Capital increase in an ApS: step by step

What is a capital increase, and when is it relevant?

A capital increase is when an ApS or A/S raises its share capital, typically by existing owners contributing more capital, or by new investors subscribing for shares in the company.

There are many reasons to increase the capital:

• Growth financing: the company needs capital to hire, invest or expand
• Admitting a new investor or co-owner: an external party wants to acquire a stake in the company
• Consolidation: the company's equity is under pressure, and the owners contribute capital to put it right
• Mergers and acquisitions: a company issues new shares as payment in an acquisition
• Avoiding a capital loss: companies that lose more than half of their capital must address the financial situation

The legal requirements for a capital increase in an ApS

The rules on capital increases in an ApS are set out in the Companies Act (chapter 10). The most important requirements:

General meeting resolution

A capital increase requires, as a rule, a resolution at the general meeting with a majority of at least two-thirds of both the votes and the capital, unless the articles of association impose stricter requirements.

The resolution must contain:

• The amount by which the capital is increased
• The subscription price (which may be at a premium)
• Whether existing owners have pre-emption rights (the right to subscribe proportionally)
• The deadline for subscription and payment

Exception: The board can be authorised to carry out a capital increase without a new general meeting resolution, if the authorisation is set out in the articles of association. This is particularly practical for repeated capital rounds.

Subscription and payment

New shares are subscribed by the subscriber signing a subscription document and paying in the capital contribution. Payment must be made to the company's account, and shares cannot be subscribed against payment in kind without a special valuation report.

Minimum requirement: the company's share capital must be at least DKK 20,000 (the requirement in the Companies Act for ApS companies).

Amendment of the articles of association

A capital increase requires an amendment of the articles of association, since they must reflect the new share capital. The articles must be updated and notified to the Danish Business Authority.

Notification to the Danish Business Authority

The capital increase must be notified via virk.dk, no later than 2 weeks after the general meeting resolution. You must submit:

• The general meeting minutes with the resolution
• Updated articles of association
• Documentation of the capital paid in (a bank statement)
• Any valuation report for a contribution in kind

Step by step: a capital increase in an ApS

Step 1: prepare and assess the need

Ask yourself:

• How much capital does the company need?
• Should existing owners be able to subscribe proportionally (pre-emption)?
• Is the pre-emption right set aside to allow a new investor in?
• At what price are the new shares subscribed?

Involve your auditor in the calculations, especially regarding the company's current equity and the future valuation.

Step 2: update the shareholders' agreement

If a new owner comes in, or the owners' mutual shares change, the shareholders' agreement must be updated. It governs the owners' mutual relationship: pre-emption, voting rights, dividends and so on.

Do not skip this step. A new owner not covered by the shareholders' agreement creates an undefined situation and potential conflict.

Step 3: convene the general meeting

Send a notice to all shareholders with the correct notice period. Under the Companies Act the notice must, as a rule, be given no earlier than 4 weeks and no later than 2 weeks before the general meeting, unless the articles set a longer period. Because a capital increase requires an amendment of the articles, it is important to observe the notice period, otherwise the resolution can be invalid. If all shareholders agree, however, they can waive the notice and hold a universal meeting. The agenda must clearly state that a capital increase is an item.

Step 4: hold the general meeting and pass the resolution

At the general meeting the capital increase is voted on. The resolution is minuted. The minutes are signed by the chair.

Important: The minutes are a legal document and must be kept by the company. It is one of the documents the auditor will ask for.

Step 5: subscription and payment

New shareholders sign the subscription document and pay in the capital. Existing shareholders can subscribe for extra shares if they have pre-emption rights.

Payment is made to the company's account. Keep the bank receipt; it is documentation for the Danish Business Authority.

Step 6: update the articles and notify

The articles are updated with the new capital and the new ownership (if relevant). Notify the change via virk.dk. Remember to update the register of owners.

Step 7: update the ownership register

All owners who own 5% or more of the capital or the votes must be registered in the Public Ownership Register. Update it via virk.dk.

Capital loss and loss-making companies

What do you do if the company's equity has fallen markedly? The Companies Act requires management to consider whether the company's capital base is sound.

If equity falls to less than half of the share capital, management is obliged to:

1. Ensure that a general meeting is held no later than 6 months after the capital loss was established
2. Account for the company's financial position and propose the necessary measures, including a possible capital increase
3. Consider dissolution if the situation cannot be remedied

Failure to act here can result in management liability.

