Has your sole proprietorship grown to the point where it no longer makes sense to be personally liable for everything you own? If so, it may be time to convert your business into an ApS. At Accountview, we help self-employed individuals with the entire process of converting from a sole proprietorship to an ApS, ensuring a secure and well-planned transition where taxes, sales tax, and accounting work together seamlessly from day one.
Why switch from a sole proprietorship to an ApS?
There are several good reasons to convert a sole proprietorship into an ApS. The most important one is that you limit your personal liability to the capital you’ve contributed. If the business loses money, your personal finances are no longer at risk. This provides peace of mind, especially if you have employees, large inventories, or customers with extended credit terms. In addition, an ApS can be tax-advantageous as profits begin to grow. In a sole proprietorship, the entire profit is taxed as personal income, regardless of whether you withdraw the money or not. In an ApS, you can decide for yourself how much to withdraw as salary or dividends, and the remaining portion is taxed later. This allows you to smooth out your tax liability and save money within the company.
Here's how a transformation works in practice
When converting a sole proprietorship into an ApS, there are two options. You can either opt for a taxable conversion or a tax-free business conversion. The choice depends on the value of your business, your future plans, and your personal finances. In a taxable conversion, you are effectively selling your business to the new company, and you must pay tax on any capital gain. This is often the simplest solution when the business does not have significant assets.
In a tax-free conversion, you transfer the business to the corporation without immediate taxation. In return, your basis in the shares is reduced, and you’ll have to pay taxes later if you sell the corporation. This model requires that certain conditions be met, including that the conversion take place within the first six months of the year. We’ll help you assess which model best suits your situation and handle all the necessary documentation—from the articles of incorporation and bylaws to the opening balance sheet and registrations with the Danish Business Authority.
Here's what you get with Accountview
We’ve helped many self-employed individuals transition from sole proprietorships to ApSs, and we know where the pitfalls lie. You’ll be assigned a dedicated advisor who knows your business and your history, and we’ll handle everything in one place.
That means you’ll get:
- Advice on taxable or tax-free conversions
- Calculation of the Opening Balance Sheet and Valuation of a Business
- Drafting of the Articles of Incorporation and Bylaws
- Registration of the new ApS with the Danish Business Authority
- Setting Up a New Accounting Program and Chart of Accounts
- Day-to-day bookkeeping, VAT, and the company’s annual report
You don’t need to worry about legal provisions and forms. We’ll take care of that for you, and you’ll get a concise and clear overview of the status every step of the way.
When does it make sense to convert?
Many self-employed individuals consider converting their sole proprietorship into a limited liability company (ApS) when profits rise to a level where personal taxation becomes a burden. A good rule of thumb is that it’s worth looking into the conversion when you have profits that you don’t need to withdraw from the business. Others make the switch for the sake of credibility and growth. An ApS signals stability to customers, banks, and business partners, and this can be an advantage when you’re seeking financing or bidding on larger projects.
Frequently Asked Questions
How much capital is required to form an ApS?
The minimum capital requirement for a limited liability company is 20,000 kroner. The capital can be contributed in cash or in the form of assets from the existing sole proprietorship, such as equipment, inventory, or goodwill. We’ll help you accurately assess the value of these assets.
How long does it take to convert a sole proprietorship into an ApS?
Most conversions can be completed in two to four weeks once we have the necessary materials. If you choose a tax-free conversion, the work must be completed within the first six months of the year. We’ll manage the schedule for you.
What happens to my CVR number?
The new ApS will receive its own CVR number, and the old CVR number from the sole proprietorship will be closed. We’ll handle all reporting to the Danish Business Authority and SKAT so that you don’t lose your right to deductions or end up in limbo.
Do I need to change my customer agreements?
Yes, all agreements must be transferred to the new company, and it’s a good idea to notify customers, suppliers, and your bank. We’ll put together a checklist to help you get everything in order and ensure a smooth transition.
Do you want peace of mind when it comes to your accounting? Then let’s talk and figure out how we can best help your sole proprietorship move forward.
Get in touch with us, and we’ll have a no-obligation conversation about how to best structure your transition from a sole proprietorship to an ApS.
