The annual report: legal pitfalls to know
A guide to the annual report and the legal pitfalls SME owners most often meet: management statements, missing documentation, shareholder loans and the accountant's role.
Karoline, Dokumentkonsulent
The annual report: more than just numbers
For many SME owners the annual report is something the accountant takes care of. You sign it, and the matter is settled. But the annual report is a legal document, and your signature on the management statement means that you personally vouch that the report gives a true and fair view.
Errors in the annual report can have consequences: fines from the Danish Business Authority, claims from creditors, tax reassessments and, in serious cases, liability for damages for management.
This guide runs through the most common legal pitfalls in the annual report, and what you do to avoid them.
What is an annual report, and who must prepare one?
The annual report is a company's official annual accounts, prepared in accordance with the Danish Financial Statements Act (årsregnskabsloven, ÅRL) and filed with the Danish Business Authority.
Who is obliged:
- All ApS and A/S companies, regardless of size
- Partnerships and limited partnerships with a legal person as a participant
- Foundations and associations with commercial activity
Deadline: The annual report must be filed no later than 5 months after the end of the financial year. For a company with a financial year of 1 January to 31 December, the deadline is 31 May.
Consequences of late filing:
- Automatic fine from the Danish Business Authority
- Risk of compulsory dissolution if the annual report is missing
Pitfall 1: The management statement, you are personally liable
The management statement is the declaration that the director (and any board) signs, in which management declares that the annual report has been prepared in accordance with the law and gives a true and fair view.
In practice this means:
You are responsible for the content of the annual report being correct, even though the accountant prepared it. The accountant's report (audit, review or assistance) is the accountant's independent assessment, but it does not release you from responsibility.
What can go wrong:
- You sign without having read the report
- The accountant based their review on incorrect figures you provided
- Pending lawsuits, guarantee obligations or loss-making contracts were not disclosed
Solution: Read the annual report carefully, including the notes. Ask the accountant to go through the most important items with you. Make sure all material obligations are disclosed.
Pitfall 2: Shareholder loans
One of the most common review findings in SMEs is shareholder loans, situations where the owner (the shareholder) has borrowed money from their own company.
The rules: The Companies Act's special rules on shareholder loans (§§ 210-212) were repealed with effect from 1 January 2025. A loan from the company to the owner is therefore no longer in itself unlawful under company law. But the tax rules are unchanged, and this is where the trap lies: under the Tax Assessment Act (ligningsloven) § 16 E, a loan from the company to a majority shareholder is taxed as salary or dividend, even if the loan is repaid. The company's ordinary capital-protection rules also still apply.
The consequences:
- The amount is taxed as salary or dividend for the owner, even if it is repaid (ligningsloven § 16 E)
- A market rate of interest must be calculated on the loan
- The loan must be disclosed in the annual report
- If there is an accountant, they must comment on the loan in their report
Solution: Avoid taking money out of the company as a "loan to yourself". Because of the § 16 E taxation, it is almost always more expensive than taking the money out as salary or dividend, both of which require the correct documentation.
Pitfall 3: Missing disclosure of events after the balance sheet date
The annual report closes as at the balance sheet date (typically 31 December), but material events can occur before the annual report is signed. Subsequent events must be disclosed in the notes if they are material.
Examples of events that must be disclosed:
- A larger customer relationship that ends
- A lawsuit that has been brought
- A large order that falls away
- A planned sale of the company
Many owners overlook this. The accountant should ask about subsequent events, but it is management's responsibility to inform the accountant.
Pitfall 4: Incorrect share capital in the articles of association
The articles of association must reflect the company's actual capital position. If the company has undergone a capital increase or reduction, this must appear in the articles, and the articles must be updated and registered with the Danish Business Authority.
What the accountant sees: An annual report that shows a capital that differs from the articles is a signal that something has happened that has not been documented correctly.
Solution: Update the articles of association immediately on capital changes and make sure the registration with the Danish Business Authority has been completed.
Read our guide to articles of association.
Pitfall 5: Missing disclosure of related parties
As a rule, the annual report must disclose material transactions with related parties, that is, owners, director, board and companies with close relationships.
Typical transactions that must be disclosed:
- Sale or purchase of assets to/from the owner
- Granting of loans or receipt of loans from the owner/director
- Tenancies where the owner or family members own the property
- Consultancy agreements with owner-related companies
Many SME owners are not aware of this requirement, and only discover it when the accountant asks questions.
