The director's contract in Denmark: complete guide 2026

A director's contract is not just an ordinary employment contract with a bigger salary. For directors, and this applies especially to managing directors and registered directors of companies, an entirely different set of legal rules applies than for ordinary employees. The most important difference: the director is not protected by the Salaried Employees Act (funktionærloven).

The consequence is that the terms of the director's contract are to a far greater extent a matter of free agreement between the director and the company. That gives flexibility, but it also creates risk, for both parties, if the contract is deficient, unclear or simply copied from a standard employment contract.

This guide gives you a complete overview of what a director's contract must contain, what pitfalls to avoid, and what personal liability means in practice.

Note: This guide is informational and does not replace individual legal advice. Directors' contracts are complex, and individual circumstances may require tailored advice. Contact a lawyer if in doubt about specific contract terms.

What is a director's contract?

A director's contract is the contract that governs the relationship between a company and its director. The document establishes the director's tasks, powers, salary, termination terms and other terms of the management role.

Danish law typically distinguishes between two types of director in a company:

• The registered director, registered in the CVR (Central Business Register), holds authority to bind the company and has legal responsibility for the company's day-to-day operations
• The commercial or functional director, titles such as sales director, marketing director and the like, who are not registered in the CVR and in many cases are in fact covered by the Salaried Employees Act

It is especially the registered director who is not covered by the Salaried Employees Act and who needs a separate director's contract that addresses the terms that are normally laid down by law for other employees.

The director is not a salaried employee, what does that mean?

For the vast majority of employees in Denmark, the basic terms are protected by the Salaried Employees Act: notice of termination, severance pay, probation, illness and compensation for unfair dismissal. All of this is laid down by law and cannot be contracted away to the employee's detriment.

For the registered director, the Salaried Employees Act does not apply. This is because the director is regarded as representing the employer, not as being subordinate to it. The director is part of the management, and the legislature has chosen not to give the same protection as to employees.

The concrete result:

• There is no statutory notice period for the director, it is freely agreed in the contract
• There is no right to severance pay under section 2a of the Salaried Employees Act unless it is agreed
• There is no protection against unfair dismissal under section 2b of the Salaried Employees Act
• The director is not covered by the Salaried Employees Act's illness rules in the same way as salaried employees
• The rules on probation and notice during probation do not apply

This means that anything the director has not negotiated into the contract does not exist as a right. A director's contract that does not explicitly mention severance pay gives no right to any severance pay.

The most important clauses in a director's contract

1. Salary and bonus

The director's total remuneration should appear clearly, including:

• Base salary, monthly gross salary
• Bonus and incentive pay, performance bonus, targets and method of calculation
• Pension, the employer's and the director's contributions
• Benefits in kind, company car, phone, health insurance and the like
• Share schemes and warrants, terms and vesting period, including what happens on departure

Bonus programmes should be described precisely: what triggers the bonus, how is it calculated, and when is it earned? An unclear bonus term is a classic source of litigation on departure.

2. Notice period

Because the director is not covered by the Salaried Employees Act's termination rules, the notice period is a central point of negotiation. It is agreement-based and should appear clearly:

• The notice on the company's termination of the director
• The notice on the director's own resignation from the position
• Whether the notice runs from a particular time (for example the turn of the month)

Typical notice periods for directors in Danish companies are 3 to 12 months for the company's termination and 1 to 3 months for the director's own resignation, but it is a matter of free agreement.

Be aware that the body that appointed the director (the board or the general meeting) can, under the Companies Act, remove a registered director at any time, even if the director's contract has a notice period. The consequence, however, is that the company is then obliged to pay salary during the agreed notice period, even though the director is not working.

3. Severance pay

Severance pay is not automatic for directors, it must be agreed. Many directors' contracts contain a clause on compensation on termination by the company, typically corresponding to 3 to 24 months' salary depending on seniority and bargaining power.

