Denmark Legal Guide
Denmark enjoys worldwide respect for its traditions and they influence every element of daily existence, but the Danes’ creative streak and sense of adventure ensure that they have an acute sense of which trends are worth following, both in the professional and every-day live.
The legal system
The Danish legal system originates from canonical and roman law and is comparable to the legal system in other continental European countries.
Most areas of society have been subject to statutory regulation, and statutory law and the general principles of statutory law is the primary source of law in Denmark.
Furthermore customary law and case law supplement statutory law, even though the courts have a far greater law-creating function in other European countries with legal systems inspired by Anglo-Saxon law.
The Danish legal system is divided up into public law and civil law. The borderline is not easy to define, but it is a characteristic of public law that it is often about taking care of general social interests, and that state organs other than the courts play the major role in applying the legal regulations. Public law is divided into constitutional law, international law, administrative law, criminal law and the law of procedure, while civil law regulates reciprocal relations between citizens and between natural persons and legal persons, e.g. companies and institutions. At the top of the legal hierarchy stands the Constitutional Act of 1849, which regulates the relations between the highest state organs and provides for civil liberties (human rights).
Throughout Denmark’s entry in the Common Market in January 1973 Denmark has to a great extent implemented EU Directives. Therefore industrial standards and a large part of corporate and commercial regulation correspond to those known elsewhere in Europe. The ordinary courts are divided on hierarchical lines. At the bottom there are city courts, which are to be found in each of the country’s 82 circuits, then High courts, and finally the highest court in the country, the Supreme Court. In commercial matters, it is possible to refer to the Maritime and Commercial Court in Copenhagen, where
special judges with commercial experience preside and there is a legally qualified chairman. Disputes may also be referred to arbitration before the Danish Institute of Arbitration or other arbitration boards.
Danish law is build on a general principle of freedom of contract, however the legal system contains a wide range of rules protecting the commercial environment, especially in terms of consumer protection.
The Danish legal system is divided up into public law and civil law. The borderline is not easy to define, but it is a characteristic of public law that it is often about taking care of general social interests, and that state organs other than the courts play the major role in applying the legal regulations. Public law is divided into constitutional law, international law, administrative law, criminal law and the law of procedure, while civil law regulates reciprocal relations between citizens and between natural persons and legal persons, e.g. companies and institutions. At the top of the legal hierarchy stands the Constitutional Act of 1849, which regulates the relations between the highest state organs and provides for civil liberties (human rights). Throughout Denmark’s entry in the Common Market in January 1973 Denmark has to a great extent implemented EU Directives. Therefore industrial standards and a large part of corporate and commercial regulation correspond to those known elsewhere in Europe.
The ordinary courts are divided on hierarchical lines. At the bottom there are city courts, which are to be found in each of the country’s 82 circuits, then High courts, and finally the highest court in the country, the Supreme Court. In commercial matters, it is possible to refer to the Maritime and Commercial Court in Copenhagen, where special judges with commercial experience preside and there is a legally qualified chairman. Disputes may also be referred to arbitration before the Danish Institute of Arbitration or other arbitration boards.
The Brussels Convention on jurisdiction and Enforcement of Judgements in Civil and Commercial Matters is acceded by Denmark, and apply in most legal actions with a commercial aspect. Governing law Denmark has acceded to the Rome Convention, which in general regulates the proper choice of law in Denmark with respect to contracts.
Sale of Goods
The Sale of Goods Act of 1906 applies to the sale of goods between parties having their places of business in Denmark, and the Act is based on the principle of freedom of contract. The rules will therefore only apply when the parties have not agreed otherwise, or where trade custom or usage does not imply otherwise. However, the Act does contain some mandatory rules on the sale of goods to consumers, which cannot be derogated from, and the Consumer Contracts Act and the Credit Agreements Act, which also contains mandatory provisions, supplement the Act.
The Danish Marketing Practices Act protects among other things consumers and professionals in Denmark by prohibiting measures, which are not in
accordance with “good marketing practices”.