Pitfall 6: Errors in capitalisation and depreciation
A common review finding is errors in the capitalisation and depreciation of fixed assets:
- Costs that should have been capitalised as an asset are expensed directly
- Depreciation periods that do not correspond to the asset's expected useful life
- An asset that is fully depreciated but still in use (should be disclosed)
Consequence: Incorrect measurement of the company's assets and equity, and potentially incorrect corporation tax.
Pitfall 7: Missing general meeting minutes
The annual report must be formally approved at the ordinary general meeting, and the general meeting must be minuted. If the minutes are missing, the accountant has no documentation that the annual report was validly adopted.
The accountant is required to have access to the general meeting minutes as part of their work.
Consequence: The audit cannot be carried out without the proper documentation basis, and the annual report cannot be filed.
Read our guide to the general meeting in an ApS.
What the accountant should check, and what you can prepare
To make the accountant's work easier (and cheaper for you), you can prepare the following before the year-end close:
Legal documents the accountant will request:
| Document | What the accountant checks |
|---|---|
| Articles of association | Do they reflect the current capital and ownership? |
| Shareholders' agreement | Obligations that affect the company's finances? |
| Employment contracts | Are the salary costs correctly documented? |
| General meeting minutes | Was the annual report validly adopted? |
| Important customer contracts | Ongoing obligations and risks? |
| Loan agreements and pledges | Financial obligations |
What you can do before the audit:
- Reconcile bank account and bookkeeping
- Review the debtor list, and write off irrecoverable receivables
- Assess the inventory, and write down obsolescence
- Collect all vouchers for the whole year (no loose receipts)
- Prepare a list of events after the balance sheet date
The board's responsibility for the annual report
If the company has a board, it is the board's responsibility to ensure that management (the director) prepares an annual report that is correct.
The board signs the management statement, and is thereby liable in the same way as the director. It is not enough to say that "it is the accountant's responsibility".
Read more in our guide to the board's responsibility in an ApS.
When is an audit required, and when is it voluntary?
An audit is mandatory for companies that, in two consecutive years, exceed two of three thresholds:
- Net revenue DKK 8 million
- Balance sheet total DKK 4 million
- 12 full-time employees on average
In addition, tightened rules apply: a balance sheet total over DKK 50 million always triggers an audit requirement, and companies in certain high-risk industries with revenue over DKK 5 million must have an accountant's report.
Opting out of audit is possible for most SMEs (class B). But opting out does not replace a report, the accountant issues either an assistance report or a review report.
Tip: Even if an audit is voluntary, a review can give far more assurance than a pure assistance report, and it is cheaper than a full audit. Ask your accountant.
The annual report's deadlines, a calendar
| Event | Typical timing |
|---|---|
| The financial year ends | 31 December |
| Accountant receives the bookkeeping | January-February |
| Draft annual report ready | March-April |
| General meeting held | April-May |
| Annual report filed with the Business Authority | No later than 31 May |
FAQ: common questions about the annual report
Can I file the annual report myself without an accountant?
Yes. For companies that have opted out of audit, you can in principle file the annual report without an accountant. But you still need an accountant's assistance report (the simplest form). A completely independent filing without the accountant's report is only possible for certain smaller companies under specific conditions. Contact your accountant to clarify which type of report suits your company.
What happens if the annual report is wrong and has already been filed?
You can file a corrected annual report with the Danish Business Authority. It is not uncommon, but it costs extra and can raise questions. A timely correction is always better than ignoring the error. In serious cases, incorrect information in the annual report can lead to liability for damages.
Must all entries in the annual report have vouchers?
Yes. The Bookkeeping Act requires all transactions to be supported by vouchers. An annual report that cannot be fully documented is not compliant. The vouchers must be kept for at least 5 years.
What is the difference between an audit and a review?
An audit is the most thorough form of accountant's report: the accountant reviews and verifies the accounts in detail. A review is a lighter form, where the accountant carries out analytical reviews and inquiries, but not the full verification. An assistance report is the least intensive: the accountant helps to compile the annual report, but does not express an opinion on whether the figures are correct.
Can the company's annual report be published even if the general meeting has not been held?
No. The annual report must be approved at the ordinary general meeting before it is filed. The general meeting minutes are the documentation that the approval has taken place. If these are missing, the annual report is not formally validly adopted.
Get started with the right documents
LegalDock gives you access to the legal base documents that support a correct annual report:
Make sure these documents are up to date before the audit, it saves time and money.
Related guides:
This article is informative and does not constitute legal or accounting advice. Contact your accountant for guidance on your specific situation.
This article is for general guidance only and is not individual legal advice. LegalDock documents are templates — consult a lawyer about your specific situation.