27.06.2019

The essential Corporate Law in Denmark

These are the highlights if you want to know the essential of Corporate Law in Denmark. This entry was drafted by KLAR Advokater for”E-IURE COMPENDIUM” 2018. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case KLAR Advokater is an excellent option in Denmark.

In Denmark one can choose between a range of different legal entities for one’s business. These vary from small entities with no share capital to companies with a minimum share capital of DKK 500.000. The most common entity types are the ApS (Private Limited Company) and A/S (Public Limited Company) entities. However many small businesses with only one owner operate as personal one-man businesses.

The two tables below illustrate the most common entity types, and list the most relevant characteristics of each type. Table 1 describes types of limited liability entities and Table 2 describes other types of entity forms, including a limited partnership. Each type of entity is further described below the tables.

Table 1	A/S (Public Limited Company)	P/S (Limited Partnership Company)	ApS (Private Limited Company)	IVS (start-up company)
Use	Middle-sized and large companies (may be listed on the stock exchange, though this is not mandatory)	Small and middle-sized companies – primarily used for consultancy companies	Small and middle-sized companies	Small companies and entrepreneurs. May be owned by natural persons or other companies.
Minimum capital requirement	DKK 500,000 (only 25 % of the total capital has to be deposited)	DKK 500,000 (only 25 % of the total capital has to be deposited)	DKK 50,000	Between 1 DKK and DKK 49.999.
Liability	Limited to the value of the share capital	Limited to the value of the share capital of the mother company and the full capital of the general partner	Limited to the value of the share capital	Limited to the value of the share capital
Management	Either: A Board of Directors with minimum 3 persons and an Executive Board with minimum 1 person Or: A Board of Supervisors with minimum 3 persons and an Executive Board with minimum 1 person	Either: A Board of Directors with minimum 3 persons and an Executive Board with minimum 1 person Or: A Board of Supervisors with minimum 3 persons and an Executive Board with minimum 1 person	Either: A Board of Directors and an Executive Board with minimum 1 person Or: An Executive Board with minimum 1 person	Either: A Board of Directors and an Executive Board with minimum 1 person Or: An Executive Board with minimum 1 person. This is the most common form of management in an IVS.
Change in articles of association	Depends on what is agreed in the articles of association. If nothing is agreed: 2/3 of the submitted votes and 2/3 of the share capital represented on the general meeting. Some extensive changes requires a higher share of votes	Depends on what is agreed in the articles of association. If nothing is agreed: 2/3 of the submitted votes and 2/3 of the share capital represented on the general meeting. Some extensive changes require a higher share of votes	Depends on what is agreed in the articles of association. If nothing is agreed: 2/3 of the submitted votes and 2/3 of the share capital represented on the general meeting. Some extensive changes require a higher share of votes.	Depends on what is agreed in the articles of association. If nothing is agreed: 2/3 of the submitted votes and 2/3 of the share capital represented on the general meeting. Some extensive changes require a higher share of votes
Share classes	Different classes (A-, B-, C- etc.) One class can have no right to vote while other classes do.	Different classes (A-, B-, C- etc.) One class can have no right to vote while other classes do.	Different classes (A-, B-, C- etc.) One class can have no right to vote while other classes do.	Different classes (A-, B-, C- etc.) One class can have no right to vote while other classes do.
Shareholders agreement	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties
Accounting	Annual audit may be mandatory, depending on company’s turnover	Annual audit may be mandatory, depending on company’s turnover	Annual audit may be mandatory, depending on company’s turnover	Annual audit may be mandatory, depending on company’s turnover
Company tax	Corporate income tax 22 %*	All income is taxed as personal income / income in the shareholder companies	Corporate income tax 22 %*	Corporate income tax 22 %*
Tax on capital gains	27 % up to DKK 51.700 42 % in excess of DKK 51.700[1]	Either: Personal income tax if a person is partner Or: Corporate 22 %* if a company is partner	27 % up to DKK 51.700 42 % in excess of DKK 51.700	27% up to DKK 51.700-42% in excess of DKK 51.700.
Registration	Must be registered with the Danish Business Authority	Must be registered with the Danish Business Authority	Must be registered with the Danish Business Authority	Must be registered with the Danish Business Authority
Legislation	The Danish Companies Act	The Danish Companies Act	The Danish Companies Act	The Danish Companies Act