Important considerations:

• Does the compensation apply only on termination by the company, or also on departure by agreement?
• Is the compensation conditional on the director not having breached the contract?
• Is the compensation set off against other income?
• What happens if the company changes owner (change of control)?

A well-crafted clause should specify all these scenarios to avoid disputes. See also the severance-agreement guide for more on departure negotiations.

4. Non-compete clause

Directors are frequent candidates for non-compete clauses, as they typically hold unique insight into the company's strategy, customers and business model. Which rules apply to the clause, however, depends on the director's status:

Directors who are in reality employees (for example a commercial director without genuine management power) are covered by the Employment Clauses Act (ansættelsesklausulloven). This means that:

• The clause must be agreed in writing and specifically
• The maximum duration is 12 months from departure
• The director must receive compensation (typically 40 to 60% of salary depending on the duration and the number of clauses)
• The clause can lapse if the company dismisses the director without reasonable cause

The registered, managing director, by contrast, is as a rule not regarded as an employee, and the Employment Clauses Act therefore does not generally apply (apart from the rule in section 11(3) of the Act, that the clause can lapse if the company dismisses the director without reasonable cause). The director's non-compete clause is instead assessed under section 38 of the Contracts Act (aftaleloven), where a court can set aside or moderate a clause that unreasonably restricts the director's career opportunities or extends further than necessary. Here there is no fixed statutory ceiling of 12 months or a fixed compensation rate, but it is both customary and wise to agree a reasonable duration and compensation, as it strengthens the durability of the clause.

A non-compete clause is often combined with a non-solicitation clause and a confidentiality clause. The latter should specify that the duty of confidentiality also applies after departure. See the non-compete guide for a detailed review of the rules.

5. Confidentiality and intellectual property

The director has access to the company's most sensitive information. The contract should contain:

• A confidentiality clause covering trade secrets, customer information and strategic plans
• A clause on intellectual property: that everything the director creates in their role belongs to the company
• A duty to return material on departure

6. Powers and reporting

The director's contract should specify the director's powers in daily operations:

• What agreements can the director enter into without the board's approval?
• Are there monetary limits for investments, hires or contracts?
• Who does the director report to, the board, an investor, a parent-company management?

Unclear limits of authority are a frequent source of conflict, especially in companies with investors or boards with strong views on day-to-day management.

Liability and personal responsibility

One of the most significant legal differences for the director is the question of personal liability. As a registered director you can in certain situations be personally liable for the company's obligations or damage, even though you are employed in a private or public limited company that normally limits liability to the company's capital.

Personal liability can arise from:

• Negligent management, gross errors or omissions in your capacity as director (Companies Act section 361)
• Breach of the Companies Act, for example unlawful distributions, failure to file accounts or delayed filing for bankruptcy
• Tax law and VAT law, in certain situations the director can be personally liable for the company's tax and VAT arrears
• A separate guarantee or personal surety, if you have signed a personal guarantee for a loan

In practice, director liability is typically raised in connection with bankruptcy proceedings, where the trustee examines whether management acted in a manner giving rise to liability in the period up to the bankruptcy. A clear director's contract that defines the director's powers and reporting obligations is an important part of the documentation that protects the director in such situations.

Director's contract vs. employment contract, the most important differences

Term	Employment contract (salaried employee)	Director's contract (registered director)
Salaried Employees Act	Applies	Does not apply
Notice period	Statutory (1 to 6 months)	Freely agreed
Severance pay	Statutory after 12/17 years	Only if agreed
Unfair dismissal	Protection via FL § 2b	No statutory protection
Probation	Max. 3 months	Freely agreed
Non-compete clause	Employment Clauses Act applies	As a rule Contracts Act § 38 (not the Employment Clauses Act)
Personal liability	Minimal	Potentially on negligent management

For staff with a director title but who are not registered in the CVR and do not exercise the actual management, an individual assessment applies. If you are in doubt about your status, you should consult a lawyer.

See the employment-contract guide for a detailed review of the rules for the typical employment contract.

