1.1 Types of Business Enterprise
A foreign investor may conduct business in Denmark through a limited liability company or through a branch of a foreign company. A limited liability company may be formed either as a public or a private limited company. The activities may also take place through a representative in Denmark on an agency basis. Other forms of business associations are discussed in section 1.5 below.

1.2 Public Limited Company
1.2.1 Formation of a Public Limited Company
A public limited company (Aktieselskab, A/S) can be incorporated by one or more founders. At least one of the founders must be a resident of Denmark or of another EU country unless founders are exempted from this requirement by the Minister of Industry. The founders must sign a formation agreement. It is not necessary that any of the founders subscribe capital. The company may be owned by a sole shareholder. The articles of association must include the name and objectives of the company; the municipality in which the company is resident; the amount of share capital; the number of board members; and the accounting year, which need not follow the calendar year.

The company must apply for registration with the Danish companies registry (Danish Commerce and Companies Agency) within six months after the formation agreement has been signed. A company can begin to conduct business as soon as the formation agreement has been signed. The company cannot, however, acquire rights against third parties or take on obligations before registration. Until the company is registered, the general management, the board of directors and the founders are personally liable. A registration fee of DKK3,000 is payable to the Danish companies registry upon registration.

1.2.1 Share Capital
The statutory minimum share capital is DKK500,000. The subscribed share capital and any share premium must be paid up in full before registration can take place. The share capital may be paid up in cash or by payments in kind such as property, know-how, goodwill, etc. If shares are issued for a non-cash consideration, certain additional procedures must be followed to ensure that the assets contributed are properly valued. Shares may be issued at a premium but not at a discount. All shares must have a voting right. The articles of association may provide that different classes of shares have different voting rights. No class of shares can have voting rights which exceed 10 times the voting rights of other shares.

1.2.3 Management of the Company
Board of Directors (Bestyrelse)
All public limited companies are required to have a board of directors, consisting of at least three members. The board of directors is elected by the general meeting of shareholders. If the company has more than 35 employees for three consecutive years, then the employees have the right to elect half as many representatives to the board of directors as are elected by the shareholders with a minimum of two. The majority of the board members must be elected at the general meeting.

At least one-half of the members of the board of directors must be resident in Denmark. However, companies may be exempted from this requirement by the Minister of Industry. A general exemption has been granted to residents of other EU Member States.

General Manager (Direktor)
The board of directors shall, as a minimum, appoint one general manager, unless the articles of association require a greater number. The general manager may be elected to the board of directors but cannot be elected as its chairman. The general manager should be a resident of Denmark (unless exemption is granted by the Minister of Industry). Together with the board of directors, the general manager has joint responsibility for the administration of the company. The general manager is, however, in charge of the daily operations and responsible for compliance with the guidelines and instructions issued by the board of directors.

Annual General Meeting
An ordinary annual general meeting, called by the board of directors, must be held within five months of the end of each accounting year. In principle, the meeting should be held at the company's place of residence, but the articles of association may provide for the meeting to be held somewhere else, including abroad. It is through the general meeting that the shareholders exercise the highest authority in the company. All shareholders, the general manager, the members of the board of directors and the auditors have the right to be present at the general meeting. The auditors can be required to attend if so requested by a board member, a general manager or a shareholder.

The ordinary general meeting must deal with and make decisions regarding: the approval of the annual accounts; distribution of the profit for the year or coverage of accumulated losses; and any other matters required by statute or the articles of association. The board of directors, the auditors or shareholders holding at least one-tenth of share capital by value can call an extraordinary general meeting. A summary of significant company law requirements is given in Appendix I.

