When deciding on the type of company to establish in Denmark, it's important to determine whether you want personal liability or limited liability. It's crucial to assess the specifics of your company and potential risks, including what your company will do, who your customers are, and potential liabilities. It's wise to consider whether you're fully committed to this new business or if it's better to test the concept first.
Limited liability companies differ from sole proprietorships in that any financial deficits are contained within the company, protecting personal assets from loss. If you receive wages from a limited liability company, taxes must be deducted and paid to the government. If the company incurs a deficit and you need a payslip to cover personal bills, you not only lose money on the deficit but also pay taxes on personal income. If you have liability, a few customers, and anticipate breaking even or making a profit, starting with a limited liability company is a good option. With an ApS, personal assets are protected in case of failure, but the company requires 40,000 DKK to start and cannot use personal income to cover deficits.
The easiest company to set up in Denmark is a sole proprietorship, which is free to register and does not require any equity or bank deposits. If you have little money and do not have significant responsibility, a sole proprietorship may be the best option. One advantage of this type of business is that you can use other income to offset the initial deficit, which can be used as a tax deduction. However, the disadvantage of a sole proprietorship is that you are personally liable for anything that may happen in the business, which could result in financial risk or even the sale of personal assets. As a result, it's important to weigh the risks.
If your business grows and you have full-time employees, you will have obligations to them in terms of wages and liabilities. In case of any disagreement with clients, it's crucial to write contracts that limit liability. If a sole proprietorship is not sufficient for your needs, a limited liability company may be a better option, which has more legal protections but requires an initial equity deposit. It's important to consider your liability and worst-case scenarios when deciding between the two business types. Consulting with a lawyer or examining competitors' contracts can be helpful in making this decision.