Reduction of Capital Requirement

As of 27 February 2025, the capital requirement for Danish private limited companies will be reduced from DKK 40,000 to DKK 20,000. This is part of the Danish Government's wider entrepreneurship strategy.

The Danish government has recently unveiled a comprehensive entrepreneurship strategy, coupled with a further reduction of the capital requirements for private limited companies (anpartsselskaber). These developments signal a clear intent to promote a more dynamic and accessible business environment within Denmark.

Reduction of Capital Requirements for Company Formation

Part of this business promotion approach is the halving of the minimum capital requirement for establishing a private limited company in Denmark. This reduction, set to take effect on 27 February 2025, represents a further easing of the financial burden traditionally associated with company formation for start-ups further aligning Danish company law with English company law. This adjustment is anticipated to:

• Lower Barriers to Entry: By decreasing the initial capital outlay, the government aims to encourage a broader spectrum of entrepreneurial ventures.

• Stimulate Economic Activity: Increased business formation is expected to contribute to economic growth and job creation.

• Align with Regional Standards: This move brings Denmark's requirements more closely in line with those of neighbouring Scandinavian countries, hopefully enhancing Denmark's competitive position.

The Danish Government's Entrepreneurship Strategy

Complementing the reduction in capital requirements is the government's broader entrepreneurship strategy. This initiative encompasses a range of measures designed to:

• Improve Access to Capital: Efforts are being made to facilitate access to funding for startups and growth companies.

• Streamline Regulatory Processes: The strategy seeks to reduce administrative burdens and simplify regulatory compliance.

• Promote Entrepreneurial Education: Initiatives are being implemented to foster a culture of entrepreneurship and equip individuals with the necessary skills.

• Increase knowledge based entrepreneurship: The government is also focusing on increasing the amount of knowledge based start-ups, and innovation.

It should be noted that the filing and administration of Danish comapnies is widely digitised and handled on-line, further easing the administrative burden and lowering the amount of administrative tasks.

Implications for Businesses

These legislative changes present both opportunities and considerations for businesses operating in Denmark.

• For aspiring entrepreneurs, the reduced capital requirement lowers the financial threshold for establishing a company.

• Existing businesses may benefit from the broader initiatives aimed at improving access to capital and reducing regulatory burdens.

• it will become easier to set up SPV structures in Denmark, as there is less locked-in capital with the current reduction.

It should be noted, that while the minimum capital requirements for Danish private limited companies has been further reduced in order to ease the financial burden of incorporation for start-ups, the Danish insolvency law remain rather strict, compared to England & Wales. This means that while the legislature actively seeks to promote risk-taking and entrepreneurship, the consequences of failure can still be significant, hence the need to incorporate in order to limit personal liability. However, personal liability may still apply in instances where founders have issued personal guarantees for the financing of their ventures or have not complied with accounting and book-keeping obligations. From a structuring perspective, the lowering of the nominal capital requirement means that SPVs are even easier to form and less likely to suffer from locked-in capital.

Capital Maintenance Rules Remain in Place

Whiile the initial minimum registered capital requirements have been lowered further from a DKK 125,000 requirement only a decade ago to currently DKK 20,000, if a Danish limited liability company experiences a loss of more than half of its registered nominal share capital, specific obligations are still imposed under Danish company law, primarily governed by section 119 of the Companies Act. These obligations centre on maintaining transparency and protecting creditor interests. This approach differs from the approach under English company, where creditors are traditionally expected to understand that if a company has "limited liability", then this is a higher risk that if a body corporate has unlimited liability as with e.g. unlimited partnerships. The general procedure is as follows:

• Firstly, the company’s management is obliged to convene a general meeting of shareholders within six months of discovering the capital deficit. At this meeting, the company's management must provide a comprehensive report detailing the circumstances leading to the capital loss and an assessment of the company’s future viability asa going concern.

  
  

• Secondly, management is required to propose a plan of action to address the financial situation. This may involve capital injection, restructuring, or, as a last resort, proposing the company’s dissolution.

  
  

Importantly, while immediate capital injection is not mandatory if the company remains capable of meeting its financial obligations as they fall due, management must demonstrate a realistic and defensible plan for continued operation. They must ensure ongoing compliance with all legal and financial responsibilities, including maintaining adequate liquidity and protecting legitimate creditor interests. Failure to adhere to these provisions may result in personal liability for the company’s management. Therefore, compliance with the rules and regulations under the Danish Companies Act and, where necessary, consultation with legal counsel and financial advisers are essential to ensure compliance and mitigate risk.

Further Information

For more information on Danish corporate law or banking and capital markets transactions in Denmark, please contact Michael Carsted Rosenberg or Dr. Andreas Tamasauskas at Carsted Rosenberg.

This briefing is intended to provide general information on financial regulation in Denmark It is not intended to provide definitive legal or tax advice. No legal, tax or business decisions should be based solely on its content. The briefing does not necessarily deal with every important topic and is not designed to provide legal or other advice. It shall not be used as a substitute for legal advice and none may be inferred. It is only intended for general information on matters of interest. While we endeavour to represent the information as accurately and correctly as possible, we cannot accept any responsibility for any errors or omissions.