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Company law

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Danish company law is characterised by a wide freedom of organisation.

The Public Limited Company and the Private Limited Company are the most commonly used forms of business organisation, which makes them the primary focus of this article. Both forms offer limited liability.

On 29 May 2009, the Danish Companies Act was adopted, and is expected to be put into force sometime close to the turn of 2009. This will effectively cause some fundamental changes, as it will replace both the Danish Public Companies Act and the Danish Private Companies Act, combining legislation for both company forms into one act. In several significant areas of Danish company law the changes will be considerable.

For this reason, this article contains an addition after each paragraph explaining the effect that the new Danish Companies Act will have in that particular area.

Other possible forms of business association include Partnerships, Limited Partnerships, Partnerships Limited by Shares, Co-operative Limited Companies, Commercial Foundations and The European Company. These forms of companies will only be briefly described.

Is it necessary to register a company in Denmark?

All companies – regardless of choice of organisation – must be registered with the Danish Commerce and Companies Agency (DCCA).

How is a business incorporated?

Public Limited Companies (”Aktieselskaber”, abbreviated as ”A/S”)

The A/S is a limited liability company governed by the Danish Public Companies Act, which conforms to EU legislation by implementing the relevant directives within this area. An A/S must have a minimum share capital of DKK 500,000 or the equivalent in EUR.

How is an A/S incorporated? 

Initially, the founders, who wish to incorporate a Danish A/S, sign a memorandum of association and draft articles of association. The Danish A/S is then incorporated at a general meeting. The share capital must be paid in full prior to registration with the DCCA. The share capital may consist of either cash or assets. The founders are personally liable for any and all of the company’s debt prior to the registration of the company, and when the company is registered, the company receives a registration number (CVR no.) from the DCCA.

When the Companies Act comes into force, the incorporation of a Danish A/S will be deregulated. After signing a memorandum of association and draft articles of association, the founders must apply for registration of the A/S with the DCCA within two weeks. A general meeting will no longer be required. In addition, only 25% of the share capital must be paid in prior to registration, although if a premium is set, the premium must be paid in full, and if the payment consist entirely or partly of assets, the share capital must be paid in full.

Who can act as founders of a Danish A/S?

The founders of a Danish company can be physical persons as well as legal entities, and there are no requirements to nationality or address, thus a legal entity from any country can act as founder of a Danish A/S.

How do I register an A/S with the DCCA?

Registration of a company may be made online through the Webreg system making it possible to incorporate companies instantly. Certain relevant information about the registered companies (for example members of the board of directors, name of managers, name of auditors, who has the power to bind the company, filing time of the last annual report and the financial year) is available online to the public through the CVR system.

However, registration online is not available to a founder who is not a Danish citizen or a Danish company.

How may the articles of association be amended?

The articles of association may be amended at a general meeting by a “double” qualified majority representing at least two thirds of the total votes cast at the general meeting and at least two thirds of the capital represented at the general meeting unless stricter requirements appear from the articles of association.

How are changes in the share capital handled?

The share capital may be increased or decreased by a general meeting by a qualified majority representing at least two thirds of the total votes cast at the general meeting and at least two thirds of the capital represented at the general meeting unless stricter requirements appear from the articles of association. However, the share capital may not be decreased below the minimum share capital of DKK 500,000.

Do existing shareholders have a pre-emption right?

Existing shareholders have a pre-emptive right to subscribe for new shares. However, the shareholders may choose to waive this right.

Do all shares carry voting rights?

All shares of the company must carry voting rights.

When the Companies Act comes into force, it will be possible to have shares with no voting rights. This limitation must be stated in the articles of association.

Is it possible to construct different share classes with different voting rights etc.?

Different classes of shares with different rights may be issued. However, no share may carry more than 10 times the voting rights of any other share of the same nominal amount and all shares must carry voting rights.

Other rights may be attached to the different share classes such as preferential rights to dividend and/or liquidation proceeds.

When the Companies Act comes into force, the present limitations on share classes concerning to what extent voting rights may differ are terminated, and some shares may carry no voting rights at all.

