New Bill on Commercial Foundations

Date 8 jan. 2013
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Introduction

18 December 2012, the Trade Funds Committee published its report on new legislation for commercial foundations. The report contains a bill on updated and modernised provisions for commercial foundations.

The Purpose of the Bill

It appears from the report that its purpose is to reflect the great societal importance of commercial foundations in their capacity as participants in numerous large Danish companies.


As a consequence hereof, the report contains suggestions for changes to the current legislation, including:

  • Stricter provisions on supervision
  • Increased requirements for the independence of the foundation’s management
  • Requirements as to increased transparency
  • Recommendations for good Foundation Management to be used according to the ”comply-or-explain” principle
  • Increased regulation of auditors’ role and powers

In the following, the background for the report and the bill regarding commercial foundations is outlined.


Changes in Relation to Management

The bill contains proposed amendments regarding the management and transparency of commercial foundations. These are of importance for the object of commercial foundations and their stakeholders. These proposed amendments include:

  • Prohibition on subsidiary companies appointing members to the foundation’s board of directors
  • Prohibition on an executive in a subsidiary company simultaneously being chairman or deputy chairman of the foundation’s board of directors
  • In future, the Board of Directors must observe  the ”comply-or-explain” principle and respond to the Recommendations for good Management of Foundations, including the recommendations regarding board members’ independence
  • In future, commercial foundations must give a statement on the  management of the foundation in the management review or on the foundation’s homepage
  • The boards of directors’ and the director’s tasks as well as the rules regarding board meetings conducted in writing must be specified
  • Possibility for the commercial foundations supervisory authority to order the Board of Directors to dismiss the director

Changes in Relation to Auditors

The bill also implies a number of changes regarding Auditors’ functions. Among these are:

  • Requirement that an annual accounting meeting be held. The auditor must participate in this meeting. An exemption may be made to this requirement if it is specifically agreed that the auditor’s participation is not necessary
  • In future, the auditor may summon board meetings on equal terms with the board of directors and the commercial foundations supervisory authority
  • Auditors appointed in accordance with the foundation’s articles of association may in future sit for a maximum of seven years after the foundation’s incorporation. Thereafter, the board of directors must every year appoint an auditor at the foundation’s accounting meeting
  • Both the auditor and the board of directors must explain the resignation or dismissal of the auditor if the termination is due to disagreements between the auditor and the board of directors
  • The role of the commercial foundations supervisory authority in relation to the auditor will be intensified by the authority being entitled to appoint a co-auditor. Furthermore, the auditor’s duty to notify the commercial foundations supervisory authority of infringements is changed from “may” to “shall” and may in future also concern minor infringements

Changes in Relation to the Commercial Foundations Supervisory Authority

In relation to the commercial foundations supervisory authority, the bill contains changes which imply that the authority may intensify the supervision of commercial foundations. Among these changes are:

  • In future, the commercial foundations supervisory authority will be able to dismiss a board member if the member is “unqualified”. This is a softening relative to existing legislation where the board members must be “clearly unqualified” in order to be dismissed
  • In future, the Department of Civil Affairs must approve changes to the objects clause, changes to provisions regarding dividends and provisions regarding liquidation
  • Should the board of directors violate the regulation, the commercial foundations supervisory authority may impose orders. Additionally, the authority may demand that the Board of Directors respond to the Recommendations for good Foundation Management

Our Assessment

The bill sets the stage for significant changes in the aforementioned core areas and should be understood in the context of the focus on corporate governance which for years has been placed on listed companies, including with regards to the “comply-or-explain” principle.


As regards the suggested changes regarding management, auditors and supervision, there will be a number of mandatory requirements which commercial foundations must comply with and adapt to. These changes must be understood in in the context of the general focus on commercial foundations in their capacity as significant shareholders in a number of large Danish companies and the impact that this has on society.


Further, a number of the principles known from company law will now also apply to commercial foundations. This is also seen in the context of the foundations’ importance according to the report.


Should you have any questions or wish further information on the above, please contact partner, David Moalem (dam@mwblaw.dk), senior associate Henning Hedegaard Thomsen (hht@mwblaw.dk) or junior associate, Mette Wigand Bode (mbo@mwblaw.dk).



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 or considerations.