Tax considerations

A capital increase is, as a rule, tax-neutral; you contribute money to the company. But there are important exceptions:

Subscription below value

If a new owner subscribes for shares at a price below market value, it can be regarded as a taxable benefit for the recipient.

A gift contribution from an owner

If, as an owner, you contribute capital without receiving shares of full equivalent value, it can be regarded as a gift contribution. That can have tax consequences for you.

Contribution in kind

If you pay for the shares with something other than cash, for example a property, an IP right or a business, a valuation report is required, and the transfer is complex for tax purposes. Your auditor should be involved.

The auditor's role in a capital increase

The auditor is central in a capital increase, especially for:

• Assessing the company's current capital base: is an increase necessary?
• Assisting with the valuation report for a contribution in kind
• Reviewing the subscription documentation for correctness
• Confirming the capital paid in to the Danish Business Authority

Many SMEs carry out capital increases with the auditor's assistance and thereby avoid errors that can delay the registration.

Documents you will need

Here are the documents typically needed in a capital increase:

Document	Purpose
General meeting minutes	Documents the resolution
Subscription document	The subscriber's legal obligation
Updated articles of association	Reflect the new capital
Shareholders' agreement (updated)	Governs the new ownership structure
Bank documentation	Proof of payment
Valuation report	Required for a contribution in kind

Convertible loans: an alternative to a capital increase

Before you carry out a formal capital increase, it can make sense to consider a convertible loan (convertible note). It is a loan that converts to shares under certain conditions, typically at a future capital round or at a set time.

Advantages of a convertible loan:

• Faster to set up; no requirement for a general meeting and registration of new capital right away
• Useful in an early phase where it is hard to set a precise valuation
• The investor lends now and receives shares at a favourable price later (a discount)

Disadvantages:

• A more complex agreement structure requires careful drafting
• Interest accrues while the loan is not converted
• The conversion terms can give rise to disputes

Convertible loans are typically used by startups and growth companies. For a classic SME capital increase from existing owners, a direct capital increase is usually the simplest solution.

Investor relations and the shareholders' agreement with an external investor

When you admit an external investor via a capital increase, it is crucial to have a well-prepared shareholders' agreement in place before the money is transferred.

Typical questions to settle in the shareholders' agreement in an investor round:

Information rights: does the investor have the right to ongoing key-figure reports, quarterly updates or access to the accounts?

Control vs. shareholding: does the investor have a veto on certain decisions (large investments, appointing management, selling the company) regardless of stake? That is normal, but it must be clear.

Liquidation preference: does the investor have priority to get its contribution back before the other owners receive anything on a sale or liquidation?

Anti-dilution: is the investor's stake protected against dilution in future capital rounds at a lower price?

Exit mechanisms: drag-along (the investor can compel the other owners to sell on an attractive offer) and tag-along (the other owners can require to join a sale the investor initiates) are standard elements.

Without a well-documented shareholders' agreement that handles these questions, there is a high risk of conflict, especially if the company's development does not live up to expectations.

Frequently asked questions about a capital increase in an ApS

Can I raise the company's capital without a general meeting?

Yes, if the board is authorised to do so in the articles. The authorisation must have a ceiling (a maximum amount) and a time limit (up to 5 years at a time). Without authorisation, a general meeting resolution is required.

What is the minimum capital for an ApS?

The minimum share capital is DKK 20,000. You cannot carry out a capital reduction that brings the capital below this amount, unless the company is dissolved or converted at the same time.

Can I subscribe for shares with property instead of cash?

Yes, this is called a contribution in kind. It requires a valuation report confirming that the property's value at least matches the subscription price paid. The process is more complicated and time-consuming than a cash contribution.

What does it cost to notify a capital increase?

Notification via virk.dk is free. But you typically have to pay the auditor and possibly a lawyer to help with the documentation. The total cost of a simple capital increase depends on the extent of professional assistance.

Can foreign investors subscribe for shares in a Danish ApS?

Yes, there are no nationality restrictions on shareholders in a Danish ApS. The tax consequences for the foreign investor depend on the investor's home country and any double-taxation treaties.

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This article is informative and does not constitute legal or tax advice. Contact your auditor or lawyer for guidance on your specific situation.