The most common mistakes in directors' contracts

1. Using a standard employment contract The most frequent mistake is signing a template designed for salaried employees. The contract does not cover the legal realities for the director and typically provides neither the right protection nor the right powers.

2. An unclear notice period Many directors' contracts are silent on what happens when the director is removed with immediate effect. Specify that the salary is paid during the notice period, regardless of whether the director actually works.

3. No severance pay The director takes the position and forgets that there is no statutory safety net. A good director's contract explicitly includes severance pay that reflects the risks of the role.

4. A vague bonus structure "The director is entitled to a bonus at the board's discretion" is not a bonus clause, it is a blank cheque to the company. Describe the targets, the method of calculation and the payment time precisely.

5. No change-of-control clause What happens if the company is sold? A change-of-control clause secures the director compensation if the change of ownership leads to changed or terminated terms. This clause is frequently overlooked but is decisive in investor-backed companies.

6. An unclear non-compete clause For directors who are employees, a non-compete clause without compensation is invalid under the Employment Clauses Act. For the registered director, the duration and compensation should be agreed clearly, so the clause can withstand a reasonableness assessment under section 38 of the Contracts Act.

7. The role description and powers are not defined Without a clear definition of the director's powers and reporting structure, there is a risk of conflict with the board, and in the extreme case of personal liability if the director acts without authority.

What happens when the director departs?

The departure of a director is more complex than a normal dismissal of an employee. There are three central elements:

1. Company law: The departure must be registered in the CVR via the Danish Business Authority. The director no longer binds the company from the time of departure.

2. Contract law: Salary during the notice period, severance pay and any bonus must be settled. The parties often disagree about the basis of calculation.

3. Competition: If there is a non-compete clause, it takes effect from the day of departure, and any compensation begins to run.

A severance agreement is in many cases a better solution than a unilateral dismissal, as it gives both parties clarity and avoids subsequent disputes. Read more in our guide to severance agreements.

Create a director's contract with LegalDock

With LegalDock you can create a director's contract that addresses the special rules and risks for directors in Danish companies. Our template covers:

• Notice period and departure terms adapted to the director's legal status
• Bonus and incentive pay with clear calculation rules
• Severance pay and change-of-control clause
• A non-compete clause adapted to the director's status
• Confidentiality and intellectual property

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Frequently asked questions about directors' contracts

Is the director covered by the Salaried Employees Act?

The registered director is as a rule not covered by the Salaried Employees Act. This applies to managing directors and other directors registered in the CVR. Directors with the title but without the legal management role can in certain cases still be salaried employees, it depends on a specific assessment of the content of the position.

What is a reasonable notice period for a director?

There is no statutory requirement. In practice, directors typically negotiate notice periods of 3 to 12 months from the company's side. The length of the notice usually reflects seniority, vulnerability on sudden departure and the director's bargaining power.

Is the director entitled to severance pay?

No, not automatically. Severance pay is only a right if it is agreed in the director's contract. In many professional directors' contracts, compensation of 3 to 24 months' salary is agreed.

What is personal liability for a director?

As a director you can in certain situations be personally liable for the company's obligations if you have acted negligently (carelessly or intentionally contrary to good management practice), breached the Companies Act or signed personal guarantees. The liability is tied to your conduct as a manager, not merely to your position.

Can the director's contract contain a non-compete clause?

Yes. If the director is in reality an employee, the Employment Clauses Act applies: the clause must be agreed in writing, have a maximum duration of 12 months, and the director must receive compensation (typically at least 40% of salary). If it is a registered, managing director, the Employment Clauses Act as a rule does not apply, and the clause is instead assessed under section 38 of the Contracts Act, which requires reasonableness but no fixed ceiling. See the non-compete guide for details.

What happens if the company is sold while I am director?

It depends on what is agreed in the contract. Without a change-of-control clause, the director has no special right on a change of ownership. With a clause, the director can typically either continue on unchanged terms or depart with an agreed compensation. This clause is especially important in venture-backed companies and family-owned businesses considering a sale.