Limitation and exclusion of liability
In commercial contracts it is possible to limit or exclude any given liability. However, it is not possible to exclude or limit liability for personal injuries regarding product liability. The courts may censor an exclusion of liability if the exclusion is being considered unfair or unreasonable. Therefore contract partners often use specific limitation clauses where a maximum limit for the liability is agreed.
The Danish Data Protection Act implements Council Directive 95/46 EC on protection of individuals with regard to the collection and processing of personal data.
The Danish competition Act implements Articles 81 and 82 of the EC treaty and prohibits anti-competitive agreements and abuse of a dominant position.
The Danish Competition Act applies to private and public business activities as well as to aid from public funds granted to business activities. The
Competition Act applies to anti-competitive practices affecting the Danish market. Foreign undertakings may therefore be subject to the prohibition of the
Competition Act if their anti-competitive agreements or practices have an affect on the Danish market.
Public Limited Companies and Private Limited Companies are the most used forms of companies in Denmark. Businesses can also be formed as Limited Partnerships, Limited Partnership Companies, Partnerships and European Companies. The Danish corporate tax is 28 % placing it below the average European level.
Public Limited Companies (aktieselskaber / A/S)
The Act on Public Limited Companies implements the First, Second, Third, Fourth, Sixth, Seventh, Eight, Eleventh and Twelfth Company Directives,
and the Danish provisions reflect the EU legislation in this area. The Act on Public Limited Companies requires a minimum paid-up share capital of
DKK 500.000 and a twotier management structure based upon a board of directors (with at least three members) and at least one managing director. The board members and the managing director(s) may reside anywhere in the world, as there are no requirements regarding nationality.
Private Limited Companies (anpartsselskaber / ApS)
The Danish Act on Private Limited Companies requires a minimum paid-up share capital of DKK 125.000. The management may consist of either a sole managing director and no board or a board of directors only. Alternatively a traditional two-tier management system may be established. Private Limited Companies are not allowed to issue share certificates and to purchase own shares, and Private Limited Companies cannot be listed on the Copenhagen Stock Exchange.
Limited Partnerships (kommanditselskab /K/S)
Limited Partnerships must comply with a set of Articles of Association. A Limited Partnership can be formed as an entity with a general partner having unlimited liability while a given number of partners have their liability limited to a certain amount.
Limited Partnership Company (kommanditaktieselskab / P/S)
The Companies Act regulates certain aspects of the Limited Partnership Company including formation, power to sign the company, the content of the Articles of Association and registration. The limited Partnership Company is a variety of the Limited Partnership, only the general Partner is required to have managerial and financial powers in the Limited Partnership Company.
Partnerships (interessentskab / I/S)
A partnership is based on a partnership agreement and all partners have unlimited liability.
European Company (SE)
As of 8 October 2004 companies have also had the option of forming a European Company, which is governed by Community law directly applicable in all Member States. A European Company will be able to operate on a Europeanwide basis.
Denmark is a country with political stability and a very well functioning public sector. Furthermore ?Denmark is an internationally oriented society with a flexible and highly educated labour market, and Denmark has one of Europe’s most efficient distribution systems. Therefore many foreign groups find it profitable to set up companies in Denmark. In Denmark companies are constantly seeking growth and new national and international structures are created as an integral part of corporate development. Businesses are bought, sold, and merged. In general only a relatively small percentage of Danish companies are listed on the Copenhagen Stock Exchange and foreign investors do not have to be burdened by the rules on bidding for a listed company. Still some of
the biggest and most successful companies are listed, and in such case the regulations of take-overs must be complied with. Denmark has implemented the Third Company Directive, and the Danish rules closely reflect the provisions of the Directive. Furthermore Denmark has rules on merger control, which apply in conjunction with the EU Merger Regulation. Currently the Danish rules in force are aimed specifically at domestic mergers and there are no rules governing mergers between Danish and foreign companies. Companies can merge in two ways; either one company takes over assets and liabilities of another company and continues to exist, while the company taken over is dissolved (absorption merger) or two companies are dissolved and joined to form a new company (consolidation merger). There is no elaborate take-over code in Denmark, and in the absence of a surge in hostile take-overs it is unlikely that any such code will be adopted. However, the Companies Act and the Securities Trading Act influence the conduct of a take-over. Acquisition of assets
In case a company wishes to acquire assets and liabilities rather than shares, it will often be preferable to incorporate a Danish company, which will acquire the assets and liabilities and employ the employees due to the exclusion of certain actual or contingent liabilities and tax issues. However, the scope of due diligence investigations and the seller’s representations, warranties and covenants are often the same, regardless of whether shares or assets are purchased.
