprietorship, which is easy to set up and can be registered for free in just a few days. With no equity requirements or bank deposit obligations, a sole proprietorship is a good option if you don't have much money and aren't responsible for too many aspects of the business. Another advantage is that any start-up deficit can be used as a tax deduction for personal income, which can lead to tax refunds in the first year of business. However, the main disadvantage of a sole proprietorship is that the owner is personally liable for any legal or financial issues that may arise, potentially leading to loss of personal assets in extreme situations.

As the business grows and more employees are added, the risks associated with a sole proprietorship may increase, and liability for wages and potential legal issues may become more complex. In such cases, a private limited company in Denmark may be a better option, with the deficit contained within the company and personal assets protected. However, limited liability companies require an initial equity investment and may involve more complex legal and financial requirements.

When deciding between a sole proprietorship and a limited liability company, it's essential to consider the nature of the business and the potential liabilities involved. Writing contracts that limit liability may be an effective strategy, and consulting with a lawyer can help ensure legal compliance and competitiveness. Ultimately, if a business involves significant liability or high risk, a limited liability company may be the better option, while a sole proprietorship is a good choice for businesses with minimal liability and low start-up costs.

Carrying out serious administrative procedures requires caution – mistakes can have legal consequences, including financial penalties. Consulting a specialist can save money and unnecessary stress.

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