Who can set up a Sole Proprietorship business?
In principle, everyone can
set up a Sole Proprietorship business. Even if you are on SU, you can create a one-man business. However, here are some tax aspects that you need to be aware of.
If you have a PMV
If you already have one Personligt ejet mindre virksomhed (PMV), you cannot, as a rule, create a new Sole Proprietorship. On the other hand, you need to switch your current PMV to a sole proprietorship. You do this at the Danish Business Authority at
Virk.dk. In connection with the rescheduling, your company retains its CVR number and you do not have to pay VAT on the revenue that has been in the company prior to the rescheduling.
If you are on cash assistance
If you receive cash assistance from the municipality or are unemployed and on other support, you cannot start your own business. This is because you are expected to be available to the labor market to receive financial support to both an unemployment fund and a municipality.
However, in rare cases it will be possible to obtain a special permit if you live in a free municipality participating in an employment attempt. However, you need to check this out yourself by contacting your local job center.
One owner only
In the sole proprietorship, both directors and employees can be hired, but there can always be only one owner. Therefore, if you want to start a business with others, you should consider another form of business instead. This may be one, for example limited company, where it is allowed to have multiple owners, just as the owners can be both private individuals or holding companies.
The management of a one-man business
There is no management or board of directors in a one-man business. It is only the owner who makes decisions in the company and is responsible for the operation. If, for example, other than the owner – must act on behalf of the company, a job title or written power of attorney must always be made.
No capital requirement
If you want to set up a business but do not have the opportunity or desire to invest a lot of money in the business, the sole proprietorship may be the solution for you. There is no requirement for the founder to invest capital in the sole proprietorship, which is the case for other types of business.
If you later want to transform your sole proprietorship into a company – for example a limited company ( ApS ) – you can do this for example by a tax-free business transformation. However, this requires the assistance of an auditor, as a so-called assessment report must be made. If you already know that in the long term you want to transform your sole proprietorship into another corporate form, such as a limited company ( ApS ), it may therefore be a good idea to start the company immediately to avoid the need for the auditor.
You need to be aware of the liability!
You must be aware that as a sole proprietorship you are personally liable for the company’s obligations. This means that you are personally liable for all your personal belongings, including your house, car, etc. In practice, for example, this means that creditors may claim outlays in your house if your company cannot pay the bill.
It is therefore important to consider whether this is a risk you are willing to run. If you want to avoid personal liability with all your belongings, you should choose a different form of business such as ApS.
The owner of an ApS or A / S is only liable to a limited extent, as the economy of the company and the owner respectively is separate. This means that you are only liable for the capital with which the company is founded. However, some sole proprietorships may, with the help of an accountant, be covered by what is called the corporate scheme. The business scheme provides some tax benefits that you can read more about further down.
Auditing of sole proprietorship and financial statements
It is not a requirement that a single company prepare annual accounts or that any annual accounts are audited by an auditor. However, a tax account must be prepared for the company, just as it is a legal requirement that it is regularly posted in accordance with the Accounting Act. Need help with accounting?
Click here.
Tax and VAT in a sole proprietorship business
A one-man business must be taxed in one of three possible ways. It is up to the owner which one of the schemes to use:
- Personal tax rules: Income is taxed as personal income.
- The business scheme: Interest expenses can be deducted from personal income and profits saved in the company against paying a preliminary tax.
- Capital Return Scheme: Provides some of the benefits of the business scheme but is simpler.
You do not have to choose which tax scheme you want to apply when creating your sole proprietorship. As a starting point, the personal tax rules are used, and if you later consider switching to another scheme, it must be discussed with an
accountant.
As a general rule, sole proprietorships must be registered for VAT, and if wages are to be paid from the company, ( and ) A tax and AM contributions must be registered. There may also be a need for the company to be registered for import and export.
Pros and cons of a sole proprietorship business
There are both pros and cons that you should familiarize yourself with and consider carefully before setting up a sole proprietorship:
Benefits
- Free creation of the company
- No requirement for auditing of accounts
- No requirement for submission of annual report
Disadvantages
- You are personally liable for the company’s obligations
- There can be no more owners in the business.
Get started with DKkonsult today
When you set up your one-man business through the DKkonsult, we will do all the paperwork for you. This means that we will send your new business for registration within 24 hours of filing your order. We make sure the company is registered for VAT, import, export, etc. if you have chosen this.
The case processing takes place manually at the Danish Business Authority, and you will usually receive your CVR number and VAT registration within 2-14 days after we sent the company for registration. Of course, we always follow up on the case and will help you in further steps.
*Orders for sole proprietorships placed after 1 p.m. 16 on Fridays will be dealt with the following Monday. Therefore, in these cases there may be longer processing time.
Get started today by clicking
‘ Create single business now ’ below.