Acquisitions of assets is advantageous for the purchaser because the book value of the assets, on incorporation into the purchaser’s balance sheet, may be increased to fair market value thereby increasing the basis for obtaining the necessary loan financing and also increasing for depreciation for tax purposes.
Mergers and acquisitions
The owner’s identity, registered mortgages and other rights such as purchase options, owner’s bankruptcy etc. are listed at the land register. The same often
applies for other burdens and easements such as right of way, local restrictions on construction etc. The land register makes it very easy for the public to obtain information and documents at a low cost within short time as to what liabilities are attached to any particular property. As the ranking of priority of lenders will appear on the property’s list of mortgages the land register serves as a dependable way of providing security to lenders. The registration of a mortgage protects the mortgagee against subsequent purchasers and against the mortgagor’s other creditors. In most cases the Ministry of Justice has to
consent when people who are not residents of Denmark, and who have not previously been Danish residents for a total period of five years, wish to purchase property in Denmark. This also applies to companies, associations, etc. which are not domiciled in Denmark. However, EU citizens, citizens of EEA countries, and EU companies may purchase real property in Denmark without the consent of the Ministry in case the property is intended to serve as a necessary permanent residence for the purchaser, or when the purchase is a prerequisite for operating the purchaser’s own business or supplying service. EU/EEA citizens may also purchase real property for all-year residence without permission from the Ministry of Justice. Applications for permission to purchase an all-year residence are usually complied with, while applications for permission to acquire holiday sites are only met if the applicant has special strong ties to Denmark. According to a so-called detached house rule, the profits are tax-free on the sale of one-family or two-family houses, owner occupied apartments, housing cooperative apartments and weekend cottages when the owner has lived in the property fully or partially throughout the ownership period. However, this exemption is in most cases subject to the property’s plot size being less than 1,400 m2. In most cases a mortgage credit institution finances the purchase. However property can also be purchased with cash or financed by a mortgage from a bank. The purchase is registered in the Danish land register, which is open to the public.
Denmark has implemented all of the EU copyright related Directives and acceded to most of the international conventions related to copyright and neighbouring rights. According to the Danish Copyrights Act copyright exists as soon as a particular work is created provided the work is the result of the
author’s own intellectual creative contribution. Since protection is not conditional upon any form of registration there is no register available.
The Danish Copyright Act protects traditional works of literature and artistic works as well as maps, drawings manuals, certain types of catalogues and databases, applied art (designs) and computer programs. The Act also protects performers, producers of sound recordings and moving pictures, manufacturers of catalogues and databases and various other neighbouring rights. Copyright protection is given for the lifetime of the author plus
The Danish Trademarks Act implements the EC Trademarks Directive. In Denmark protection of trademarks is obtainable either by registration or through use. Furthermore it is possible to register a Community trademark that will have effect in every EU member country including Denmark. Trademarks can
be any symbol, which is able to distinguish a product or service from the products or services of other undertakings. Protection of a registered trademark is given for a period of 10 years from the registration date and holds a possibility for renewal. However if the mark has not been used for five years, the registration and protection may cease. Trademarks established through use remains in force until the use lapses.
The Danish Design Act implements the EU Directive 98/71 on the protection of designs. EU Regulation No. 6/2002 on Community Designs also applies in Denmark and provides protection for registered and unregistered designs. According to the Danish Design Act the appearance of a product or a part of a
product may obtain protection provided the design is novel and has an individual character. A registered design is protected for a total period of up to 25 years. Without registration, a community design is protected against mere copying for 3 years.
Intellectual Property Rights
Upon Denmark’s entry into the Common Market in January 1973 and subsequent implementation of the intellectual property Directives the Danish laws on various Intellectual Property have evolved continuously.
