The Independent Consultant's Guide to Selecting and Setting Up a Legal Entity in Denmark
Please note that this information is for informational purposes only. Umbrex strongly recommends that you consult with an attorney and tax professional to select the entity type most appropriate for your situation.
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Choosing the right business entity is a critical decision for independent consultants in Denmark. The entity chosen will affect legal liability, tax obligations, and the complexity of administrative duties. The most common entities for independent consultants are the Sole Proprietorship (Enkeltmandsvirksomhed) and the Private Limited Company (Anpartsselskab – ApS). Some consultants may also choose the Public Limited Company (Aktieselskab – A/S) if they plan to scale their business. Partnerships (Interessentskab – I/S) are less frequently used by independent consultants due to liability concerns.
Sole Proprietorship (Enkeltmandsvirksomhed)
Overview: A Sole Proprietorship is the simplest and most common form of business for independent consultants in Denmark. The business is not a separate legal entity, and the owner operates under their own name.
Legal Implications: The owner has unlimited personal liability for all business debts and obligations. There is no separation between personal and business assets.
Tax Implications: Profits from the business are taxed as personal income. Sole proprietors pay income tax and social contributions.
Suitability: Ideal for independent consultants starting out or those with minimal legal risks. It is easy to establish and requires minimal administrative effort.
Process for Setting Up a Sole Proprietorship:
- Register with the Danish Business Authority (Erhvervsstyrelsen): You must register the sole proprietorship online through the Danish Business Authority.
- Obtain a Central Business Registration (CVR) Number: This is the company’s unique identification number.
- Register for VAT (Moms): If your business generates more than DKK 50,000 in annual revenue, you must register for VAT.
- Set up a business bank account: Although not required, it’s recommended to keep business finances separate from personal finances.
- Obtain necessary permits or licenses: Depending on your consulting services, check if industry-specific licenses or permits are required.
Private Limited Company (Anpartsselskab - ApS)
Overview: A Private Limited Company (ApS) is a separate legal entity that provides limited liability protection to its owners (shareholders). It is a popular choice for independent consultants seeking to limit personal liability.
Legal Implications: The owners (shareholders) have limited liability, meaning they are only liable up to their capital contribution.
Tax Implications: An ApS is subject to corporate tax at a flat rate of 22%. Profits distributed to shareholders as dividends are taxed as personal income, which can lead to double taxation. Consultants may also register for VAT.
Suitability: Suitable for consultants who want liability protection and are planning to scale their business. It requires more administrative work than a sole proprietorship but offers greater legal protection.
Process for Setting Up an ApS:
- Choose a company name: Ensure the name is unique and complies with Danish naming rules, including “ApS” in the name.
- Deposit share capital: The minimum share capital for an ApS is DKK 40,000, which must be deposited into a business bank account before registration.
- Register with the Danish Business Authority (Erhvervsstyrelsen): Submit the Articles of Association and other required documents online. The company will receive a CVR number upon registration.
- Obtain a corporate bank account: Required to deposit share capital and manage business transactions.
- Register for VAT (Moms): If your annual turnover exceeds DKK 50,000, you must register for VAT.
- Comply with tax and financial reporting: Ensure you file annual reports and corporate tax returns as required by Danish law.
- Obtain necessary permits or licenses: Check for any industry-specific licenses that may be required for your consulting activities.
Public Limited Company (Aktieselskab - A/S)
Overview: A Public Limited Company (A/S) is a more complex corporate structure designed for larger businesses with multiple shareholders. It offers strong liability protection and can raise capital through public share offerings.
Legal Implications: Shareholders are only liable for the amount of their capital contribution. Personal assets are protected from business liabilities.
Tax Implications: An A/S is subject to corporate tax at 22%. Dividends paid to shareholders are taxed as personal income, leading to double taxation. A/S companies must also register for VAT if their revenue exceeds DKK 50,000.