1.2.4 Annual Accounts
Public limited companies must prepare audited annual accounts. The annual accounts must consist of a profit and loss account, balance sheet, notes and, if appropriate, group accounts. In addition, an annual report of the directors must be prepared. The annual accounts must be in the Danish language. The accounting period is 12 months. The accounting year end must be 31 December, 31 March, 30 June or 30 September. On incorporation, and when the accounting year is changed in connection with the establishment of a group, the period may be shorter or longer but cannot exceed 18 months. If the accounting year is changed for other reasons, the transition period cannot exceed 12 months.

The annual accounts must be prepared in accordance with the Annual Accounts Act and the Statutory Order relating to the Format of Annual Accounts and Preparation of Group Accounts. The Statutory Order relating to the Format of Annual Accounts and Preparation of Group Accounts lays down two alternative prescribed formats for the presentation of accounts. The balance sheet may be presented in a vertical or a horizontal format, and the profit and loss account in a vertical or horizontal format by function or type of expenditure. Annual accounts are prepared in accordance with generally accepted accounting principles in Denmark. The fundamental concepts are normally understood as going concern; prudence; accruals; consistency; materiality; substance over form; and separate valuation of assets and liabilities. The Annual Accounts Act and the Statutory Order relating to the Format of Annual Accounts and Preparation of Group Accounts lays down both specific and general requirements for accounting principles in selected areas.
The information which has to be provided in the notes to the accounts and group accounts is summarised in note 26 to appendix I.

1.2.5 Annual Report of the Directors
The annual report of the directors must include a reliable description of the development in the company's financial activities and position. If the accounts have been significantly influenced by unusual circumstances or there have been significant uncertainties relating to the preparation of the accounts, information to that effect should be given in a separate paragraph in the annual report. The information must be given separately and, if possible, the amounts involved must be stated.

The annual report must also give information on:
(i) important events occurred subsequent to the year end;
(ii) the company's expected future development;
(iii) research and development activities;
(iv) the company's branches in foreign countries if applicable;
(v) names and addresses of shareholders holding more than 5%* of the voting power or 5%* of the total share capital amounting to at least DKK100,000 of the share capital; and
(vi) expenses in connection with the formation of the company or a capital increase.
* For private limited companies the limit is 10%.

1.2.6 Filing of Annual Accounts and Annual Report of Directors
Within one month of the approval of the annual accounts by the annual general meeting of shareholders, but no later than six months after the fiscal year end, a copy of the annual accounts and the directors' annual report must be filed with the Danish Commerce and Companies Agency, where they are available to the general public.

1.2.7 Statutory Audit Requirements
The auditing profession in Denmark is represented by two major bodies of professional accountants:
(i) FSR, the Danish Institute of State Authorised Public Accountants (Foreningen af Statsautoriserede Revisorer), which dominates the public accounting sector; and
(ii) FRR (Foreningen af Registrere de Revisorer), the organisation for the professional second tier registered accountant (registreret revisor).

State authorised public accountants and registered accountants are licensed to work professionally by a government agency. In order to qualify for the state authorised public accountant designation, a university level education of five to seven years is required. Furthermore, the candidate has to complete a required period of work experience for a minimum of three years with a state authorised public accountant after the university education before applying for the license. The license can only be obtained after passing a final examination approved by the Danish companies registry. State authorised public accountants may only practice in the profession and may not be engaged in industry or commerce. For registered accountants, the education requirement is less demanding and the period of work experience focuses less on audit. There are at present some 2,700 authorised public accountants and some 4,300 registered accountants in Denmark.

Appointment of Auditors
In a limited liability company, the auditor is appointed at the general meeting of shareholders for a certain term or for an indefinite period. All limited companies must appoint a state authorised public accountant or a registered accountant for the examination of the annual accounts of the company. A firm of accountants may also be appointed as auditors. Publicly quoted companies, financial institutions and insurance companies must elect at least two independent auditors, one of whom must be a Danish state authorised public accountant.

Generally accepted Auditing Standards
The auditor must examine the annual accounts of the company to the extent required by generally accepted auditing standards. If the company is a parent company, the auditor must also examine the group accounts and all other dealings between the group companies.