Is it possible to regulate the inter-shareholder relationship, e.g. with regards to voting rights?

Shareholders may enter into shareholders’ agreements which are not regulated by the Danish Companies Act and are not publically available. Shareholders’ agreements may for example contain provisions on voting rights or transfer restrictions. Such restrictions may be used as a defence against unsolicited offers for the share capital of the company.

When the Companies Act comes into force, the matter will be regulated by law, as it states that shareholders’ agreements do not bind the Danish A/S and thereby have no effect on the decisions made by the general meeting.

Do all shareholders have the right to attend and vote at general meetings?

Every shareholder has the right to attend general meetings as well as the right to vote in accordance with the voting rights attached to their share(s). The company itself is an exception to this rule, as it may not exercise voting rights carried by any shares it holds as treasury shares. Shareholders may vote by proxy, although certain limitations apply. Companies may hold general meetings partially or completely electronically depending on the articles of association. The company must hold a general meeting at least once every year in order to approve the annual report (annual general meeting). Additional extraordinary general meetings may be held when needed.

When the Companies Act comes into force, any shareholder holding shares which are not paid in full will forfeit the right to vote, if the shares are not paid in full in compliance with the company’s right to demand such action.

Is the ownership of shares in a Danish A/S public?

Each company is required to keep a non-public register of shareholders. This will for instance enable the company to give timely notice to the shareholders of when general meetings are to be held and otherwise correspond with the shareholders.

Shareholders, whose shareholdings represent 5% or more of either (i) the voting rights or (ii) the nominal value of the share capital exceeding DKK 100,000, shall give notice to the company and the company shall keep a register hereof.

The register shall be available at the company’s registered office for inspection by public authorities, shareholders and members of the board of directors.

When the Companies Act comes into force, the company is continuingly required to report to the DCCA about every shareholder, who gives information as required when reaching or no longer reaching a minimum of 5%, 10%, 15%, 20%, 25%, 50%, 90% or 100% or reaching any limit of 1/3 or 2/3 of the voting rights or of the share capital. The DCCA keeps a register of this information, which is made public.

When can an A/S distribute dividend?

The decision to pay out dividend is generally decided at the annual general meeting in connection with the approval of the annual report.

The shareholders may also decide to include a provision in the articles of association, whereby the board of directors is authorised to decide whether or not to distribute interim dividend. The board of directors is entitled to decide how much dividend should be paid – if any – and the shareholders are not entitled to demand such payment.

When the Companies Act comes into force, it will no longer be required to include such a provision in the articles of association when authorising the board of directors to distribute interim dividend.

Do statutory requirements to the composition of the management apply?

In an A/S, the management system consists of a two-tier system with a board of directors having the overall responsibility of managing the company, and an executive managing director – or management board in case of multiple managing directors – appointed and dismissed by the board of directors and responsible for the day-to-day management of the company’s affairs. The board of directors shall consist of at least three members of which the majority must be elected by the shareholders. The chairman of the board of directors may not be a managing director, and members of the management board must only make up a minority of the board of directors. No members of the management are required to be Danish nationals.

When the Company Act comes into force, the management system is made subject to freedom of choice between two systems. The first possibility is the abovementioned system with a board of directors and an executive managing director or a managing board. The second possibility is to have a supervisory board to secure internal control and an executive managing director or a managing board, appointed and dismissed by the supervisory board and responsible for the day-to-day management of the company’s affairs. The supervisory board shall consist of at least three members of which the majority must be elected by the shareholders. No member of the supervisory board may be executive managing director or a member of the managing board. Despite the supervisory board being part of the management system, it does not manage the company’s affairs, but supervises the executive managing director or managing board. Both are two-tier systems.

Are employees entitled to representation on the board of directors?

In the event that a company employs an average of at least 35 employees over the last three years, the employees are entitled to elect amongst themselves two or more members to the board of directors.

May the management be held liable?

The management may be held liable for negligence or lack of exercise of their powers and duties. It should therefore always be considered to obtain adequate insurance against management liability.

Can an A/S hold its own shares?

The board of directors may be authorised by the general meeting to purchase treasury shares, provided that the total number of shares owned as treasury shares does not exceed 10% of the total share capital of the company. In addition, the total share capital held by third parties must not be lower than DKK 500,000. The company may not exercise the voting rights attached to such shares.

When the Company Act comes into force, the limitation of 10% is terminated, but the limit of third party share capital being at least DKK 500,000 remains. No treasury shares can be acquired by subscribing for shares, and any treasury share must be paid in full prior to its acquisition.

May the A/S grant loans to shareholders and members of management?

A company is prohibited from granting loans or securities to a shareholder or a member of the management in the company or its parent company. Furthermore, a company is prohibited from granting loans or securities to a third party using company assets for the purpose of his acquisition of shares in the company itself or in its parent company.

When the Company Act comes into force, it will be made possible to grant loans or securities to shareholders and members of the management in the company or its parent company, if such financial aid is given in connection with the beneficiary’s acquisition of shares in the company itself, as it is made generally possible for the company to grant such loans and securities to anyone for this purpose, when following a certain procedure including acceptance by the general meeting.

In addition, it is made possible to grant loans not only to parent companies located in the EU/EEA, but to parent companies located in certain other countries determined by the DCCA as well.

What happens if an A/S looses its share capital?

If more than 50% of the share capital of a company is lost, the board of directors is obligated to convene a general meeting no more than six months after the board of directors realised that the company had sustained such losses. At the general meeting, the directors shall state their view on how to improve the financial situation of the company including the possible voluntary liquidation of the company or restoration of the company’s share capital.

When the Company Act comes into force, the obligation to convene a general meeting rests with whichever central management body the company has chosen. The existing 50% limit remains, but an additional limit of DKK 62,500 is set as well. No matter the size of the share capital, a general meeting must be convened, if the share capital is less than this amount.

Private Companies (“Anpartsselskaber”, abbreviated as “ApS”)

The ApS is a limited liability company governed by the Danish Private Companies Act, somewhat similar to the A/S but generally with fewer restrictions and formal requirements. The following focuses on the main differences between the A/S and the ApS.

When the Company Act comes into force, it will effectively replace the Danish Private Companies Act, and a Danish ApS will be governed hereby. There will still be fewer restrictions for an ApS than for an A/S, but the regulations will be more alike.

How do you incorporate an ApS?

Only few statutory requirements apply to the articles of association. However, an ApS must have a share capital of at least DKK 125,000 to be paid in full prior to registration. An ApS is registered in the same way as an A/S. Otherwise; the shareholders have a great deal of latitude to decide on how to organise the affairs of the company.

When the Company Act comes into force, the procedure for incorporating an ApS will be the same as the procedure for incorporating an A/S. This means that it will be possible for others than the founders to subscribe for shares, although the shares in an ApS may not be offered to the public, as opposed to the shares in an A/S. In addition, it will be sufficient to have a share capital of at least DKK 80,000 to be paid in full prior to registration.

Are there specific rules with regards to shares and voting rights in an ApS?

An ApS may - as is the case with the A/S - issue shares with different voting rights. However, an ApS may – contrary to the A/S – issue shares with no voting rights at all. On the other hand, an ApS may not issue negotiable shares. Thus, the share of an ApS may not be listed on a regulated market, and an ApS is prohibited from purchasing or holding treasury shares.

When the new Company Act comes into force, the difference between an A/S and an ApS with regards to shares with no voting rights will be eliminated, as it will be possible for an A/S to have such shares as well. It will also be possible for an ApS to purchase or hold treasury shares.

What are the requirements to the management structure in an ApS?

There is no requirement for a two-tier management structure in an ApS, as is the case with an A/S. The management may consist of a board of directors or a management board or both, each having at least one member. However, if the employees are entitled to representation on the board of directors - see above about employee representation in an A/S - the company must establish a board of directors. No members of the management are required to be Danish citizens.