Agents and distributors
As a relatively small country in terms of inhabitants, but large in terms of purchasing power, foreign companies find it profitable to set up business through agencies or distributors in Denmark. Consequently agency- and distribution agreements are widely used in Denmark. The Danish Act on Commercial Agents implements the EU Directive on Commercial Agents. Several provisions of the Act on Commercial Agents are mandatory and cannot be derogated from. Upon termination or expiration of the agency agreement Denmark has opted for the indemnity model. According to the Act the agent has a
right to receive a responsible commission in case of limitations on noncompetition (restraint of trade) clauses. The clauses cannot exceed two years in duration and cannot extend to geographical areas, groups of customers or kinds of goods not covered by the agency agreement. In case an agency has been entered into for an indefinite period of time, the notice period is required to be a minimum of 1 month in the first year of the contract period and is increased with 1 month for each subsequent year. Agency agreements can be entered into for a fixed period of time in which case the agreement will expire on the agreed date. If the parties decide to renew or continue the agreement upon its expiry, the agency will be considered formed for an indefinite period of time and the above-mentioned minimum notice periods will apply. When the agreement is terminated the agent is entitled to indemnity if the agent has brought the principal new costumers or significantly increased the business with existing costumers from which the principal continues to derive
substantial benefits, and if and to the extent payment of indemnity is equitable considering the circumstances. The amount of indemnity cannot exceed a figure equivalent to the remuneration for one year calculated on the basis of the agent’s average annual remuneration over the preceding five years.
Apart from the relevant national and EU competition rules including the relevant group exemptions there is no statutory law on distribution agreements. Therefore the parties are to a large extent free to agree on the terms of the distribution agreement. In most cases the parties decide on specific termination notice provisions in their agreements. In the absence of specific agreements, the courts will look to the length of the relationship and determine the notice
period on this basis. The required notice period will often exceed 6 months. According to Danish case law the distributor is not entitled to indemnity or compensation if the supplier terminates the agreement in accordance with the provisions of the agreement. However, compensation to the distributor
can be awarded under special circumstances. The unemployment rate in Denmark is relatively low, and the Danish labour market is characterized by flexibility due to easy access for both the employer and the employee to end conditions of employment on relatively short notice provided that dismissal is not based upon discrimination. Hiring staff to a business is subject to compliance with a number of rules and regulations. Some of the rules relating to employment of personnel in Denmark are subject to statutory law applicable to all categories of personnel. This includes rules concerning holiday entitlement, maternity leave, parental leave, educational leave, non-discrimination, sickness, working hours, occupational injuries and working environment. However, a distinction between salaried employees and manual workers is of great importance because a specific set of rules applies to certain categories. Salaried employees are subject to the to the mandatory Danish Salaried Employees Act and often also a collective agreement, whereas manual workers (blue-collar workers) are usually covered by collective agreements.
When employing staff (blue- or white collar) for more than 1 month with an average working week exceeding 8 hours, the parties must, make an employment contract or an alternative documentation in writing specifying nature of work, hours of work, salary, holiday, and place of work.
Mergers and Acquisitions
Whatever terms any employee enjoys, such terms will have to be accepted by any purchaser who acquires a company or business.
Danish Act on Insurance Against Permanent Occupational Injury lays down that any person employing external manpower – paid or non-paid – for more than 20 hours per year, must insure this manpower against permanent occupational injury.
Holidays with Pay Act
According to the Danish Holidays with Pay Act all employees are entitled to paid holiday. An employee earns 2.08 holidays for each month of full employment. This accumulates to 5 weeks’ annual holiday (25 days). Dismissal A dismissal must be in writing and must be of a factual and fair nature. The keystone of Danish employment law is that any employee not subject to the Danish Salaried Employees Act is dismissible at a fair notice.
In case of illness, childbirth, childcare, pension and unemployment, the social coverage is extensive. For that reason, social security is mainly financed through taxes rather than through private insurances, and employees pay a labour market contribution of 8 per cent as well as a special pension savings of 1 per cent.
There is no statutory minimum salary regulated by legislation in Denmark.