If you're an entrepreneurial mind thinking about starting a business, it's good to know the basic business forms, how they are structured and how ownership works.
The five most commonly known and used business forms are:
- Personally owned Small Business (PMV)
- Sole proprietorship (EV)
- Partnership (I/S)
- Private limited company (ApS)
- Public limited companies (A/S)
There are clear advantages and disadvantages to each type of business that can determine which path you want to take with your entrepreneurship. So, we'll summarize the different aspects of the above business types so that you're better equipped to consider starting up or switching businesses.
Personally Owned Small Businesses (PUBs) are typically start-ups that are used to have a base of revenue from, for example, paid cleaning or selling homemade honey.
It is very easy to set up a Personally Owned Small Business as it does not require a capital contribution and is not required to report VAT or other taxes to the tax authorities as long as their annual turnover is below 50,000 DKK
However, a Personally Owned Small Business does have some limitations. They can't import or export from outside the EU and they can't have employees. In addition, they must renew their CVR number every three years.
The Personally Owned Small Business can only have one owner who is responsible for all decisions and is personally liable with their own assets.
Sole Proprietorships (SP), like Personally Owned Small Businesses, are characterized by having a single owner who is responsible for all decisions and is personally liable with their own assets. In addition, a Sole Proprietorship must register at least one of four requirements in order to be set up.
- Be VAT registered for turnover over 50,000 DKK
- Import and export from countries outside the EU.
- To register payroll tax with a basis over 80,000 DKK
- Be a registered employer
Sole proprietorship is the natural step from Personally Owned Small Businesses when your turnover starts to exceed 50,000 DKK, as the ownership structure does not change.
A partnership (I/S) is a company with a minimum of two owners who are jointly, personally and unlimitedly liable. This means that even if there are two owners, both will be liable for everything in the company. An example of this is that a creditor can claim the full amount from one of the owners' assets and is not required to split the amount owed between the two owners equally.
A partnership can be owned by both natural persons and legal persons (companies). Partnerships that are only owned by legal entities must submit annual reports. However, this is not a requirement for partnerships where at least one of the owners is a natural person.
There is no capital contribution requirement for a partnership, making it ideal for two or more entrepreneurs who want to work together to create a business.
The limited liability company (ApS) is the first business form on this list that requires a capital contribution and has a different liability for owners.
In general, all companies are their own legal entities/individuals who may own different assets. By extension, owners of companies are not personally liable for the business, but only limited in proportion to the capital contribution. In addition, companies must prepare and submit annual financial statements, which must be published.
Limited liability companies specifically have a minimum capital contribution requirement of 40,000 DKK when setting up the company and must establish a management board.
Companies often become limited liability companies when they reach a size where it is no longer realistic or necessary to be personally liable for the company's obligations.
Aktieselskaber A/S has the same general liabilities as Anpartgesellschaften. This means that the owners are also liable limited to the capital contribution, and the company is its own legal entity. The limited liability company must have a capital contribution of at least 400,000 DKK, and must have a management consisting of both an executive board and a board of directors.
The big advantage of a limited liability company is that the company can be listed on the stock exchange. This will often lead to a large increase in the company's market value, making it much easier for the company to raise capital for the business. It also provides great flexibility for ownership changes and can be used to attract new employees with shares at favorable prices.
I hope this blogspot has given you an insight into what the next step should be, from Small Personally Owned Companies with no capital contribution, to large Limited Liability Companies with limited liability and IPOs. You can read more about the specific business forms on the Danish Business Authority's website here. There you can also find the lesser-known types of companies.