October 5, 2006 Business Law for High Tech Entrepreneurs NYBORG & RØRDAM 1 Nyborg & Rørdam Law...

October 5, 2006Business Law for High Tech Entrepreneurs

NYBORG & RØRDAM

1

Nyborg & Rørdam Law Firm

Business Law for High Tech Entrepreneurs

Erik Nyborg Karin Absalonsen

Attorneys-at-Law and Partners

Nyborg & Rørdam

www.nrlaw.dk


NYBORG & RØRDAM

2

• Choice of business structure

• Contracts and Liability

• The Danish Salaried Employees Act (Funktionærloven)

• Board of Directors and Management

• Capital Injection

• Warrants

Agenda



NYBORG & RØRDAM

3

Business Structure


•Personally owned business

•Partnership (I/S)

•Private limited company (ApS)

•Limited company (A/S

•Limited partnership (K/S) and other structures


NYBORG & RØRDAM

4

Criteria for choice of company structure

1. Risks - creditors - clients - bank – product liability

2. Tax – deficit at first – then profit – then sale

3. Tax – deficit at first – then deficit – then bankruptcy

4. Capital injection

5. Image



NYBORG & RØRDAM

5

Law of Contract (Aftaleloven)

• Contract = offer + acceptance

• Acceptance shall be unconditional and in due time

• Offers are binding when communicated – in accordance with Danish law

• Oral agreements



NYBORG & RØRDAM

6

Liability under the Sale of Goods Act (Købeloven)

• Application

• Sale of generic goods – concept – – Extensive liability

– Delay

– Non-conformity

• Sale between merchants, Section 4– Increases the obligations of the parties

• Consumer transactions, Section 4a– Generally increases the obligations of the seller


NYBORG & RØRDAM

7

Breach

• Remedies:

— Fulfillment (naturalopfyldelse)

— Termination (ophævelse)

— Damages (erstatning)


NYBORG & RØRDAM

8

Late performance - buyer

• Fulfillment

• Damages

• Termination– If the goods have been transferred to the buyer, the contract can only be

terminated, if valid reservation of property/title has been made


NYBORG & RØRDAM

9

Late performance - seller

Generic Specific

Termination Yes Sect. 21 Yes Sect. 21

Fulfillment Yes Sect. 21 Yes Sect. 21

Damages Yes Sect. 24, even if seller is not responsi- ble for the delay Exception: Frustration

Yes Sect. 24, but not if seller is not respon- sible for the delay


NYBORG & RØRDAM

10

Defects (mangler)

• Buyer – duty of inspection, Section 51

• Buyer shall give notice immediately, Section 52

• Buyer shall give notice within 2 years Section 54


NYBORG & RØRDAM

11

Trade terms

Purpose:

• Derogation from the Sale of Goods Act

Typical provisions:

• No liability for indirect losses

• Liability limited to a certain amount

• Liability limited in time

• Right to remedial action (Afhjælpning)


NYBORG & RØRDAM

12

Product liability

Definition:

liability for • (1) damages • (2) caused by • (3) a defective • (4) product • (5) beyond the product itself.

• The scope of the Product Liability Act: Personal injury or damages to the property of the consumer.


NYBORG & RØRDAM

13

Product Liability Act

• Damage

• Causation

• Defect = non-conformity

• Physical product

• Strict liability: producer or seller

• Governing law: site of damage

• Mandatory


NYBORG & RØRDAM

14

Product liability outside the scope of the Act

• Applicable for damages to the property of business operators

• Basis of liability: negligence with reversed burden of proof

• To be derogated from by agreement


NYBORG & RØRDAM

15

Salaried Employees Act (Funktionærloven)

• Salaried employee (Funktionær)

– Commercial and clerical employees

– Technical or clinical assistance

– Manage or supervise

– Working hours more than an average of 8 hours per week

– Subject to the employer’s instructions (”tjenestestilling”)


NYBORG & RØRDAM

16

Salaried Employees Act (Funktionærloven)

• Salaried employee (Funktionær)

– not if• Independent contractor• Managing director

• Mandatory written employment letter


NYBORG & RØRDAM

17

Salaried Employees Act

• Termination of employment (salaried employee)– employed 0-5 months - 1 month’s notice– employed 6-33 months - 3 months’ notice– notice increased by 1 month per every 3 years, however maximum 6

months– always to expire at the end of a month– CANNOT be reduced upon agreement

• Unfair dismissal - compensation (”§ 2b godtgørelse”)

• Warning (”advarsel”)


NYBORG & RØRDAM

18


• Summary dismissal (”bortvisning”)

– Intentional/subjectively blameworthy action – ”af kassen, i kassen, på kassen”


NYBORG & RØRDAM

19


• Termination by the salaried employee

– 1 month’s notice– to the end of a month– can only be extended if the notice period of the employer is

extended correspondingly


NYBORG & RØRDAM

20

Non-competition clauses

• Salaried employees

– trusted employees only

– remuneration in the amount of min. 50% salary during the period

• Agreement Act §§ 36 and 38


NYBORG & RØRDAM

21

Non-competition clauses

• Salaried employees

– termination on the part of the employee

• binding unless employer is in breach

– termination on the part of the employer

• only binding if lawful summary dismissal or termination that is reasonably justified by the employee