The legislature has left the evolution of auditing standards to practice. The Institute of State Authorised Public Accountants has promulgated recommendations which must be adhered to by its members. These recommendations are basically comparable to those issued by the International Federation of Accountants and include both general standards, standards of field work and standards of reporting.

The Auditor's Reporting
After the completion of the audit, the auditor must certify that he has audited the annual accounts and any group accounts. The opinion rendered by the auditor must state that he has made an examination in accordance with generally accepted auditing standards and whether the accounts and the group accounts, if any, have been prepared in accordance with the provisions of the accounting legislation and the articles of association. The auditor's opinion may be qualified for scope restrictions, for departures from generally accepted accounting principles, material weaknesses in the system of internal control and uncertainties.

In addition to the formal reporting to the general meeting, the auditor must communicate to the board of directors or general management in a long-form audit report, such observations as to weaknesses in the system of internal control, errors and irregularities as are appropriate in the circumstances.

An auditor may not give to an individual shareholder or a third party any information on the company's affairs, which the auditor has obtained during the performance of the examination. The auditor is obliged to provide the general meeting with all information requested at the meeting, unless this would be detrimental to the company. The auditor is further obliged to give required information to a joint auditor, a successor auditor, a trustee in bankruptcy and to an officer in charge of an inquiry in criminal cases. Furthermore, the Danish Commerce and Companies Agency may request from the auditor such information which is necessary for determining whether provisions pursuant to the Public Limited Companies Act, The Private Limited Companies Act, the Act on Commercial Foundations or the Accounting Act have been infringed or whether an illegal condition has been eradicated.

1.2.8 Liquidation
A decision to liquidate a solvent limited company must be taken by the general meeting of shareholders. At least two-thirds of the votes cast in the meeting, as well as two-thirds of the share capital represented at the meeting, must vote for liquidation. Under certain circumstances, the Danish Commerce and Companies Agency must dictate by decree the liquidation of a company. When a decision to liquidate a company has been taken, the general meeting elects one or more liquidators. The decision to liquidate must be published in the Danish Official Gazette (Statstidende) and all creditors must register their claims with the company within three months.

Audited preliminary liquidation accounts should be prepared as of the date the decision to liquidate was taken. Final liquidation accounts should be prepared as of the date when the liquidation has been finalised and a copy of these final accounts filed with the Danish Commerce and Companies Agency. In addition, ordinary annual accounts should be prepared at the statutory year end if a year end falls during the liquidation period.

If the company is insolvent, the special provisions of the Bankruptcy Act are applicable.

1.2.9 Loss of Share Capital
If a limited company loses more than 50% of its share capital, then the board of directors must call an extraordinary general meeting of shareholders no later than six months after becoming aware of the fact.

In the case of a public limited company, the directors must give details of the economic situation of the company and the action to be taken to safeguard the future of the company. There is no legal obligation to recapitalise the company; however, the directors could be held personally liable, if they are considered to have acted in an irresponsible manner by allowing the company to continue in business without additional capital being obtained.

In the case of a private limited company, an extraordinary general meeting of shareholders must also be called. In this case, there is a legal requirement for the company to be recapitalised.

1.3 Private Limited Company
A private limited company (Anpartsselskab, ApS) is, from a legal and a tax point of view, similar to a public limited company (Aktieselskab, A/S). The principle purpose of a private limited company is to facilitate the establishment of small companies with limited liability, for instance for closely held family businesses. The private limited company form may also be used by larger undertakings, but in that case the requirements as to disclosure in the annual accounts, filing of information and management will be similar to those applicable for public limited companies.