Table 2	I/S (Partnership)	K/S (Limited Partnership)	Branch	Sole proprietorship
Use	Small companies (at least two owners who can be either private persons or limited liability companies)	Small companies (at least two owners, either private persons or limited liability companies)	Used for representing the head office when this is located in another country (mainly in the EU)	Small businesses with only one owner (owner has to be a private person)
Minimum capital requirement	No minimum requirement	No minimum requirement	No share capital (No minimum requirement)	No minimum requirement
Liability	Unlimited, joint and several liability	Limited to the value of the share capital of the general partner company/companies. Joint and several liability if there is more than one.	The head office of the branch is fully liable according to the rules of its country	Unlimited liability. The owner is personally liable with his/her entire fortune.
Management	No regulation, if nothing is agreed each partner can legally enter into binding obligations on behalf of the partnership.	Management is regulated by the general partner/partners. If nothing is agreed, all general partners can legally enter into binding obligations on behalf of the partnership together.	No requirements	No requirements
Change in articles of association	Method of changes is as agreed upon in the articles of association	Method of changes is as agreed upon in the articles of association	No articles of association	No articles of association.
Share classes	Can be agreed upon in the articles of association	To be agreed upon in the articles of association	No share capital	No share capital
Shareholders agreement	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties	Valid inter partes but cannot override mandatory corporate law. Not valid against third parties	No shareholders agreement	No shareholders agreement
Accounting	No requirements	No requirements	A copy of the financial statements of the head office must be filed	No requirements.
Company tax	All income is taxed as personal income / income in the shareholder companies	All income is taxed as personal income / income in the shareholder companies	Corporate income tax 22 %*	All income is taxed as personal income
Tax on capital gains	Personal income tax	Personal income tax	The branch is taxed as a Danish company by 22 %*	Personal income tax
Registration	Must be registered with the Danish Business Authority	Must be registered with the Danish Business Authority	Must be registered with the Danish Business Authority	Must be registered with the Danish Business Authority
Legislation	Executive Order on the Act on Certain Commercial Undertakings	Executive Order on the Act on Certain Commercial Undertakings	The Danish Companies Act	Not governed by company legislation.

Choice of legal entity

Before starting a business the preferred type of legal entity must be considered. The choice can depend on many different factors but the most common factors are one or more of the following:

Liability
Taxation of the company and the owners
Sufficiency of establishing a branch (foreign companies only)
Start-up capital and running costs (share capital, registration costs etc.)
Overall reputation in the market

Types of companies

As earlier mentioned there are several different types of legal entities. The types most commonly chosen for medium-sized and large companies are either a private limited company (ApS) or a public limited company (A/S). These two types of company are regulated by the same rules but differ in some aspects, as described below:

A/S (Public Limited Company)

Most large companies in Denmark (and all stock-exchange listed companies) are established as an A/S (Public Limited Company), which is a well-reputed entity type. The total required share capital is minimum DKK 500,000. The shareholders’ liability is limited to their investment in shares.

An A/S must have either a Board of Directors or a Board of Supervisors with at least three members. Furthermore the A/S must have an Executive Board with at least one member (the managing director).

An A/S pays 22 %* in corporate taxes based on the company’s yearly profit. The shareholders return on shares and share premiums are subject to taxation as follows: In 2017, the first DKK 51.700 are taxed by 27 % and share income exceeding DKK 51.700 is taxed by 42 %.

An A/S is obliged to publish its annual accounts and may be subject to annual audit depending on its turnover.

ApS (Private Limited Company)

Many small and middle-sized companies choose to run their business as an ApS, which requires a share capital of DKK 50,000. The shareholders’ liability is limited to their investment in shares.

An ApS must have a managing director and may chose also to have either a Board of Directors and a Supervisory Board.

The lower amount of required share capital makes this entity type very attractive to founders who either cannot or will not tie up more capital than necessary, but still wish to limit their liability risks.

An ApS pays 22 %* in corporate taxes based on the company’s yearly profit. The shareholders return on shares and share premiums are subject to taxation as follows: In 2017 the first DKK 51.700 are taxed by 27 % and share income exceeding DKK 51.700 is taxed by 42 %.

An ApS is obliged to publish its annual accounts and may be subject to annual audit depending on its turnover.

A/S (Public Limited Company) vs. ApS (Private Limited Company)

An A/S is subject to the same rules as an ApS but differs mainly concerning the following conditions:

Minimum share capital
- A/S: DKK 500,000 (only 25 % has to be deposited but the remain capital must be paid by demand)
- ApS: DKK 50,000
Shares for public subscription (e.g. on a stock exchange)
- A/S: Yes
- ApS: No
Management
- A/S: Management Board/Board of Supervisors + Executive Board
- ApS: Management Board and/or Executive Board

P/S (Limited Partnership Company)

A P/S is a hybrid between an A/S (Limited Liability Company) and an I/S (Partnership). This corporate structure is primarily chosen by companies owned by persons who work in the company (partners), such as law-firms, accountants and other consultancy companies.

By choosing the P/S the liability is limited to the shareholders’ share capital, which is required to be at least DKK 500,000 in total. However, at least one participant acts as a general partner whose liability is unlimited (he is liable with his all of his/her personal capital), and there is also at least one limited partner, whom is only liable with his value of shares in the P/S. Both the general partner and the limited partner can be a physical person or an ApS or an A/S. Usually the general manager is either an A/S or an ApS because these companies have a limited liability.

