Danish Companies Act §119 — How to Detect Handlepligt in Time

Selskabsloven §119, subsection 1, is clear: If it is established that a limited company's equity constitutes less than half of the subscribed capital, the central management body must, within 6 months of the establishment, ensure that a general meeting is held. At the general meeting, management must report on the company's financial position and, if necessary, propose measures to be taken — including possible dissolution. In practice this means: For an ApS with DKK 40,000 in share capital: duty to act is triggered when equity falls below DKK 20,000. For an A/S with DKK 400,000 in share capital: duty to act is triggered when equity falls below DKK 200,000. For a P/S (limited partnership): the general partner's capital share is assessed similarly. The key point: it is the subscribed (registered) capital that serves as the reference, not the paid-in capital or the historically highest equity. And the rule applies uniformly to all limited company forms since the 2014 legislative amendment.

Before 2014, different rules applied to private limited companies (ApS) and public limited companies (A/S). With the harmonisation in Selskabsloven, §119 now applies uniformly: 50% of registered share capital is the threshold, regardless of company form. For ApS companies with the minimum capital of DKK 40,000, the duty-to-act threshold is DKK 20,000. That sounds like very little — and it is. In practice it means that even a relatively modest quarterly loss can trigger the duty to act. An ApS with DKK 40,000 in capital and DKK 25,000 in retained earnings has equity of DKK 65,000. A single bad quarter with DKK 50,000 in losses brings equity down to DKK 15,000 — below the threshold. For A/S companies, capital is typically higher (minimum DKK 400,000), but the buffer is not necessarily larger in relative terms because A/S companies often operate with significantly more debt and a larger balance sheet. P/S (limited partnerships) are special: the general partner's capital share is assessed, and since the general partner is often an ApS, the same low thresholds apply. Danish SME owners systematically underestimate the risk of §119. They assume it only happens to businesses in crisis. But a fast-growing company with heavy investment in staff and infrastructure can hit the threshold temporarily without the business being in actual danger.

Overlooking §119 is not a formality — the consequences are concrete and potentially severe. The first consequence is personal liability. If management fails to act on the duty, and the company subsequently goes bankrupt, the liquidator and creditors can bring claims against management members personally. The liability covers the portion of the loss attributable to the delayed reaction — i.e. the loss creditors suffer that could have been avoided if management had acted in time. The second consequence is forced dissolution. The Danish Business Authority (Erhvervsstyrelsen) can petition for forced dissolution if the company fails to meet its corporate law obligations, including holding the mandatory general meeting. Forced dissolution is a drastic outcome: the company is handed over to the Probate Court, which appoints a liquidator, and the company's activities may be halted. The third consequence is loss of creditworthiness. Banks, suppliers and customers can see on the CVR register whether a company has had capital-loss situations. A company that repeatedly hits §119 without acting sends a signal of uncontrolled operations. This affects loan terms, credit insurance and business relationships. And the fourth consequence, rarely mentioned: the psychological burden. Danish entrepreneurs who suddenly discover they are in a §119 situation describe it as a shock. The uncertainty about personal liability, the fear of forced dissolution and the shame of having overlooked the problem create stress that can impair decision-making precisely at the moment when clear decisions are most needed.

Freja's CrisisProtocolService in AdvisorGate is built to detect §119 situations the moment they arise in the bookkeeping — not months later at the annual review. The system works in four layers. The first layer is daily equity monitoring. Freja calculates every day the ratio between equity and registered share capital based on the latest figures from e-conomic. CVR data is used to fetch the correct registered capital — it's not a number the owner has to enter, but a verified data point from the Danish Business Authority's register. The second layer is early warning at 60%. Freja sends a yellow warning when equity hits 60% of registered capital — 10 percentage points above the statutory threshold. This gives management a buffer to act before §119 activates. The third layer is the §119 alert at 50%. When the threshold is crossed, the event is logged with a timestamp and a 6-month countdown starts. Freja sends a red alert to the owner with specific information: current equity level, threshold value, date of establishment, and deadline for the general meeting. The fourth layer is an action plan. Freja suggests concrete measures based on the specific company's situation: capital increase from the owner, debt conversion (converting owner loans to equity), sale-and-leaseback of assets, cost reduction, or accelerated debtor management. Each recommendation is quantified with specific DKK amounts.

When §119 is triggered, a 6-month deadline begins. Within this period, management must hold a general meeting and report on the situation. But the rule requires more than just a report — it requires management to propose measures. In practice there are typically three paths: Path 1 is capital restoration. The owner injects capital — either in cash or by converting existing loans to the company into equity. For an ApS with DKK 15,000 in equity and a threshold of DKK 20,000, a minimum of DKK 5,001 is needed. In practice it's recommended to inject significantly more to create a buffer. Path 2 is operational recovery. Management presents a plan to generate positive results that restore equity over the coming months. This requires credible documentation — and this is where Freja is invaluable: the system can generate liquidity forecasts, budget scenarios and break-even analyses that support the plan's credibility at the general meeting and with the accountant. Path 3 is dissolution. If management concludes the company cannot be recovered, a proposal for voluntary dissolution or solvent liquidation is put forward. The accountant's role in this process cannot be understated. The accountant should review Freja's data, validate the equity calculation, and assist with drafting the report presented at the general meeting. Freja produces the data foundation — but the legal and accounting responsibility rests with management and its advisors.