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Abstract:
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As many other countries Denmark has been influenced by the financial crisis that hit the world around
2008. Both the current and the former government agree that the Danish Economy has to grow in order
for Denmark to overcome the financial crisis. This growth is mainly expected to come from lead
entrepreneurs. The government has therefore tried to adapt the legal framework in order to make it more
desirable to start your own business.
Starting your own business entails taking a lot of decisions regarding corporate form and assessment of
the different opportunities and challenges regarding calculation of the taxable income both for the
entrepreneur and the company. Furthermore the entrepreneur will most likely experience issues regarding
access to capital. It is therefore very important that the entrepreneur performs the proper assessment of
both company form and tax.
The legal entities in Denmark are predominantly either proprietorship where the taxable income from the
company is taxed with the owner or an independent taxable unit such as a private limited company. Each
form of company has its own opportunities and challenges. A proprietorship does not have any
requirement regarding share capital and has many opportunities when calculating the taxable income.
Therefore the proprietorship gives the entrepreneur several options when optimizing his tax payments.
The main downside is that the entrepreneur is personally liable for all demands the suppliers could have
towards the business. If the company cannot fulfill the supplier demands, the suppliers can seek payment
from the entrepreneur’s personal finances.
By forming a private limited company the entrepreneur can only be liable for the share capital and can
therefore shield himself from all supplier demands. When forming a private limited company a minimum
of DKK 80.000 has to be either paid in cash or contributed in other assets as share capital in the
company. The company is an individual tax object and the taxable income is therefore taxed according to
the corporate tax law. Opposite to the proprietorship the entrepreneur receives salary from the company
which is taxed according to the personal tax law. This entails fewer possibilities when optimizing the
taxable income but it also entails the possibility of a steady pay opposite the proprietorship, where the
pay often fluctuates from each year.
Both the proprietorship and the private limited company must comply with a range of corporate laws
where the private limited company is subject to the most comprehensive set of rules of the two. As
mentioned earlier the private limited company has requirements regarding share capital but also
management structure and financial statements. The proprietorship must comply with fewer rules but are still required to keep adequate bookkeeping and divide the personal economy of the entrepreneur and the
company separated from each other.
In order to assess the different tax, corporate and capital possibilities and challenges a fictitious case has
been created. The case follows a young entrepreneur from the formation of a proprietorship to a
conversion of the company into a private limited company and ultimately an addition of a business angel.
Each step of the described life cycle above has its own possibilities and challenges which the
entrepreneur must assess where the most relevant are described in the thesis.
The possibilities and challenges are reviewed and compared. Whether one is more desirable than another
in many ways comes down to conditions of the specific company. The thesis does therefore not give
specific guidelines to what an individual must choose but should be seen as inspiration and overview of
the characteristics of the most common possibilities and challenges. |
