Forming a company: a guide for entrepreneurs

Why the choice of company form is decisive

Forming a company is one of the most important decisions you make as an entrepreneur. It is not only about the legal form and the paperwork, but also about liability, tax, trust and future flexibility.

If you choose wrongly, it can cost you dearly: personal liability for debt you thought was the company's, tax disadvantages, awkward changes of ownership, or being passed over by investors because your structure is too inflexible.

This guide reviews the most relevant company forms for Danish entrepreneurs, what each choice involves, and which documents you need in place from day one.

The main company forms in Denmark

Sole proprietorship

The simplest form. You register as a self-employed business, without a capital requirement and without formation costs beyond any registration fee. You and the business are legally the same.

Advantages:

• Simple and quick to set up (online at virk.dk)
• No minimum capital
• Low administrative overhead

Disadvantages:

• You are personally and unlimitedly liable for the business's debt
• Harder to bring in investors and sell shares
• Can be perceived as less professional in some B2B contexts

Suits: Solo freelancers, consultants and those testing an idea before scaling.

General partnership (I/S)

A general partnership is for two or more people who run a business together without limited liability. All partners are personally, directly and jointly and severally liable, which means one partner's debt can be recovered from the others.

A general partnership should always have a partnership deed that governs the relationship between the parties.

Suits: Small partnerships and a number of professional practices, typically professions with personal liability as a tradition.

Private limited company (ApS)

The ApS is by far Denmark's most popular company form for entrepreneurs and SMEs. It is a limited company with limited liability: you are liable only with the contributed capital and not with your private assets.

Advantages:

• Limited liability, so your personal finances are protected
• A professional signal to customers and suppliers
• Easier to bring in investors and sell shares
• Tax options, for example a holding structure

Disadvantages:

• Requires at least DKK 20,000 in share capital (can be contributed in cash or as assets)
• Requires a formation document, articles and registration
• A duty to keep accounts and file an annual report

Suits: Most entrepreneurs with ambitions for growth, employees or external financing.

Public limited company (A/S)

An A/S is like an ApS but with stricter requirements: at least DKK 400,000 in share capital and a board (or a supervisory board) plus an executive management. It is the preferred form for larger companies and those wanting to list on a stock exchange.

For most entrepreneurs in the start-up phase, the ApS is the right route, while the A/S is typically considered on growth, international expansion or a listing.

Step by step: how to form an ApS

Step 1: choose a name

Check that the name is available at virk.dk. Avoid names that can be confused with existing businesses, and check the trademark register if relevant.

Step 2: formation documents

Two documents are mandatory:

Formation document: A document stating the company's founders, the date of formation, the contributed capital and the adoption of the articles. It must be dated and signed by the founders.

Articles of association: The company's constitution. The articles describe the company's purpose, management structure, decision-making authority and the rules for general meetings.

Step 3: share capital

An ApS requires at least DKK 20,000 in share capital. It can be paid in cash or as a contribution in kind (assets). Cash capital is paid into an account in the company's name, but this requires the company to have been set up. In practice, a founders' account is used, where the capital is released on registration.

Step 4: registration at virk.dk

Forming an ApS is done digitally at virk.dk. You need:

• MitID
• The formation document and articles ready (or use virk.dk's standard articles)
• Documentation of the paid-in capital
• A choice of accounting period and any auditor

A registration fee is paid to the Business Authority for online registration. Check the current rate at virk.dk.

Step 5: CVR number and registrations

After registration, the company is given a CVR number. You must then consider registering for:

• VAT (if the VAT-liable turnover exceeds DKK 50,000 over 12 months)
• A-tax and labour-market contributions (on hiring employees)
• Employer registration (on hiring)

Which documents should you have ready from day one?

Forming a company is not only about the papers for the Business Authority. These documents are at least as important:

Owners' agreement (shareholders' agreement)

If you are two or more owners, you should have an owners' agreement. The articles govern the relationship between the company and the outside world, while the owners' agreement governs the relationship between the owners.

An owners' agreement should govern:

• Who decides what
• What happens if an owner wants out
• The right of pre-emption on a sale of shares
• What happens on the death, divorce or bankruptcy of an owner
• Lock-up periods

Without an owners' agreement, ownership conflicts almost always become expensive and complicated.

Employment contracts

If you hire employees from the start, they must have an employment certificate. The essential terms must be stated at the latest 7 calendar days after work has started, and the rest at the latest 1 month after.

Consultancy and cooperation agreements

If you use freelancers and consultants or enter into cooperation with other companies, it requires written agreements.

Confidentiality agreements (NDA)

Do you share business ideas, product plans or customer lists with potential partners, investors or suppliers? Use an NDA from the start.

Terms of trade

Do you sell products or services? Your terms of trade govern the relationship with your customers and protect you in disputes.

Holding structure: should you form a holding company?

Many accountants recommend forming a holding company in parallel with the operating company. The structure typically looks like this: you personally own a holding company (Holding ApS), which owns the shares in the operating company (Operating ApS), which handles the day-to-day business.

The advantages:

• Dividends from the operating company to the holding company are as a rule tax-free if the holding company owns at least 10% of the operating company (subsidiary dividends under section 13 of the Corporation Tax Act)
• You can accumulate profit in the holding company and reinvest before the funds are taxed personally
• The assets in the holding company are protected if the operations go wrong
• It is easier to sell the operating company to a new owner

The holding structure requires forming two companies, but the long-term tax benefits can be significant. Discuss it with your accountant before formation.

What does it cost to form a company?

The main costs of forming an ApS are:

• The share capital: at least DKK 20,000, which remains yours, just tied up in the company
• The registration fee to the Business Authority for online registration (check the current rate at virk.dk)
• Any advice: an accountant or lawyer for the articles, capital matters and the owners' agreement, if the structure is complex

Simple standard documents can be made cheaply with a template, while more complex structures should be reviewed by a lawyer or accountant.

The most frequent mistakes in forming a company

1. No owners' agreement with several owners. The owners' agreement is the single most important document in a company with several owners. Yet many skip it at formation and pay the price at the first disagreement.

2. Standard articles without adaptation. Virk.dk offers standard articles that are fine as a starting point, but they do not fit all situations. If you have special voting rights, particular statements of purpose or clauses on ownership, the articles must be adapted.

3. The wrong choice of financial year. The financial year can largely be chosen at formation. Choose a financial year that fits your business cycle, and discuss it with your accountant.

4. Forgotten registrations. Many remember to register the company but forget to register for VAT, A-tax and employer matters. That can lead to fines and back-payment claims.

5. No advice on the capital structure. Look into whether you should form with a holding structure. It is far harder and more expensive to restructure afterwards.

Conclusion

The choice of company form sets the framework for your liability, your tax and your flexibility going forward. For most entrepreneurs with growth ambitions, the ApS is the natural choice, often with a holding company on top. Whatever the form, the underlying documents, especially the owners' agreement, are at least as important as the registration itself. Get them in place from the start, and involve an accountant or lawyer when the structure becomes complex.

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The content of this article is for guidance only and does not constitute legal advice. Consult a lawyer or accountant for advice on your specific situation.