NYBORG & RØRDAM

22

Trade secrets

• Section 19 of the Danish Marketing Practices Act

Regards: Trade secrets obtained through service or working relations

Provisions:• Not through misconduct obtain access to trade secrets• If lawful access then not use or pass on for 3 years• Prohibited to use trade secrets obtained in contravention of the above


NYBORG & RØRDAM

23

Management

• Board of Directors (bestyrelse)

– Limited Company (A/S): Min. 3 people

– Private Ltd. Company (ApS): Freedom of choice

• However mandatory to choose staff representatives on the board of directors in major companies

• Board of Managers (direktion)

– Limited Company (A/S): Min. 1 person

– Private Ltd. Company (ApS): Freedom of choice


NYBORG & RØRDAM

24

Board of Management (direktion)

• Responsibility: daily management

• The Service Agreement

• Not covered by the Danish Salaried Employees Act

• Non-competition clauses

• Not covered through Employees’ Guarantee Fund (Lønmodtagernes garantifond)


NYBORG & RØRDAM

25

Board of Directors

• Responsibility: overall management

• Elected by the shareholders

• Remuneration

• Directors liability


NYBORG & RØRDAM

26

Capital injection

1. Cash contribution

2. Non-cash contribution

3. Inventor’s shares

4. Seed Capital – e.g. DTU Innovation

5. Follow up capital injections

6. Industrial investors

7. Stock exchange listing


NYBORG & RØRDAM

27

Contribution of DTU inventions

• Act on inventions at academic institutions (Lov om opfindelser ved højere læreanstalter)

• Reasonable remuneration (tredjedelsreglen)

• Ownership interests in company

• Future cooperation between company and institution – ownership of rights


NYBORG & RØRDAM

28

Warrants

• Incentive Program

• Right to subscribe to new shares (warrants)

• Right to purchase existing shares (options)

• Tax on exercise (general)

• Tax on sale (for employees)

• Problems – salaried employees

• Administrative problems

• Alternatives


NYBORG & RØRDAM

29

Warrants

• Incentive Program – why is it popular?– attract and keep skilled employees– profit depends on and increases concurrently with increase in

company/shareholder value – Defer wage costs

• Right to subscribe to new shares (warrants)

• Right to purchase existing shares (options)

• Very complex to establish– contract law, corporate law, employment law, tax law


NYBORG & RØRDAM

30

Warrants

• The Novo case (U2004.1480H) - § 17a

• Share options Act (”aktieoptionsloven”)– 1 July 2004

– Options and warrants (not shares acquired directly)

– Salary earner (”lønmodtager”) – not managing director, board of directors or independent contractors


NYBORG & RØRDAM

31

Warrants

• Share options Act (”aktieoptionsloven”)– Good leaver

• Employer dismisses the employee (not due to breach by employee)• Employee terminates due to material breach on the part of employer• Termination due to pension• Keep the right to all warrants granted • Proportional part of warrants granted in the termination year


NYBORG & RØRDAM

32

Warrants

– Bad leaver• Employee terminates the employment (unless due to material breach

by employer)

• Employer terminates due to breach on the part of employee

• Loose the right to all warrants not exercised at expiry of notice period

• Loose the right to future granting

• Duty of information in Danish


NYBORG & RØRDAM

33

Warrants

• Tax

• Main rule – tax at the time where the right is acquired

• Exception – deferred tax– Tax Assessment Act (”ligningsloven”) §§ 28 and 7H


NYBORG & RØRDAM

34

Warrants

• Tax – LL § 28 - 1 Jan 2001

• Tax on profit when exercise of shares, transfer/sale of warrants or when moving abroad

• Profit is taxed as salary (”løn”) including AM-bidrag– up to 62.7%

• Company has tax allowance (fradrag for selskabet) corresponding to employee’s profit

• Beneficiary must be an employee, managing director, board member or consultant


NYBORG & RØRDAM

35

Warrants

• Tax – LL § 7H - 1 July 2003 or later (1 Jan 2006)

• Tax on profit when sale of shares

• Profit is taxed as share profit (”aktieavance”) – 28/43%

• Company has no tax allowance (ikke fradrag til selskabet)

• 2 limits – within same year:a) Max 10% of yearly salaryb) Exercise rate not less than 85% of the market rate of shares

• As part of employment (not board members)


NYBORG & RØRDAM

36

Shareholders’ agreements

• Purpose: To derogate from the statutes of the company

• Types: Agreements between several active shareholders

Agreements between active shareholders and investor


NYBORG & RØRDAM

37

Collective agreements between active shareholders

• Purpose:

• How to get out

• Describe the duties of the shareholders

• Lay down rules for major decisions

• Ensure shareholders from illoyal behavior from other shareholders


NYBORG & RØRDAM

38

Agreement between active shareholders and investor

• Purpose:

• Ensure the exit of the investor

• Anti-dilution

• Secure investor against being voted down

• Lay down rules for major decisions

• Secure investor and other shareholders against disloyal behaviour from any shareholder

October 5, 2006 Business Law for High Tech Entrepreneurs NYBORG & RØRDAM 1 Nyborg & Rørdam Law...

Documents

Transcript of October 5, 2006 Business Law for High Tech Entrepreneurs NYBORG & RØRDAM 1 Nyborg & Rørdam Law...