Doing Business In: Denmark

Lund Elmer Sandager

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The Danish Business Environment

Denmark’s attractive flexible hiring rules, personal freedom and absence of corruption make Denmark one of the world’s best places to do business for both Danish and foreign companies.

Denmark is a modern market economy and takes the lead with a high-tech agricultural sector and world leading companies within e.g. the pharmaceutical, maritime and renewable energy industry. Further, Denmark offers highly competitive business costs and has a highly skilled workforce. Danish citizens benefit from a broad-based economy, solid educational system, and democratic traditions.

The Danish economy is small but strong and highly geared to trade with other countries. Historically, Denmark has strong business relationships with especially Germany, Sweden and the Nordic region in general. While danish tax levels are among the highest in the world, unemployment rates are significantly low measuring only 4,9 % in 2020 – even despite the coronavirus crisis.

The Danish economy had a robust growth between 2016 and 2018, sustained by growing public spending, domestic demand and exports. In 2019 the economy slowed down, and GDP increased moderately. Together with Sweden, Finland and Norway, Denmark forms part of the Nordic market which is the 11th largest economy in the world.

Much like fellow Scandinavian countries, Denmark has a highly stable and diversified economy with income and taxation among the highest in the world.

Key industries include renewable energy, pharmaceuticals and the maritime sector.

In a recent survey by Forbes Business Magazine, the World Bank calls Denmark No. 1 in Europe and No. 4 in the world for ease of doing business. And despite the taxes necessary to support the social welfare state, Denmark comes in 7th in the world on the most inviting countries for capital investment (Best Countries for Business 2019, Forbes Business Magazine).

Renewable energy

Denmark is the home of world-class companies in several industries, however especially renewable energy is a specialty where Denmark is considered a word leader. More than 40 years of ambitious energy policies have helped to put Denmark in the forefront of “cleantech”, and the Denmark has a goal of being completely independent of fossil fuels by 2050.

Entrepreneurship in Denmark

The entrepreneurial culture in Denmark is thriving these years. Clusters within information technology, life sciences, and cleantech are booming and so are entrepreneurial clusters within food, maritime and design.

A strong collaboration across the Danish government, investors, startup communities and enterprise companies has been crucial in the recent years boost in entrepreneurship in Denmark.

The start-up scene continues its solid international reputation with M&A activity and listings on the Nasdaq First North growth market remaining strong; data protection and data privacy expertise has also become an integral part of any full-service offering in a post-GDPR market.

Due to the close academic and industrial collaboration between companies and the Danish universities, Denmark is thus a successful country when it comes to start-ups and entrepreneurship.

Company forms in Denmark – the main categories

In Denmark, there are three main categories of company forms, all of which allow different company types:

– limited liability companies, which can be set up as:

  • iværksætterselskaber (in short: IVS)*
  • anpartsselskaber (in short: ApS)
  • aktieselskaber (in short: A/S)

– unlimited companies or partnerships, which can be set up as:

  • enkeltmandsvirksomheder (in short: ENK)
  • interessentskaber (in short: I/S))

– limited partnerships, which can be set up as:

  • partnerselskaber (in short: P/S)
  • kommanditselskaber (in short: K/S).

*It has been decided that no new IVS companies can be established as of spring 2019, and that the current IVS companies must be transformed to other limited liability companies before October 2021.

The main differences between the three are the requirements for capital contributions and liability. In this respect, limited liability companies and limited partnerships are the same, however, as opposed to unlimited companies/partnerships

Generally, the most commonly used form of company in Denmark is the limited liability company. With regard to foreign companies seeking to establish presence in Denmark, they typically tent to choose to do so through a limited liability company or through a branch, rather than through an unlimited or limited partnership.

The Danish corporate governance model

The general rule is that all shares of a Danish limited liability company hold equal rights. However, the Danish Companies Act (in Danish: Selskabsloven) provides the possibility to assign different rights to different classes of shares regarding voting and economic rights.

The Danish Companies Act sets out the various forms of governance for Danish limited liability companies. A limited liability company can choose between the following governance structures:

1) A governance structure in which the limited liability company is managed by a board of directors (in Danish: bestyrelse) that handles the overall and strategic management. The board of directors must appoint an executive board (in Danish: direktion), which either consists of one or more persons among the members of the board of directors or of a person outside the board.

The majority of the members of the board of directors in a public limited company (in Danish: aktieselskab) must be persons who are not executive managers in the company. Also, in a public limited company the executive manager may not at the same time be the chairman or deputy chairman of the board of directors in the company.

2) A governance structure in which the limited liability company is managed by an executive board. In public limited companies, the executive board must be employed by a supervisory board (in Danish: tilsynsråd) that supervises the executive board. A member of the executive board may not be a member of the supervisory board.

In public limited companies, the board of directors or supervisory board must consist of at least 3 people.

The general meeting of shareholders

The general meeting of the shareholders is the supreme decision-making body of a Danish limited liability company. It constitutes the forum where the shareholders of the company may exercise their influence over the company. Each shareholder has a statutory right to participate in the shareholders’ meeting and to vote (in person or by proxy) based on the number of shares owned.

