Shareholder Loans: Consequences of Legalizing Shareholder Loans

Sebastian Diemer Kjeldgaard & Stine Seneberg Winkel

Student thesis: Master thesis


The Danish Business Authority issued on 6 July 2016 a draft proposal for amendments to the Danish Companies Act and the Danish Financial Statements Act. The amendments to the Danish Companies Act and the Danish Financial Statements Act include a requirement for registration of owners, a conditional legalization of loans to shareholders and a specification of entrepreneur companies. The purpose of the proposal for a conditional legalization of loans to shareholders is to increase the flexibility for Danish companies on the lines of a number of other comparable EU countries where it is allowed to grant loans to shareholders or members of the management if certain conditions are fulfilled. The EU rules do not contain any restrictions as regards loans to shareholders or members of the management and Denmark is one of the only EU countries that continues to prohibit this type of loans. The Government has a desire to legalize loans to shareholders to decriminalize Danish businesses that desire to grant loans to its shareholders and members of the management, who fulfil the conditions, to ensure that the concern for the company’s creditors is adequately considered. The conditions for legal shareholder loans are to ensure that the loans are granted on the assumption that the company has the capital required to support loans in relation to the company’s financial situation, creditors etc.
The proposal met a number of critical comments from the hearing parties who emphasized that the proposal for a conditional legalization of loans to shareholders will lead to a number of issues for the Danish businesses and their shareholders.
This thesis discusses the issues and possibilities that will result from the proposal for a conditional legalization of loans to shareholders. This thesis describes the basic theory behind current legislation applying to shareholder loans, corporate and tax law, presentation in the financial statements and the auditor’s influence on shareholder loans in the form of the audit opinion that is expressed.
The proposal has been reviewed to identify the issues and possibilities that are subject to analysis in this thesis. To analyze the identified issues and possibilities, we have obtained data in the form of interviews, discussions, responses to hearing requests etc. with relevant authorities, professional experts, interest groups and shareholders. Data contribute to support and interpret the views of the parties behind the is- sues and possibilities identified in the proposal.
The issues identified on the basis of the proposal constitute an undesirable signal to the shareholders, tax liability by a legalization of ”old” shareholder loans occurring before 14 August 2012, independence challenges in relation to market terms, where the shareholders ignore current interest changes, deferment of tax among the minority shareholders, opt-out of the audit requirement, and failing control of class B companies, and a risk of double taxation due to incorrect repayment of shareholder loans.
There is a risk that shareholders see that shareholder loans have become legal and that shareholders ignore that the loan remains taxable. There is also a risk that shareholders grant shareholder loans and neglect formal requirements and consequently raises an illegal shareholder loan.
Shareholders with a controlling influence who have ”old” illegal shareholder loans raised before 14 August 2012 will, in connection with a legalization of the shareholder loans, be subject to tax on the loans as the old loan is considered cancelled and a new loan to be raised. It will have to be assessed by the individual shareholder if it makes sense to legalize the loans or if the shareholders should not legalize the loan.
The possibilities identified in the thesis are that the proposal allows minority shareholders to speculate in corporate structures enabling minority shareholders to obtain loans legally for corporate law purposes and without tax liability. Associated companies with shares in underlying companies of 50% or less may cash pool legally to move liquidity among companies.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages173