Comparing Limited Liability Companies and Sole Proprietorships in Denmark

Before setting up a company in Denmark, it's essential to consider whether you prefer a structure where you have personal liability or a limited liability company where the liability is limited. This decision should be based on the nature of your future company, the risks involved, potential liabilities, and your customers. It's important to evaluate if you're willing to take on all the risks associated with the business or if it's advisable to test your business concept before going all-in.

How different limited liability company is from sole proprietorship?

A limited liability company provides protection to its owner(s) against losses, as any deficit is isolated within the company and personal assets are protected. However, if the owner(s) receive wages from the company and need to pay bills, the company must deduct taxes from the payslip, even if the company has a deficit. Starting a limited liability company is advisable if there is limited liability, a few customers, and the business is expected to break even or make a profit. In the case of an Anpartsselskab (ApS), personal assets are protected, but the company cannot cover its deficit with personal income, and a minimum of 40,000 DKK is required to start the company.

Deciding between sole proprietorship and a limited liability company

In Denmark, setting up a sole proprietorship is the easiest option as it is free and quick to register. However, the owner is personally liable for any losses or liabilities incurred by the business, which could potentially result in having to sell personal assets to cover debts. One benefit of a sole proprietorship is that the owner can use other income to offset any start-up deficits, which can result in tax refunds in the first year. If the business grows, and there are obligations to employees, a sole proprietorship may not be the best option.

When considering whether to choose a sole proprietorship or a limited liability company, it's important to assess the type of customers and the amount of money available. A sole proprietorship is ideal for those with little money and no liabilities, while a limited liability company provides protection against losses and liabilities. However, a limited liability company has equity requirements, and money needs to be deposited into a bank account. Additionally, the liability can be limited through a contract, but some level of liability is necessary.

If the work involves liability, it's essential to assess the worst-case scenarios and determine whether a contract can protect against potential liabilities. If liability can be limited, then a sole proprietorship may be the best option. In contrast, a limited liability company may be the best choice if liability cannot be limited.

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