The main provisions of the Private Limited Companies' Act, which differ from the Public limited Companies' Act, are the following:
(i) The paid in capital of a private limited company must be at least DKK200,000.
(ii) For companies with a paid in capital of less than DKK500,000, the articles of association can state that the board of directors shall consist of less than three members, or that the company shall not have a board of directors. If the company has no board of directors, the tasks normally performed by the board of directors must be carried out by the general manager.
(iii) If a private limited company loses more than half its share capital, then it must be recapitalised (see section 1.2.9 above).
(iv) A registration fee of DKK2,300 is payable to the Danish companies registry upon registration.

1.4 Branch of a Foreign Company
A foreign company may establish a branch in Denmark, provided that the foreign company is registered in its home country. Companies resident outside the EU area must obtain permission from the Minister of Industry. Permission is normally granted if Danish companies can obtain permission to set up branches in the corresponding foreign country (reciprocity). Registration with the Danish Commerce and Companies Agency of a branch of a foreign company requires the following information:

(i) The company's name, its legal form of incorporation, its address and registry and registration number together with its objectives, the subscribed capital and its accounting year.
(ii) Name, address and objectives of the branch.
(iii) Full name, position and address of those who have the authority to commit the company and the branch in respect of a third party and how their authority is established. The registration form must be signed by all the board members in the foreign company and the branch manager. The signatures must be certified by a notary public, a lawyer or two attesting witnesses.

(i) The following documents must be enclosed:
(ii) The formation agreement and the articles of association of the foreign company.
(iii) A certificate of the foreign company's incorporation.
(iv) A certified power of attorney to a Danish branch manager together with documentation that the branch manager meets the requirements as to residence (see below).
The documents must be prepared in Danish. However, exemption from this requirement can be granted by the Danish Commerce and Companies Agency.

The foreign company must appoint one or more branch managers, who are resident in Denmark. The Minister of Industry can grant an exemption from this rule. Nationals of EU Member States are generally exempted. The branch must have a name which includes the word "Branch" (Filial) together with the foreign company's name and country of incorporation. A registration fee of DKK1,700 is payable upon registration.

1.4.1 Filing of Annual Accounts
The branch manager must file a certified copy of the foreign company's audited annual accounts with the Danish Commerce and Companies Agency no later than six months after the close of the financial year. When filed with the Danish Commerce and Companies Agency, the material is available to the general public.

1.4.2 Audit Requirements
Annual accounts for the branch must be prepared and submitted together with the tax return. Neither company nor tax law requires that the annual accounts are audited. When granting permission to establish a branch, the Minister of Industry may require that the accounts are audited.

1.4.3 Closing Down
A branch of a non-EU foreign company can be closed down when:
(i) The foreign company has filed notice with the Danish companies registry requesting cancellation of the registration of the branch.
(ii) A creditor requests it and can substantiate that the branch is unable to meet its obligations.
(iii) The branch has no branch manager.
(iv) The branch manager omits to file the required accounts.
A branch of an EU company cannot be closed down upon request from a creditor.

1.5 Other Forms of Business Association
In a sole proprietorship (Enkeltmandsfirma), the owner has unlimited liability. A partnership can either be organised as a general partnership (Interessentskab, I/S) or a limited partnership (Kommanditselskab, K/S). A general partnership is an association of two or more persons having joint and several unlimited liability. Income tax is levied on each partner as an individual and not on the partnership as a whole. A partner may either be an individual or a limited liability company. There is no specific partnership law in Denmark.

Accordingly, it is advisable to draw up a partnership agreement.

A limited partnership is an association of one or more general partners with unlimited liability and one or more limited partners, whose liability is limited to the amount of capital contributed to the partnership. The general partners and the limited partners can both be limited liability companies. Income tax is levied on each partner as an individual and not on the partnership as a whole.

Joint ventures do not have status of a legal entity and their conduct is determined by a contract between the parties. Co-operative societies (Andelsselskaber) are widespread in Denmark, especially in the agricultural sector. This type of entity is seldom used by foreign investors.

A sales promotion office can be set up by a foreign company. Provided that it does not constitute a permanent establishment, it is not taxable in Denmark and does not require registration.