When the new Company Act comes into force, it will no longer be possible for the ApS just to have a board of directors. The possibilities will be to have a management board and a board of directors, a management board and a supervisory board or just to have a management board.

When can an ApS pay dividend?

The management has no veto right against a decision made by the shareholders to distribute dividend in connection with the annual general meeting and adoption of the annual report. Further, the shareholders can also authorise the management to pay out dividend.

When the Company Act comes into force, the regulations for payment of dividend will be the same for an A/S and an ApS. This means that no decision on payment of dividend may be made without the approval of the management.

Are there specific rules regarding loss of capital and shareholder loans?

The rules are similar to the rules of an A/S, see above.

When the Company Act comes into force, the changes will be the same for an ApS as for an A/S.

Partnerships (“Interessentskaber”, abbreviated as “I/S”)

Partnerships are formed through a partnership agreement. A partnership agreement is not regulated by legislation. However, the Danish Act on Commercial Undertakings along with the general principles of Danish company law governs certain general aspects of the partnership.

Each partner in a partnership is jointly and severally liable for the obligations of the partnership. The partnership is tax transparent. In all other matters, the partnership is regarded a separate legal entity. If all of the partners in the partnership are limited liability entities, the partnership must be registered with the DCCA.

Limited Partnerships (“Kommanditselskaber”, abbreviated as “K/S”)

The Danish Act on Commercial Undertakings regulates certain aspects regarding the Limited Partnerships, including provisions on formation and registration of such companies. However, such companies are generally not subject to such extensive legislation as the company types A/S and ApS. If all general partners are limited liability entities, the limited partnerships must be registered with the DCCA.

Limited Partnerships consist of one or more general partners, who may be limited liability companies, and who are fully liable for the obligations of the limited partnership, and one or more limited partners, whose liability is limited to the contributed capital – or capital agreed to be contributed to the partnership.

The limited partnership is often used as an investment vehicle in private equity structures.

Partnership Limited by Shares (“Partnerselskaber”, abbreviated as “P/S”)

A P/S is essentially a K/S where the limited partners are organised as shareholders in an A/S - or with only one limited partner being an A/S - which has contributed its entire share capital into the P/S.

The P/S is – as opposed to a K/S – comprised by the Danish Public Companies Act, with the exceptions resulting from the fact that the P/S is essentially a K/S.

Like the K/S, a P/S is considered transparent for tax purposes, and the liability of the limited partners are limited to the capital contributed by them.

When the Company Act comes into force, the P/S will definitively be characterised as an A/S.

Co-operative Limited Companies (“Andelsselskaber med begrænset Ansvar”, abbreviated as “A.m.b.A”)

The co-operative limited company’s objective is to promote the common interests of its members and to distribute profits or proceeds among its members in proportion to each member’s share of the turnover of the business.

A typical co-operative limited company consists of buying goods from the participants of the co-operative and selling them to third parties for a profit. Some of Denmark’s largest agricultural organisations are organised as co-operatives.

Commercial Foundations (”Erhvervsdrivende fonde”)

The charter of a commercial foundation regulates the object of the foundation, the administration of the foundation, the election of the administration and how to distribute the means of the foundation to beneficiaries.

Subsequent amendments to the charter require the authorisation of the DCCA. It is often difficult to obtain such approval.

The foundation is a self-owned entity. The Commercial Foundations Act governs the Commercial Foundations, and contains a set of provisions similar to some of the provisions in the Public Limited Companies Act.

When the Company Act comes into force, the reference to the Public Limited Companies Act will be replaced.

The European Company, Societas Europea (abbreviated as “SE”)

As of 8 October 2004, companies have had the option of forming a European subsidiary governed by directly applicable Community Law and are able to operate throughout Europe.

The European Cooperative Society (abbreviated as “SCE”)

As of 18 August 2006, it has been possible for physical persons residing in different member states or legal entities established under the law of different member states to establish an SCE. Under certain circumstances, existing companies may be changed into an SCE.

Overview

The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions of considerations.