Sole proprietorship or ApS? A decision guide

Sole proprietorship or ApS?

It is one of the most frequently asked questions from new entrepreneurs in Denmark: should I start as a sole proprietorship, or should I set up an ApS from the start?

The answer depends on your situation, your turnover, your risk exposure, your growth plans and your tax situation. This guide gives you the basis for making an informed decision.

What is a sole proprietorship?

A sole proprietorship is the simplest form of business. You run the business in your own name, and there is legally no distinction between you and the business.

Advantages:

• Free to set up (registration on virk.dk costs nothing)
• No minimum-capital requirement
• Simple administration and accounts
• Losses can be offset against your personal income
• No general meeting, board or articles of association

Disadvantages:

• Unlimited liability, you are personally and unlimitedly liable for all the business's obligations with your entire wealth
• Tax is paid as personal income (marginally up to about 56%)
• Harder to take on investors
• Transferring the business is more complicated

What is an ApS?

A private limited company (ApS) is a separate legal entity distinct from you as a person.

Advantages:

• Limited liability, you are only liable with the capital you have contributed (min. DKK 20,000)
• Corporation tax of 22% (2026), lower than the top marginal tax on personal income
• The ability to take on investors and issue shares
• A professional signal towards customers and partners
• Salary and dividend can be optimised for tax

Disadvantages:

• Requires at least DKK 20,000 in share capital on formation
• Ongoing administration costs (accounts, possibly an auditor and lawyer)
• More administration (general meeting, annual report, company registration)
• Losses in the company cannot be immediately offset against your personal income

Liability: the decisive difference

The most important difference between the two forms is liability.

In a sole proprietorship you are personally liable for the business's debt. If the business goes bankrupt with DKK 500,000 in debt, your creditors can go after your private wealth, your home, car and savings.

In an ApS you are as a rule only liable with the capital you have contributed. If the company is formed with DKK 20,000, that is normally the maximum you risk losing as a shareholder, unless you have given a personal guarantee or surety towards lenders.

Conclusion: If you run a business with significant risk of damages claims (advisory, construction, transport, production), an ApS is almost always the right business form.

Tax: when is the ApS worth it?

Tax optimisation is one of the most frequent reasons for setting up an ApS. But it is not always the right decision.

Sole proprietorship and tax

Profit in a sole proprietorship is taxed as personal income (with the option of using the business tax scheme, virksomhedsordningen). The marginal tax can reach about 56% for the highest incomes.

From 2026, the previous top-bracket tax was replaced by a new tiered structure, where, in addition to bottom-bracket and municipal tax, you pay:

• Middle-bracket tax (7.5%) on personal income after labour-market contribution over about DKK 641,000 (about DKK 697,000 before the labour-market contribution)
• Top-bracket tax (7.5%) on income over about DKK 778,000 after the labour-market contribution (about DKK 845,000 before)
• Top-top-bracket tax (5%) on income over about DKK 2,593,000 after the labour-market contribution

For the very highest incomes, the marginal tax can therefore reach around 60%.

The business tax scheme offers the option to:

• Pay a provisional business tax of 22% on retained profit
• Retain profit in the business at low provisional taxation and even out income over the years
• Deduct interest on business debt in the business's income

The business tax scheme is an effective alternative to an ApS for many self-employed people, because the retained taxation corresponds to the corporation tax.

ApS and tax

An ApS pays corporation tax of 22% on its profit. As an owner you can take money out as:

• Salary, taxed as personal income, but giving, among other things, pension rights and holiday pay
• Dividend, taxed at 27% up to the progression threshold for share income (DKK 79,400 in 2026, double for spouses) and at 42% above the threshold

Example: The company earns DKK 1,000,000 and pays 22% corporation tax = DKK 220,000 in tax. The remaining DKK 780,000 can be paid out as dividend. Up to the progression threshold, 27% is paid, above the threshold 42%.

The total effective taxation on full dividend distribution can be around 40 to 55%, but the advantage is that you can choose when you take the money out. If the profit is retained in the company, you only pay 22% and have the rest for investment and growth.

The rule of thumb for conversion

Many auditors and economists point to an ApS (or the use of the business tax scheme) when the self-employed person's profit consistently exceeds DKK 500,000 to 700,000 a year. Below this level, the extra administrative burden of an ApS is rarely worthwhile.

Investors and capital

If you want investors on board, friends and family, business angels, venture capital, an ApS is the only practical option. Investors want to own shares in a company, not a stake in your personal business.

If you plan to grow to a size that requires external capital, you should consider starting as an ApS from day one, even though it is more expensive.

From sole proprietorship to ApS: conversion

Many start as a sole proprietorship and convert to an ApS as the activity grows. The process is called business conversion (virksomhedsomdannelse) and can happen in two ways:

Taxable conversion

You sell the business's assets to the new company. Any gains are taxed. Simple, but it can trigger a tax bill now.

Tax-free business conversion

You contribute the business as an in-kind contribution to the company without triggering tax now. The tax is deferred until the time you sell the shares. It requires compliance with a number of conditions in the Business Conversion Act, always seek advice.

Other business forms

Besides sole proprietorship and ApS, there are other options:

• I/S (general partnership), two or more owners, all personally and jointly liable. Rarely used for start-ups.
• A/S (public limited company), requires min. DKK 400,000 in share capital. Relevant for a listing or large capital investments.
• IVS (entrepreneur company), abolished in 2021. Existing IVS companies had to be converted to an ApS (among other things by raising the capital).

Checklist: when should you choose an ApS?

Choose an ApS if:

• You have high risk exposure (damages claims, supply chain, large debt)
• Your expected profit exceeds DKK 500,000 a year
• You plan to take on investors
• You want to retain profit in the business for investment
• You want to signal professionalism to large customers
• You want the ability to sell the business as a company

Choose a sole proprietorship if:

• You are starting as a side project or testing a business idea
• Your turnover is low and the risk limited
• You want to minimise administration costs
• You want to offset start-up losses against personal income

Set up your ApS with LegalDock

Are you ready to set up an ApS? With LegalDock you create the formation documents, articles of association and shareholders' agreement in a short time and can complete the whole process digitally, everything you need to send the formation notification to the Danish Business Authority.

Note: The choice of business form has major tax and legal significance. Always seek advice from an auditor or tax adviser before making the final decision.