Page 3. “Danish business with others”
Establishing a Danish business with others
Rather than establishing a fully owned subsidiary, you may want to establish business in cooperation with a local partner. This can be done directly by establishing a joint venture, a limited liability company, a partnership or a limited partnership; or indirectly by the appointment of a commercial agent or a distributor or by setting up a network of franchisees.
Many companies which lack sufficient capital, skills or market knowledge to break into a new market would prefer to establish a joint venture or other strategic alliance. Joint ventures would have no legal status of their own but could be organised as limited liability companies or partnerships. Your choice of organisation type would depend on commercial as well as tax considerations. A joint venture must address all major issues by way of a shareholders’ or partnership agreement, including initial and future funding, management structure, intellectual property rights, distribution of profits and termination.
In the event the joint venture is established as a limited liability company, it would be subject to the applicable company legislation
Conducting business as a partnership
If two or more persons decide to run a business together they have established a partnership. There are two types of partnerships: partnerships and limited partnerships. In a limited partnership the liability of at least one of the partners would be limited to the amount invested in the partnership by the said partner.
The partners may be foreign citizens and are not required to be resident in Denmark. There is no obligation to appoint a managing director or an accountant. If none of the partners in a trading or limited partnership are residents in Denmark, a person authorised to accept service in Denmark must be appointed.
Generally, the partnership agreement would regulate the shares in income of profits and losses.
Where a partnership agreement is silent in this respect, profits and losses are divided equally among the partners. The partners are taxed on the partnership’s profits.
Appointment of a commercial agent
If you only have limited knowledge of the Danish market, the first step of establishing a business would normally be the appointment of an intermediary, be it either a commercial agent or a distributor.
While the parties to a distributorship agreement enjoy the freedom of contract, an agency relationship is governed by the Danish Commercial Agency Act.
The Agency Act is partly mandatory, including provisions protecting the commercial agent with regards to the period of notice prior to termination and the possible payment of indemnity upon termination of the relationship.
The potential rights for the commercial agent to claim an indemnity upon termination (if and to the extent that certain qualifying conditions are met) may be considered a disadvantage for a company wanting to start exporting to Denmark. However, there are certain advantages from operating through a commercial agent: in particular, the establishment of close and direct customer contact and the ability to control resale prices without having to consider competition law. As long as the commercial agent operates as an intermediary without assuming any financial obligations, the legal relations between a supplier and the commercial agent is not influenced or prohibited by competition law.
There is a grey zone between self-employed commercial agents and employed sales people. In case of ordinary employment, the principal will have to pay national insurance contributions, withhold and pay tax on the salary paid and make holiday payments. To avoid this, the principal shall make sure that the commercial agent is truly independent and self-employed.
Appointment of a distributor
As an option, rather than commercial agents, the company may want to appoint a distributor who buys the products in his own name and at his own expense for reselling to the market. When appointing a distributor, the parties enjoy the freedom of contract without having to consider rotective mandatory legislation.
When appointing a distributor, competition law shall be applicable, in particular the EU Commission Regulation 330/2010 on vertical restraints.
Franchising or selective distribution
As an option, rather than appointing an intermediary, be it a commercial agent or a distributor, you could consider establishing a franchise system or a selective distribution system.
The establishment of a network of franchisees or selected distributors implies a more direct establishment on the market at the retail level. Such an establishment should be limited to business concepts that are well-structured and highly developed for the local market conditions.
In relation to these distribution systems, Danish legislation does not include any statutory provisions. Only general statutory provisions and competition law aspects need to be considered.
A franchise is a right granted by a franchiser to use certain intellectual property rights, in exchange for direct or indirect fees, for the purpose of marketing particular goods or services.
Page 3 “Danish business with others”
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