The general meeting of the shareholders can decide upon any company matter, excluding decisions that fall within the exclusive competence of the board of directors (e.g. dividend proposals), the executive board or the auditor. Furthermore, the general meeting of the shareholders has exclusive decision-making power in certain matters, such as amendments to the articles of association or the appointment of board members and the auditor(s). In general, resolutions at the general meeting of the shareholders are passed by simple majority vote, however, certain decisions require qualified majority.

The board of directors

In companies with a board of directors, the body is the second highest decision-making body and the highest executive body. The board of directors has a very broad mandate and may decide upon more or less all operational matters as well as any other matter, which do not fall within the exclusive competence of the general meeting of the shareholders, the executive board of directors or the auditor(s). The members of the board of directors are appointed at the general meeting by the shareholders. The board of directors is responsible for the administration of the company and management of the company’s affairs. For example, the board of directors is responsible for setting out the overall operational goals and long and short-term strategies for the company as well as adopting decisions which are not of a “day-to-day” character. Any decision that has a long-term effect on the company should, in principle, be adopted by the board of directors.

The board of directors is furthermore responsible for allocating work and duties between itself and the executive board and also other committees established by the board of directors (e.g. remuneration committee). The board of directors must introduce written instructions on how matters outside the “day-to-day” business of the company, shall be reported to the board of directors.

Executive board

The role of the executive board is mainly to administer and manage the “day-to-day” operations of the company in accordance with the instructions and guidelines provided by the board of directors. The “day-to-day” management of the company entails, inter alia, decision making regarding the operations that are of regular nature and monitoring the work of the company’s employees. The determination of the term “regular nature” is of course dependent upon several factors, including the size and nature of the company’s business. Any matter of unusual or exceptional nature, taking into account the scope and nature of the company’s business, is not considered to form part of the “day-to-day” management.

Doing private and public M&A transactions in Denmark

Private M&A transactions in Denmark

With regards to business acquisitions of limited liability companies in Denmark, the most common course of action is to acquire all shares of the target company. However, the acquisition may also be carried out as an asset transfer. The second alternative may be more beneficial under certain circumstances, for example if the target company holds assets and/or liabilities that the buyer wishes to exclude from the transaction or if regulatory clearances prevent a share deal.

The most predominant form of payment in Danish private M&A transactions is cash payment and the most important steps of a private M&A transaction in Denmark are:

  • Pre-contractual arrangements, e.g. entering into a letter of intent for the purpose of facilitating further negotiations between the seller and the prospective buyer.
  • The buyer will conduct a due diligence review (business financial, tax, legal, technical, environmental etc.), based on the information provided by the seller (usually in a virtual data room). The need for a buyer to be thorough when conducting due diligence review is underlined by the fact that it is market practice in Danish private M&A share sale and purchase agreements that all information included in the due diligence data room in reasonable detail and context is considered “disclosed” to the buyer in a way that excludes seller liability in case of breach of a seller’s warranties where the circumstances constituting the breach are fairly disclosed in the data room.
  • The parties entering into a sale and purchase agreement, including provisions on inter alia purchase price mechanisms (for adjusting the price between signing and closing), provisions on warranties (including warranty periods, warranty thresholds, etc.), conditions precedent (e.g. obtaining relevant regulatory approval from supervisory authorities), non-compete clauses and confidentiality clauses.
  • It should be noted that the use of warranties & indemnities insurances is common in Danish private M&A transactions to limit the seller’s liability in case of warranty breaches.

Foreign investments

There are basically no restrictions discriminating foreign investments in Denmark and a shareholder of a Danish company may reside anywhere in the world. It should nevertheless be noted that some businesses require licenses.

The Danish legal system

The Danish legal system is a civil law system based primarily on statutes and regulations which are supported by preparatory works and case law. Denmark has no federal system.

Since Denmark is a member of the EU, a large amount of the legislation affecting Denmark is enacted by the EU. Some of these laws are directly applicable without any actions from the Danish Parliament, while others must be implemented in Danish legislation before they can take effect. With regards to legislation from EU, the main source of interpretation is verdicts from the European Court of Justice.

The Danish courts

In Denmark, there are three instances within the ordinary court system: The District Court (in Danish: byret), the High Court (in Danish: Landsret) and the Supreme Court (in Danish: Højesteret). There are 24 district courts in the country, each court covering a certain district and thus trying cases with a certain link to that district.

Cases can generally be appealed once. A District Court decision can be appealed to the High Court and the High Court decisions to the Supreme Court. There are only two High Courts in Denmark: Western High Court and Eastern High Court. However, a District Court decision that has been considered by the High Court as an appeal case may exceptionally be appealed to the Supreme Court, which, however, requires a special procedural grant.

The Maritime and Commercial Court

Besides the ordinary courts that deals with all types of cases, there is the Maritime and Commercial Court that is composed by a judge and two persons who are knowledgeable in maritime or commercial matters. The Maritime and Commercial Court also handles probate proceedings regarding bankruptcy, notified suspension of payments, compulsory composition and debt restructuring in Copenhagen. From the Maritime and Commercial Court, there is access to appeal directly to the Supreme Court; Decisions made by the probate department are, however, appealed to the Eastern High Court.

