Changes to the Rules on Shareholder Loans
- 2 minute read
- Legal & Corporate Law
The government is continuously focusing on reducing and simplifying state administrative tasks. In this context, the Ministry of Business, Industry and Financial Affairs has assessed that the company law rules on equity loans can be repealed without compromising the protection of the company’s creditors. The change will enter into force on 1 January 2025.
Which rules are being repealed?
The following provisions of the Danish Companies Act will be repealed from 1 January 2025. However, this does not mean that shareholder loans are now completely unregulated – certain requirements and rules will continue to apply.
- § 210: A capital company may directly or indirectly make funds available, grant loans or provide security for shareholders, the management of the company, or equivalent in the parent company or similar, if the following conditions are met:
- There should be sufficient free reserves, and must be granted on normal market terms.
- The decision on the loan must either be made at the general meeting or by the company’s central management body after authorisation from the general meeting.
- The decision on the loan can only be made after the company’s first annual report has been submitted.
- § 211: Lending to parent companies is permitted.
- § 212: Lending as part of normal business transactions is permitted.
- § 215: Illegal loans are to be charged a high, fixed interest rate and repaid immediately.
- § 367: Management could be punished for granting illegal loans.
What does this mean in practice?
From 1 January 2025, capital companies can freely grant equity loans without having to take into account the now repealed rules. This means that loans to a greater extent can be granted on terms agreed upon by the lender and borrower.
Auditors and the Danish Business Authority will no longer have to check whether the special conditions for equity loans are met. However, there will still be controls to ensure that the loan is correctly recorded in the annual accounts and that the necessary write-offs have been made.
In addition, the Companies Act’s requirements for self-financing (§ 206) remain unchanged. This means that loans may still not be used to acquire equity or shares in the company or its parent company.
Requirements and responsibilities for equity loans in the future
Even though the rules on shareholder loans are repealed, management remains responsible for ensuring that lending is done responsibly and in the company’s best interest. This includes, among other things:
Business assessment: Despite the repeal of the rules, management must still ensure that the loan does not endanger the company’s interests, financial situation or capital resources (§ § 115-118).
Principle of equality between shareholders: Loans must not give certain shareholders special advantages at the expense of other shareholders or the company (§ 127).
Liability and penalties: Failure to comply may result in fines. As it is now, the amendment to the law will not legalize shareholder loans granted illegally from before 1 January 2025 – but in practice, criminal liability ought to be abolished. Criminal proceedings should therefore be dropped, as the act has now been decriminalized, and the Criminal Code states that an act is determined by the courts in accordance with the latest law.
Tax rules remain unchanged
Although the Companies Act’s rules for equity loans are changing, the tax rules remain the same. This can create confusion, as tax law still considers shareholder loans to be taxable from the time of withdrawal if the loan is granted to a physical person as shareholder with controlling influence.
