On 28 February 2019, the Danish parliament introduced a bill (L 190) to abolish the entrepreneurial corporate form and to reduce the capital requirement for private limited companies.

The corporate form entrepreneurial companies was introduced on 1 January 2014 in order to remove an access barrier to carry on a business with limited liability. The primary target group of an entrepreneurial company is characterised by having the incentive to launch a business idea, but not necessarily with a need for a large capital base in the start-up phase. In some situations, the target group will not be able to or wish to invest the required capital to fulfil the minimum requirement for investment of capital in e.g. limited liability companies.

The Danish Business Authority’s experience with this corporate form shows that it has increased the risk of fraud and accumulation of debt to public authorities, and the politicians therefore wish to prevent this risk by abolishing the corporate form.

ABOLISHMENT OF ENTREPRENEURIAL COMPANIES

The bill proposes that it should no longer be possible to establish new entrepreneurial companies from the commencement of the act. The politicians wish to avoid mass establishment. The Danish parliament is therefore expected to consider the bill promptly. The first reading of the bill is on the agenda on 12 March 2019.

Existing entrepreneurial companies may have to reregister into private limited companies. The bill proposes a two-year transition period for entrepreneurial companies established prior to the coming into force of the act. These companies therefore have to reregister into private limited companies with the required capital before the expiry of the time limit. In this connection, a valuation expert must prepare a statement under the rules of the Companies Act stating that the share capital exists. The companies will pay the costs of the valuation expert.

REDUCTION OF THE CAPITAL REQUIREMENT FOR PRIVATE LIMITED COMPANIES

The bill proposes that the minimum capital requirement for private limited companies is reduced from DKK 50,000 to DKK 40,000. However, it is still for the management to assess whether the share capital compared to the company’s operation is sufficient to meet the company’s present and future obligations. It further appears from the bill that the reduction of the capital requirement must be seen in connection with the proposed abolishment of entrepreneurial companies.

A reduction will also bring the Danish capital requirement for private limited companies closer to the same requirement for comparable corporate structures in our neighbouring countries. It is noted, however, that in Germany, you can establish a company, comparable to an entrepreneurial company, at the price of EUR 1, and it is still possible to establish a private limited company (Ltd.) in England at the price of GBP 1.

The bill further proposes that the possibility of postponing payment of the share capital is maintained so that minimum 25 % of the share capital is to be paid. The bill proposes a change of this provision so that the minimum payment is changed from DKK 50,000 to DKK 40,000 with the effect that the amount equals the proposed changed of the minimum capital requirement for private limited companies.

BILL MAY REDUCE THE RESOURCES AT THE DANISH BUSINESS AUTHORITY AND THE BANKRUPTCY COURTS

The experience with entrepreneurial companies has indisputably shown that the possibility of establishing a company with limited liability at the price of DKK 1 is presumably inappropriate. In addition, the two-year transition period will presumably be sufficient so that more serious undertakings will be able to save up the required share capital in order to establish a private limited company.

However, it cannot be ruled out that the abolishment of entrepreneurial companies simply implies that entrepreneurs will establish foreign low-capital companies, for instance a private limited company (Ltd.) at the price of GBP 1 or operate through a branch or other activity in Denmark.

Finally, the bill is expected to have positive effects on the Danish Business Authority's and the bankruptcy court’s resources all over the country.

contacts

Frans Rossen

Partner

Jacob Kornerup

Partner

Jim Øksnebjerg

Partner