Amendments to the Danish Companies Act coming into Force

Date 4 dec. 2013
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On 16 May 2013 the Danish Parliament passed several amendments to the Danish Companies Act on the basis of a "service check" of the Danish Companies Act made ​​in 2012.

 

The Danish Business Authority has announced that a number of these amendments are expected to come into force on 1 January 2014.

 

Commencement on 1 January 2014

A number of important amendments are expected to come into force on 1 January 2014, including:

  • The minimum capital requirement for a private limited company will be reduced to DKK 50,000
  • It will be possible to incorporate entrepreneurial businesses with a share capital of DKK 1
  • The possibility of incorporating SMBA companies will cease
  • The possibility of relocating the registered office to foreign countries.

The important amendments mentioned above will be discussed in more detail below. In addition, the Danish Business Authority expects that a number of clarifications of the Danish Companies Act will come into force. The provisions will take effect through an executive order.

 

Reduction of the minimum Capital Requirement for private limited Companies

The reduction of the minimum capital requirement for the private limited companies from DKK 80,000 to 50,000 will be of particular significance for start-up companies. However, as an entrepreneur it is important to be aware that tax issues should be considered before determining the corporate structure for the company.

 

As a result of the reduction of the minimum capital requirement for private limited companies as well as the possibility to incorporate the entrepreneurial businesses, the companies should have an increased focus on the other contracting parties’ credit ratings.

 

Entrepreneurial Businesses

The entrepreneurial business is a new special type of limited liability company that can have an initial share capital of DKK 1. The entrepreneurial business is called IVS in short. Regardless of the company name, there are no particular limitations as to who can incorporate an entrepreneurial business or what purpose it may have.

 

The incorporation of the company can only be made by cash contribution of the share capital and therefore, it cannot be used to carry out a tax-exempted business transformation from a personally run business.

 

The entrepreneurial business must allocate 25% of the annual profit to a capital reserve that cannot be used for distribution of dividend or covering of loss. However, the requirement of allocating part of the profit to a capital reserve only applies until the share capital with the addition of the capital reserve amounts to DKK 50,000.

 

When the share capital and the equity capital of entrepreneurial business amount to DKK 50,000, the company can be transformed into a regular private limited company or it can continue as an entrepreneurial business.

 

Again, it is important that the tax aspects of the business establishment are considered before setting up the company as, depending on the circumstances, it could be fiscally more appropriate to run the company as a personal company or as a limited partnership company.

 

The other contracting party should pay attention to the fact that an entrepreneurial business will typically not be financially secure and, especially in the light of the reduced capital requirements, the management should be aware that the same rules regarding liability will apply for the entrepreneurial business as for other types of companies.

 

Termination of the Right to incorporate SMBA Companies

So far it has been possible to use the corporate form SMBA (limited liability company). This type of company is to a wide extent not regulated and practice has shown that a higher proportion of these companies become bankrupt compared to other corporate forms.

 

As a result, the draft bill sets the scene for removing the option to establish new SMBA companies as of 1 January 2014. SMBA companies incorporated before 1 January 2014 may continue beyond that date.

 

Relocation of the registered Office to foreign Countries

In order to carry out a cross-border relocation of the registered office, it has so far been necessary to do it through a cross-border merger.

 

As a result of the practice from the European Court of Justice, new rules have been introduced on the access of moving a company’s registered office in the European Union, both regarding companies moving in and moving out. The provisions on cross-border mergers and demergers have motivated the rules.

 

Later Commencement

A number of amendments will enter in to force at a later date, including the following important amendments:

  • The ability to make a partial payment of share premium in private limited companies
  • The ability to omitting an opening balance sheet when investing a controlling part of the capital shares
  • The possibility of accelerating the implementation of compulsory acquisition solutions
  • The possibility of accelerating the implementation of merger and demerger with a negative or deselected vendor declaration.

The Danish Business Authority has announced that the later commencement is due to the need for adapting the IT system that will be handling the amendments.

 

Should you have any questions or wish further information on the above, please contact partner Christian Bredtoft Guldmann (cbg@mwblaw.dk) or Senior Associate Henning Hedegaard Thomsen(hht@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.