Suitability: Suitable for consultants who plan to scale their business significantly or seek to raise capital. It is more prestigious than an ApS but involves higher administrative and financial reporting obligations.
Process for Setting Up an A/S:
- Choose a company name: The name must include “A/S” and meet the Danish Business Authority’s naming requirements.
- Deposit share capital: The minimum capital requirement for an A/S is DKK 400,000, of which at least 25% must be paid in at registration.
- Register with the Danish Business Authority (Erhvervsstyrelsen): Submit Articles of Association and registration documents. The company will receive a CVR number upon registration.
- Appoint a board of directors and management: An A/S must have a board of directors to oversee operations.
- Register for VAT (Moms): Register for VAT if your revenue exceeds DKK 50,000.
- Comply with corporate tax and reporting requirements: An A/S must file annual financial reports and corporate tax returns with the Danish tax authorities.
- Obtain necessary permits or licenses: Depending on your field, check if specific permits or professional licenses are needed.
General Partnership (Interessentskab - I/S)
Overview: A General Partnership (I/S) is a business structure formed by two or more partners who share responsibility for the business. It is not commonly used by independent consultants due to the unlimited liability of the partners.
Legal Implications: Partners in an I/S have unlimited personal liability for the business’s debts and obligations. Each partner’s personal assets may be used to satisfy the business’s debts.
Tax Implications: The partnership itself is not taxed. Instead, profits are passed through to the partners, who pay personal income tax on their share of the profits.
Suitability: A General Partnership is typically not recommended for independent consultants due to the lack of liability protection.
Process for Setting Up a General Partnership:
- Draft a Partnership Agreement: While not legally required, a written agreement detailing the roles and responsibilities of each partner is advisable.
- Register with the Danish Business Authority (Erhvervsstyrelsen): The partnership must be registered online.
- Obtain a CVR number: The business will be assigned a CVR number upon registration.
- Register for VAT (Moms): If the partnership’s revenue exceeds DKK 50,000, VAT registration is required.
- Obtain necessary licenses and permits: Depending on the services provided, certain permits or industry licenses may be required.
- Comply with tax obligations: Each partner reports their share of the partnership’s profits on their personal income tax return.
Limited Partnership (Kommanditselskab - K/S)
Overview: A Limited Partnership (K/S) consists of at least one general partner (with unlimited liability) and one or more limited partners (with liability limited to their investment).
Legal Implications: The general partner(s) bear unlimited liability for the partnership’s debts, while limited partners are liable only up to the amount of their capital contribution.
Tax Implications: Like a general partnership, the K/S itself is not taxed. Profits pass through to the partners, who report them as personal income.
Suitability: Rarely used by independent consultants due to the liability risk for the general partner.
Process for Setting Up a Limited Partnership:
- Draft a Partnership Agreement: It’s important to outline the roles, liabilities, and capital contributions of each partner.
- Register with the Danish Business Authority (Erhvervsstyrelsen): Submit the registration online to receive a CVR number.
- Register for VAT (Moms): If the partnership’s revenue exceeds DKK 50,000, VAT registration is mandatory.
- Obtain necessary permits and licenses: Ensure compliance with industry-specific regulatory requirements.
- Comply with tax obligations: Each partner must report their share of the partnership’s profits on their personal income tax return.
Considerations for Independent Consultants
- Liability Protection: Independent consultants who want to limit personal liability should consider forming an ApS or A/S, as both offer strong protection for personal assets.
- Administrative Complexity: Sole proprietorships are easier to establish and manage, while ApS and A/S structures require more administrative effort and financial reporting.
- Tax Efficiency: Sole proprietorships offer a simple tax structure, but an ApS or A/S may provide better long-term tax planning opportunities, especially if profits are reinvested in the company.
- Capital Requirements: The ApS has a lower capital requirement (DKK 40,000), making it more accessible for consultants compared to the A/S, which requires DKK 400,000.