The P/S does not pay corporate taxes, but instead the owners’ (who can be either physical persons or companies) profit is taxed as income, for which reason the owners can deduct their profit from the P/S from other negative income.

A P/S is obliged to publish its annual accounts and may be subject to annual audit depending on its turnover.

P/S (Limited Partnership Company) vs. A/S (Public Limited Company):

A P/S is subject to the same rules as an A/S but differs mainly concerning the following conditions:

Shares for public subscription (e.g. on a stock exchange)
- A/S: Yes
- P/S: No
Taxation:
- A/S: The company is taxed by 22 %* – the shareholders are taxed with 27 % up to DKK 51.000 and with 42 % in excess of DKK 51.7000 : In 2017 the first DKK 51.700 are taxed by 27 % and share income exceeding DKK 51.700 is taxed by 42 %.
- P/S: Personal income tax if a person is partner (income is deductible in negative income)

Or: 22 %* corporate tax if partner is an A/S or an ApS (income is deductible in negative income)

Ownership and influence
- A/S: Owned by shareholders only
- P/S: Owned by shareholders and a general partner, who must have a significant influence on the company’s management.

Both A/S, ApS and P/S are required to file their articles of association with the Danish Business Authority and any changes have to be filed within 14 days from the start-up date.

IVS (start-up company)

An IVS is a rather new form of company with many advantages. Different from an ApS, the minimum capital requirement for an IVS is DKK 1.00. In return the IVS has to build up its capital by saving up at least 25 % of the annual profit of the company, until the total equity amounts to DDK 50.000. Hereafter the IVS can re-register as an ApS if the shareholders wish to. The capital share in an IVS has to be paid in cash as opposed to other company forms.

Another advantage to the IVS is the limited liability. The company is only liable with the company capital, meaning that the owners of an IVS are not personally liable for the company’s debt.

An IVS has to make an annual report cf. the Danish Financial Statements Act and report it digitally to the Danish Business Authority.

IVS (start-up company) vs. ApS (Private Limited Company)

Minimum capital requirement
- IVS: minimum 1.00 DKK but no higher than 49.999 DKK.
- ApS: DKK 50.000
Saving of profit
- IVS: Required to save up at least 25% of the annual proft until the capital of the company reaches DKK 50.000.
- ApS: No requirements.

I/S (Partnership)

An I/S can be the easiest way to start a business that will have more than one owner. An I/S can be owned by either physical persons, by companies or by a mixture of persons and companies.

All owners, be they persons or companies, are liable for any claims. However, if the owner is a limited liability company, e.g. an ApS (private limited company) this owner will only be liable with the share capital of the owner company. On the other hand, when the owner is a physical person they are liable with their whole personal capital. As well as having unlimited liability, the owners of an I/S are jointly and severally liable towards any claims.

The income of an I/S is taxed in the same way as a P/S (Limited Partnership Company): as either personal income (when the owner is a physical person) or as corporate income (when the owner is a company).

An I/S is not obliged to submit a registration to the Danish Business Authority regarding its start-up. However the I/S business is obliged to submit a VAT registration if turn over reaches or exceeds DKK 50.000 a year. Finally, an I/S is not obliged to publish its annual accounts.

K/S (Limited Partnership)

A K/S (Limited Partnership) is an entity type used primarily by investment companies. A K/S has at least one general partner and one limited partner.

In a K/S the general manager/managers are liable with all of their capital and the limited partners’ liability is limited to their investment in the K/S. Both the general partner and the limited partner can be a physical person or an ApS or an A/S. Most often, the general manager is either an A/S or an ApS because these companies have a limited liability.

The K/S does not pay corporate taxes, but instead the owners’ (who can be either physical persons or companies) profit is taxed as income. This means that the owners can deduct their profit from the K/S from other negative income. If there are more than 10 participants in the K/S, it is not possible to deduct positive income from negative income.

Branch

A company from another country in the European Economic Area can establish a branch in Denmark instead of establishing an actual company. A branch is doing business at the risk and responsibility of the foreign company and is therefore not a legal entity in and of itself.

A branch is taxed as a limited company at a rate of 22 %* but does not require any share capital to start up. A branch is obliged to mention the word ”filial” (meaning ”branch”) and the full name of the company for which it is doing business as part of its registered name.

Sole proprietorship (enkeltmandsvirksomhed)

A Sole proprietorship is a business with only one natural person as its owner. There are no minimum requirement to the startup capital, but the owner is personally and unlimited liable for the company’s loss. There are no legal requirements for management and publication of accounts.

The central company register (CVR)

CVR is the government’s master register for company details and contains information about all companies in Denmark. The CVR contains information about all companies with a duty to register as well as associations that voluntarily have elected to register.

All companies in the CVR register have a unique identification number – a CVR number. A CVR number always has eight digits. To search for a Danish company visit www.cvr.dk

* The corporate tax rate is currently 22 % in 2017.