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Abstract:
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When an entrepreneur in Denmark has to choose the legal business form from which he or she wants to operate, there
are numerous factors that will influence the choice. This thesis describes the initial considerations and thoughts that
often affect the choice of business form. More specifically is - the frequently neglected form - known as a Partner Com-
pany analysed. The Partner Company form is in this thesis held up against the more traditional Corporate Limited Liabil-
ity form. The thesis has a practical approach to the description and analysis. The company law and tax perspectives for
a Partner Company is reviewed and analysed.
In Denmark, many entrepreneurs choose to establish themselves in a Personal Company form or in the more traditional
forms of Limited Liability Company or Corporate Lability Company. A company chosen in the personal form is often
chosen as the formal registration requirements; administrative requirements; etc. are very few in relation to a corpora-
tion. From a fiscal point of view, the entrepreneur may choose to be taxed by two sets of rules, Personal Tax (PSL) and
Business Tax (VSL). Using PSL the owner is taxed personally, and after company profit for the income year. Earnings
before interest is included as part of the personal income, while interest expenses are included as an investment in-
come. If the entrepreneur chooses to be taxed by VSL, the company circumstances remain the same, however; the
personal income depends on the size of withdrawals, as the VSL allows you to collect profits and pay only a temporary
business tax of 25%. In addition, VSL allows deductions of the personal income opposite PSL rules. Using VSL, income
may be improved by tax progression limit, enabling a tax optimization and thereby a decrease of the amount of tax pay-
ments. VSL allows personally owned businesses to recall the fiscal conditions of other forms of corporations.
The Private Limited Company and Limited Liability Company is often selected, when the amount of investors or people
who want to start a business together is more than one. These two legal forms of companies are the most used in Den-
mark and many entrepreneurs choose this form, because they are well known, and they are regulated by the Danish
Companies Act (SEL).
A Partner Company form is thus an unobserved legal structure as its corporate legal form is very similar to a Limited
Liability Company and is also governed by SEL. From a tax perspective the Partner Company is transparent, i.e. the
taxation of the profit happens on an owner’s level. This means that the owners are self-employed and the VSL rules and
accompanying benefits can therefore be used.
The thesis includes a fictitious company "All-audit”. The company has been operating for 5 years, after which the com-
pany is sold. The company is a success, generating huge profits. The scenario concerns the owners from a fiscal point
of view, i.e. whether they should run the business as a Limited Liability Company or a Partner Company. The thesis
describes the advantages and drawbacks of Partner Company in relation to the Limited Liability Company. The conclu-
sion illustrates that from a fiscal point of view the most optimal business form is a Partner Company, which is taxed by
VSL. The thesis furthermore includes a shorter description of the company tax regulations and the most significant ad-
vantages of being an independent entrepreneur rather than an employee. |