Registration Requirements
All limited liability undertakings carrying out commercial business activities must register with the Danish Commerce and Companies Agency. The information registered is the undertaking's name, address, municipality of domicile and the undertaking's accounting year. Furthermore, names and addresses of members of management and the undertakings signatories will be registered. Finally, the name of the undertaking's auditors will be registered if the undertaking must prepare annual accounts.

Annual accounts must be prepared in accordance with the Annual Accounts Act and the Statutory Order relating to the Format of Annual Accounts and Preparation of Group Accounts if the undertaking on the balance sheet date exceeds two of the following three criteria:
1. Net assets DKK4mi
2. Net turnover DKK10m
3. Ten full-time employees in average during the accounting year.

1.6 Acquisition of an Existing Company
Foreign investment in a Danish company is allowed without special permission or regulatory approval. A business operation can be acquired either by purchasing the shares in an existing company, or by merging the company with a subsidiary already established in Denmark by the investor.

1.7 The Copenhagen Stock Exchange
The Copenhagen Stock Exchange is the only securities market in Denmark and is regulated by the Stock Exchange Act and related Statutory Orders. The Stock Exchange is a self-governing institution which has the sole right to deal in the public offering and listing of shares, bonds, financial instruments and similar securities.

The market for shares is relatively small (about 260 listed companies).

By far the most important dealings are in real estate credit association bonds and state bonds.

Securities may be listed on application from a company or bond-issuing institution if the provisions of the legislation are adhered to, if in the opinion of the Stock Exchange Board, listing and trading of the securities are of public interest and if a continual turnover of the security can be expected to take place.

1.8 International Comparability of Annual Accounts
The Danish Institute of State Authorised Public Accountants (FSR) has been a member of the International Accounting Standards Committee (IASC) since 1976. As a member of IASC, FSR has undertaken the following obligations:
(i) To ensure that published annual accounts comply with International Accounting Standards (IAS) in all material respects and disclose the fact of such compliance.
(ii) To persuade Governments and standard-setting bodies that published annual accounts should comply with International Accounting Standards in all material respects.
(iii) To persuade authorities controlling securities markets and the industrial and business community that published annual accounts should comply with International Accounting Standards in all material respects and disclose such compliance.
(iv) To ensure that the auditors satisfy themselves that the annual accounts comply with International Accounting Standards in all material respects.
(v) To foster acceptance and observance of International Accounting Standards internationally.

Therefore, FSR has published IAS's in both Danish and English. Each published IAS has a preface in which FSR compares the content and requirements of the standard with Danish legislation and generally accepted accounting practice. The preface also includes recommendations for the use of the IAS. FSR has, in addition, developed and issued national Accounting Standards (Regnskabsvejledninger). To date, nine Accounting Standards and one exposure draft have been issued. They cover the following:

(i) objective and contents of the annual accounts;
(ii) Disclosure of accounting policies;
(iii) changes in accounting policies and accounting estimates;
(iv) contingent liabilities and events occurring after the balance sheet date;
(v). extraordinary items;
(vi) long-term contracts;
(vii) research and development;
(viii) stocks;
(ix) foreign currency translation; and
(x) tangible Fixed Assets (ED).

The accounting treatments in Danish accounts are broadly consistent with the international norms by the IASC. In some instances, for example the treatment of goodwill arising on acquisition of subsidiaries, treatments which would not be allowed under IAS 22 are commonly adopted. In certain other instances, Danish practice follows the Committee's allowed alternative treatment rather than its required or benchmark treatment. For example, Danish practice includes revaluation of fixed assets, which under the Committee's required or benchmark treatment should be stated at cost.

There are a number of areas covered by international accounting standards which are not generally addressed in the preparation of Danish accounts. They include, for example, related party transactions, segmental information and accounting for leasing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Carsten Norringgaard or Bjarne Lykkegaard Hansen on +45 38 18 30 00.