Other court areas

Furthermore, there are a number of special courts, each with its own subject area.

Dispute resolution

Public court proceedings

As a general rule, all court hearings are public, and all documents handed in to the courts will become official documents that can be accessed by the public. This is one of the key reasons why Danish commercial contracts often include arbitration clauses.

Arbitration

Arbitration, in contrast to court proceedings, presupposes that the parties agree to have the dispute settled by arbitration.

If the parties have agreed that a particular dispute or any future disputes in a particular legal relationship are to be settled by arbitration, the agreement implies that the dispute shall not be resolved by the courts, but rather by the arbitral tribunal established by the parties’ agreement.

The arbitral tribunal shall consist of one or more arbitrators chosen by the parties themselves. Arbitration is thus characterized by the parties, instead of going to court, setting up a private court, the arbitral tribunal, which settles the dispute with binding effect for the parties. The basis for this is the arbitration agreement of the parties.

The arbitral tribunal may be established either through an arbitration institute (institutional arbitration) or in an independent basis (ad hoc arbitration).

Intellectual property rights and business secrets

Intellectual property rights give the author the exclusive right to exploit it for commercial purpose. The intellectual property rights can be defined as a kind of property right, which gives the right to intellectual creations.

The categories of intellectual property rights in Denmark are patents, trademarks, registered designs and copyrights. When conducting business in Denmark, it is important to know the relevant rules regarding scope, legal requirements, registration processes and length of protection etc., to ensure that intellectual property assets of the company are protected against infringements.

Inventions and works are protected by law, which means that there are clear guidelines for how the creations are protected and how far this protection extends. However, not all creations are protected by the same law, but rather by five different laws, which is why different rules also apply to the scope of protection; The Patent Act (in Danish: patentloven), Ulility Model Act (In Danish: brugsmodelloven), Trademark Act (in Danish: varemærkeloven), The Design Act (in Danish: designloven) and Copyright Act (in Danish: ophavsretsloven).

It should initially be noted that intellectual property rights in general have been subject to rather extensive legislative measures (e.g. directives and regulations) from the legislative bodies of the EU. Consequently, the intellectual property rights of the member states of the EU have been harmonized to a rather large extent.

Danish employment law

The main sources of employment law are legislation, collective bargaining agreements, individual contracts and case law. Regulation of such law is influenced by the implementation of European Union Directives to the national law.

Employees in Denmark

Generally, Danish employment law distinguishes between three main groups of employees:

  1. white-collar employees,
  2. blue-collar workers, and
  3. managing directors responsible for the day-to-day management of a company or people who are self-employed.

The terms and conditions of white-collar employees, as well as their protection in each employment relationship, are typically regulated by the Danish Salaried Employees Act and are also reflected in the individual terms of employment contracts.

Certain groups of typically non-academic white-collar employees (primarily office and administrative staff, as well as sales assistants) are – depending on the industry and in addition to the Salaried Employees Act – typically comprised by collective bargaining agreements.

Blue-collar workers are to a large extent covered by collective bargaining agreements. The Danish labor market is characterized by a long tradition of employer and trade union negotiations regarding collective bargaining agreements for blue-collar workers. The agreements between the labor market organizations ensure protection in employment.

An increasing number of statutory laws apply to all kinds of workers due to the influence of the European Union. EU regulation can be implemented through law (mandatory) and, typically, through collective bargaining agreements. Workers who are not subjected to the Salaried Employees Act or a collective bargaining agreement are not protected in employment against unfair dismissal.

An important distinction in Danish employment law is made between employees and managing directors (and the self-employed). According to the Danish Companies Act, managing directors are responsible for the day-to-day management of a company and are not subjected to instruction under the principles of the managerial right.

As a general rule, a managing director falls outside the scope of the Danish regulation adopted for the protection and safeguarding of employees; this is also the case for the self-employed.

GDPR Compliance – five takeaways

The General Data Protection Regulation (“GDPR”) regulates processing of personal data. The following is five initial measures to be taken towards GDPR compliance:

  • Do an inventory of what personal data you process and where it is stored.
  • Keep a registry of the personal data you process and the purposes for the processing in accordance with article 30 of the GDPR.
  • Establish policies for the processing of personal data in order to fulfill the GDPR requirements of information to the data subjects regarding the categories of data being processed, purpose of the processing, the data subject’s rights according to GDPR et cetera. Apart from establishing a policy regarding the processing of customer data, do not forget to establish a policy with regard to your employees and their data that you process within the framework of the employment.
  • As a supplement to the policies, establish clear routines regarding the processing of personal data within the company and make sure that your employees are educated regarding GDPR and the processing of personal data.
  • Make sure that you have taken accurate and appropriate security measures in order to protect the personal data and formalize it in an IT security policy.

If you have any questions to the above or if you are considering doing business in Denmark, please contact Partner, Attorney Jacob Roesen at jro@les.dk or visit www.les.dk to read more about Lund Elmer Sandager.