Danish company law

This introduction to Danish company law contains a brief summary of relevant information regarding The Danish Commerce and Companies Agency and the different business structures used in Denmark. Focus will primarily be on public and private limited companies, as these types of companies are the ones most commonly used. The fundamental provisions that have to be observed when establishing and running a Public or Private Limited Company as a vehicle for business operations will be briefly commented on. Other types of business structures include partnerships, limited partnerships, partnerships limited by shares, co-operative limited companies, commercial foundations and the European structures. These business structures will be commented on briefly as well.

It should be noted that a revision of the Danish company law is currently on its way. This revision will affect most areas of the regulation of public and private limited companies. A proposal to change the current acts is expected to be introduced to the Danish Parliament in 2009/2010. When the revision is adopted this introduction will, of course, be amended accordingly.

1.2 The Danish Commerce and Companies Agency

The Danish Commerce and Companies Agency (DCCA) is an agency under the Danish Ministry of Economic and Business Affairs. The DCCA is the single entry point for registration and information for all Danish companies regardless of their legal form. 

The incorporation of Danish companies - as well as some later changes - can be registered online (webreg-portal.dk). On-line registration reduces the registration time considerably. Furthermore, the DCCA has made certain relevant information (e.g. summary extracts of the full list of members of the board of directors, members of the board of management, auditors, information on who has the power to bind the company, filing time of the last annual report and the financial year) regarding the registered companies, available on-line at the Central Business Register (CVR.dk).

Branches of foreign limited companies must be registered in the DCCA as well in order to be able to carry out business in Denmark.

1.3 Corporate Structures

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

The A/S is a limited liability company governed by the Danish Act on Public Limited Companies, which i.a. contains the transposition of relevant EU directives in this area.

1.3.1.1 Incorporation of an A/S

When establishing a public limited company in Denmark, a memorandum of association including a draft of the articles of association must be signed by the founders, and a first general meeting must be held. Several requirements must be met regarding the articles of association. The minimum share capital of a Danish A/S is DKK 500,000, which must be contributed in either cash or assets, after which the registration of the company can take place. Prior to the registration of the company, the founders are personally liable for any and all of the company’s debt. Upon registration with the DCCA, the company receives a registration number (CVR no.).

1.3.1.2 Subsequent amendments to the Articles of Association

The articles of association may be amended after the registration of the company if a resolution to amend is adopted at a general meeting by a “double” qualified majority representing shareholders in favour of the resolution holding two thirds of the total votes represented – unless otherwise stated in the Articles of Association.  

1.3.1.3 Subsequent changes to the share capital

A company’s share capital may be increased or decreased by resolution if this is adopted at the general meeting. Such resolution must be adopted by a double qualified majority – unless otherwise stated in the articles of association. The share capital can, however, never be decreased below the minimum share capital of DKK 500,000. A capital increase grants the existing shareholders a pre-emptive right to subscribe for new shares. Subject to certain majority requirements, the shareholders can agree to waive this right.

1.3.1.4 Voting rights

In an A/S, the holding of shares confers ownership of the company and all shares must carry voting rights. Different classes of shares with different voting rights may be issued; however, the difference in voting power must not exceed a maximum limit of 10:1. Such differences are normally made in the initial offering by issuing preferred “A” shares to the original owners of the company holding the maximum voting rights allowed, and by issuing ordinary “B” shares to the public holding the minimum voting rights allowed.

1.3.1.5 Shareholders’ Agreement

Shareholders may enter into shareholders’ agreements, which are not regulated by the Danish Public Limited Companies Act. Parties to such an agreement should carefully take into consideration, how to ensure that the implementation of the agreement will have the intended effect. A shareholders’ agreements may e.g. contain transfer restrictions in order to establish a defence against unsolicited offers for the company.

1.3.1.6 General Meetings

The shareholders must be registered in a register of shareholders, which – subject to certain exceptions e.g. shareholders in publicly traded companies, which are registered in a securities centre - must contain details of the shareholdings and the name and address of shareholders. The register of shareholders thus makes it possible to give notice to the shareholders of general meetings and to send out copies of the company’s annual reports.

At the general meetings all shareholders have the right to attend and the right to vote in accordance with the voting rights attached to their shares. It is possible for the shareholders to vote by proxy, though certain limitations apply.

Public limited companies may hold general meetings partially or completely electronically.

The company shall hold a general meeting once every year in order to approve the annual report (the annual general meeting), however the shareholders may when needed hold an extraordinary general meeting.

1.3.1.7 Extraordinary dividend payments

At the annual general meeting the shareholders may authorise the board of directors to decide on distributions of extraordinary dividend payments. Such an authorisation does not entail a right for the shareholders to demand distribution of extraordinary dividend payments if the board of directors finds such a distribution unjustifiable. When the board is authorised to decide on distributions of extraordinary dividend payments the authorisation must be inserted into the company’s articles of association.

1.3.1.8 The Management

The management system in a Danish A/S is a “modified” two-tier system with a board of directors, having the overall responsibility of managing the company, and a board of management, responsible for the day-to-day management of the company’s affairs. Compared to other European management structures the Danish two-tier system differs from the general perception of the two-tier structure, e.g. the German structure, as it is possible to have partial identification of members in the two boards.  The board of directors must consist of at least three persons, of which the majority must be elected by the shareholders. The board of directors appoints and dismisses the management board, which shall consist of 1-3 members. Thus the shareholders have an indirect influence on who runs the company on a day-to-day basis. It is not possible for the board of directors to appoint the chairman of the board of directors as member of the management board, as the chairman must not be involved in the day-to-day management of the company. There is no requirement regarding the nationalities of the members of the boards.

