Selskabsloven §119: Loss of Capital — what to do when equity hits 50%
When equity in a Danish A/S or ApS falls to half of registered capital, Selskabsloven §119 kicks in. Management must call a general meeting within 6 months and present a remediation proposal. Failure to act can lead to personal liability and forced dissolution via the Danish Business Authority.
What is the loss-of-capital rule exactly?
Section 119(1) of the Danish Companies Act requires management to call a general meeting within 6 months of noticing that equity has fallen below half of subscribed capital. At the meeting, management must report on the company's financial position and propose measures to restore full coverage — or propose dissolution. The rule applies to both ApS (minimum subscribed capital DKK 20,000) and A/S (DKK 400,000), meaning a 20k ApS triggers §119 when equity drops below 10k, while a 1M A/S triggers at 500k.
Why is §119 so serious?
It's a legal duty, not a warning. Failure to call the meeting can lead to forced dissolution by the Danish Business Authority, and management can be held personally liable to creditors who suffer losses from continued operation in a loss-of-capital situation. Supreme Court case law (U.2019.3105H) shows that directors can be personally liable for new debts incurred after the date they should have acted.
How do you spot the loss of capital in time?
Many SMEs only discover the loss when the annual report is prepared — 5 months after year-end. By then, management may have been liable for 11 months without knowing. AdvisorGate monitors equity daily and fires a critical alert as soon as the equity-to-registered-capital ratio drops below 60% — well before the statutory 50% threshold. That gives management buffer to react via capital increase, restructuring or controlled liquidation.
What options does management have?
Four paths: (1) Cash capital increase from owners or third parties. (2) Debt conversion — creditors accept to convert receivables to capital. (3) Reduction of registered capital so equity again covers 50%+. (4) Controlled liquidation. In practice, about 40% of cases choose capital increase, 30% reduction, 20% debt conversion and 10% liquidation (source: Danish Business Authority 2024 statistics).
AdvisorGate's crisis protocol and Freja
AdvisorGate implements a 4-tier insolvency detection beyond §119: Warning (health score < 20), Alert (overdraft > 95%), Severe (negative equity), Critical (§119 fired or < 30 days liquidity). At each escalation, Freja sends a notification with recommended actions and references to professional advisors — the AI never makes legal decisions on management's behalf, but ensures no deadline slips under the radar.
Act in time — §119 rewards proactivity
Loss of capital is not inevitable, but invisible loss is catastrophic. The biggest risk is the 6-11 months that pass before anyone notices. Continuous monitoring of equity, solvency ratio and overdraft utilisation lets management react before §119 becomes relevant — preserving both the company and personal wealth. AdvisorGate doesn't replace your accountant or lawyer, but ensures you have the right numbers at the right time.
Ofte stillede sporgsmol
Does §119 also apply to sole proprietorships?
No. §119 is specific to limited-liability companies (A/S and ApS). Sole proprietorships and partnerships use personal liability, so creditors can always go directly after the owner.
What happens if we miss the 6-month deadline?
Management is personally liable for the delay. Creditors who suffer losses after the deadline can sue management personally. The Business Authority can also initiate forced dissolution. Always call the meeting immediately — even without a ready solution — to cap personal liability.
Can Freja replace a lawyer in a §119 situation?
No. Freja's role is to spot the problem in time and escalate to professional advice. When §119 is triggered, always have a specialised insolvency lawyer and an experienced accountant at the table.
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Complete guide to the Danish Companies Act §119 loss-of-capital rule: when it fires, what management must do, and how AdvisorGate spots it before your accountant.
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