1.3.1.9 Employee representation in the board of directors

Companies that have employed an average of at least 35 employees over the last three years are obliged to let the employees decide if they want employee representation in the board of directors. If the employees chose to exercise this right, they are entitled to elect amongst themselves a number of representatives corresponding to half of the total number of directors elected or appointed by shareholders, however the number of employee representatives cannot be less than two. The employee representatives are equal to the other board members in respect of rights and obligations deriving from the membership of the board.

1.3.1.10 Management liability

The Danish Act on Public Limited Companies imposes several duties and obligations on the management of the company and the members of the boards can be held liable for negligent exercises or lack of exercise of their powers and duties. It is thus important that the members of the boards perform their tasks with due diligence and loyalty to the company.

1.3.1.11 Company holding of own shares

The general meeting may authorise the board of directors to purchase shares issued by the company itself, provided that such a purchase of “treasury shares” can be covered by the company’s distributable reserves. It is not possible for the company to exercise the voting rights attached to treasury shares. Moreover a company’s holding of treasury shares may not exceed 10 % of the company’s total share capital, and the total share capital held by others than the company must not be less than DKK 500,000.

1.3.1.12 Restrictions in the company’s granting of loans, securities and use of assets

The granting of loans or securities to a shareholder and the use of company assets for acquiring shares in the company or in its parent company is as a general rule prohibited. The rules are very complex and have given rise to considerable uncertainty.

1.3.1.13 Loss of capital

If the company looses 50 % or more of its nominal share capital, the board of directors shall convene a general meeting within a six month period from the day, when the company lost 50 % or more of its share capital. On this general meeting the board must account for the economic situation of the company and propose any necessary steps or measures, e.g. the dissolution of the company.

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

The ApS is a limited liability company governed by the Danish Act on Private Limited Companies. As the provisions governing the ApS and the A/S to a wide extend are similar, this introduction will focus on the main differences between these two types of company structure.

1.3.2.1 Incorporation of an ApS

When incorporating an ApS, there are a few statutory requirements only to the articles of association. Compared to the A/S the shareholders of an ApS are thus less restricted when deciding how to organise the affairs of the company. An ApS must have a paid up share capital of at least DKK 125,000 or the equivalent in EUR.

1.3.2.2 Shares and voting rights

The holding of shares confers ownership of the company. It is possible to issue shares with different voting rights, as is the case with the A/S, but contrary to the A/S, the ApS may issue shares with no voting rights at all. It is not possible for an ApS to issue negotiable shares, which is why only the shares in an A/S can be traded on a regulated market. Furthermore, contrary to what is the case concerning the A/S an ApS may not purchase its own shares.

1.3.2.3 Management

In contrast to an A/S, an ApS can have a one-tier system; however a two-tier system can be established, if preferred. This means that the company can be run by either a Board of Directors, by a management board, or by both. It should be noted, that if the employees decide on employee representation (cf. above about employee representation in an A/S), an ApS must have a board of directors.  There are no requirements regarding the nationality of the board(s) of the company.

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

Partnerships are established through a partnership agreement. The content of such an agreement is not regulated by legislation, but the Danish Act on Commercial Undertakings governs certain general aspect of the partnerships. The partners in a partnership are jointly and severally liable for the obligations of the partnership. Except for in relation to tax matters, the partnership is regarded a separate legal entity. The partnership must be registered with the DCCA, if all of the partners are subject to limited liability.

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

Limited partnerships must have one or more “general partners”, who are fully personally liable for the obligations of the partnership, as well as some “limited partners”, whose liability is maximised to the capital they have contributed to the partnership when entering. The general partners can be limited liability companies.

The Danish Act on Certain Commercial Undertakings regulates the formation of the company, the content of the articles of association, the power to bind the company and the registration of the company. The articles of association govern the limited partnership and must be registered with the DCCA.

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

What characterises a partnership limited by shares is that one or more of the limited partners in the partnership are public limited companies, whose liability is limited to the entire share capital or specific amounts divided on shares. Thus, this kind of partnership is a variety of the Limited Partnership.

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

 The objects of co-operative limited companies are to promote the common interests of their members and, in proportion to their share of the turnover of the business, to distribute profits or proceeds among the members.

The business of the typical co-operative limited company consists of buying and selling from the participants of the co-operative. Some of Denmark’s largest agricultural organisations are organized as co-operatives.

3.3.7 Commercial Foundations (”Erhvervsdrivende fonde”)

Commercial Foundations are based on a charter in which the object of the foundation, the administration of the foundation, the election of the administration and the distribution of the means of the foundation to the beneficiaries are determined. It is not easy to amend the articles later on, and requires the authorisation of the DCCA, which as a rule has the authority to supervise most foundations, with the ultimate approval of the Danish Ministry of Justice.

There are no owners of a foundation but only beneficiaries. Commercial Foundations are governed by the Act on Commercial Foundations, which contains a set of provisions similar to some of the provision in the Act on Public Limited Companies.

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

The SE-company is a European equivalent to a national public limited company such as the Danish A/S.

SE-companies are governed by directly applicable Community legislation and are able to operate throughout Europe. An SE-company registered in Denmark is moreover to some extend governed by Danish law, i.e. specific SE-company acts transposing EU directives, i.a. in respect of employee participation.

The establishment of an SE-company requires a cross-border element, e.g. a merger between companies in 2 different EU member states.

3.3.9 The European Cooperative Society (abbreviated as “SCE”)

The SCE is the European equivalent to a national cooperative society.

The SCE is a cooperative society governed directly by Community legislation. As is the case with the SE-company, if an SCE is to be registered in Denmark it must comply with some specific Danish regulation as well.

The establishment of an SCE – like the SE-company – requires a cross-border element.
Physical persons residing in different member states or legal entities established under the law of different member states may establish an SCE. It is possible under certain circumstances to conform existing companies into a SCE.