The principal types of business organisation used in Norway

 

 

 

THE PRINCIPAL TYPES OF BUSINESS

 

ORGANISATION USED IN NORWAY

 

 

 

Prepared by:

 

Hans Chr. Steenstrup

 

Hartsang Advokatfirma DA

 

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TYPES OF BUSINESS ORGANISATION

 

 

1. What are the principal types of business organisation used, and what are the principal differences between such organizations?

 

 

Principal types of business used in Norway, are mainly companies limited by shares (AS or ASA), fully liable partnerships (ANS), limited partnerships (KS, DA) and sole traders, together with branches of foreign companies.

 

In an AS or ASA, the shareholders are only liable up to their part of the share capital, which according to Norwegian law, has to be paid in full, unless liability can be created on an other basis, f.ex. through negligence of some kind, see 12. hereunder.

 

In fully liable partnerships, all partners are personally liable, one for all and all for one if organized as an ANS (partnership with full liability), for the for the total liabilities of the company; or personally liable on a pro rata basis if organized as a DA (partnership with divided liability).

 

In limited partnerships (KS), there are one or more fully liable partners and one or more limited partners. The latter construc­tion has been mostly used in shipping but are presently less used due to change in the tax regulation.

 

The sole trader is fully liable on a personal basis.

 

 

2. Which type of business organisation is most commonly used, and are there variations on that particular form?

 

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In Norway, joint stock companies were in principle construed in the same way, regardless of whether the company were quoted on the stock exchange or were fully owned by one person with a minimum share capital, which is NOK 100 000.

 

Following the EEA-agreement with EU, Norway has adjusted its legislation to conform to the principles ruling within the EU. Accordingly, the system of separating between private (AS) and public joint stock companies (ASA) has come into force as from January 1996 and new company legislation through separate Joint Stock Companies Acts covering AS and ASA respectively, came into force from January 1, 1999. The Acts are parallel in their construction and are accordingly referred to hereunder as The Joint Stock Company Act.

 

Most regular businesses are run through joint-stock companies, and other ways of organizing a company are not commonly used, except for minor operations or where the company structure is tax motivated, which most commonly is the case where the company is established as a KS.

 

 

 

COMPANY LIMITED BY SHARES

 

 

3. How is a company limited by shares created?

 

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A company limited by shares is created through the issuing by the promoters of a Memorandum of Association, which further contains the drafted Articles of Association and drafted Minutes of the Statutory General Meeting. When setting up a company with a rather limited number of shareholders, the shareholders most commonly subscribe on this document (simultaneous forma­tion).

 

When the general public is invited to subscribe, this is most commonly done afterwards (successive formation).

 

The share capital shall be paid in full, within a time limit set forth in the Memorandum of Association, and the company shall be registered with The Central Co-ordinating Register Of Legal Entities within six months after the formation of the company. Until registered, the persons dealing on behalf of the company will be personally liable, and the company shall add to its name "under stiftelse" (under formation).

 

It is in principle possible to buy "shelf companies", but there is normally no point in doing so, as it is possible to have the company formally registered and fully operating within app. 7 days after the formation of the company.

 

 

 

4. Are there any important minimum requirements for a Company?

 

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The minimum requirements are as follows:

 

1) One shareholder is sufficient.

 

2) The company shall have a Name, in which AS or ASA as the case may be, shall be included, together with a Registered Office.

 

3) The company shall have a Board of Directors consisting of at least 3 directors. If the share capital is less than NOK 3 million, which applies only for an AS, 1 director (and a deputy director) is sufficient. At least 1/2 the number of directors has to be residents in Norway or in an other EEA-EU country.

 

4) The company shall have a General Manager if the share capital exceeds NOK 3 million. Otherwise it is voluntary, but it is normal practice to have a registered General Manager, as this person holds a certain authority defined in our Joint Stock Company Act. The General Manager shall be resident in Norway or in any other EU country, and shall, if a resident in Norway, have been so for the last two years before the appointment, unless he is a citizen from Norway or any of the other Nordic countries.

 

 

5) The company shall have an Auditor who shall meet certain requirements laid down in statutory law, unless the General Meeting of the company expressly chooses not to have an auditor (only in smaller companies).

 

6) The Accounts shall be made up every year, and an Annual General Meeting shall be held within 6 months after the ending of the fiscal year to deal with the accounts, hereunder distribution of profits and covering of losses, and shall in addition deal with other matters defined by the Joint Stock Company Act.

 

7) Unless otherwise stated in the Articles of Association, the directors hold their positions for two years. The Articles of Association most commonly limit this period to one year.

8) All shares shall be fully paid and issued in the name of the owner. Thus, bearer shares are not allowed according to Norwegian law.

 

9) Certain restrictions can be defined in the Articles of Association, as to the selling and acquiring of shares.

 

 

 

5. How does one distinguish one Company from another?

 

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As mentioned, all companies have to be registered with The Central Co-ordinating Register Of Legal Entities, which is a central register for all Norway. The company is given a 9-digit number, which it keeps if it moves from on part to another part within Norway. The same number is valid for VAT and Employer Tax purposes.

 

There are certain restrictions as to similarity of names held by already registered companies.

 

 

 

6. Can one obtain from the public records information regarding a company, and if so, how?

 

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All information regarding the company, i.e. share capital, Articles of Association, names of the Directors of the Board and General Manager, Auditor, Registered Office, restrictions as to tradability of the shares etc., can be obtained through The Central Co-ordinating Register Of Legal Entities for a nominal fee of presently NOK 106,-.

 

From the Central Accounts Register, which has the same location, accounts can be obtained for the same nominal fee, provided that the company has filed its accounts, which the company is obliged to do according to Statutory law.

 

 

 

7. What financial information must a company prepare and to whom must it be made available?

 

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The Company shall prepare an Annual Statement consisting of a Balance Sheet and Income Statement, together with the Annual Report by the Board of Directors and the Auditor's Report.

 

Such statement shall be prepared annually and sent to every individual shareholder. Further, it shall as mentioned be sent to the Central Accounts Register within one month after having been adopted by the General Meeting, which again is to be held within 6 months after the ending of the fiscal year.

 

The Joint Stock Company Act has comprehensive rules as to what information the Annual Accounts shall contain, and how the accounts shall be adopted.

 

 

 

OWNERSHIP AND CONTROL

 

 

8. How much does it cost to establish a Company?

 

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In addition to the share capital, which as mentioned has to be paid in full, the costs of establishing a company in Norway is app. NOK 15.000,- - 20.000,-, in which amount registration fees of app. NOK 4.500,- are included.

 

 

 

9. How do you establish the existence of a Company - for instance for the purposes of proceedings in a foreign jurisdiction?

 

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The Central Co-ordinating Register Of Legal Entities will for a nominal fee issue a Certificate of Incorporation, the information of which is binding for the Company in relation to other people or com­panies acting in good faith in accordance with the information given in said certificate.

 

The Register does not hold any information as to subsidiaries, neither within Norway nor abroad.

 

 

 

 

 

 

 

10. How is the ownership and control of a company structured?

 

 

In principal, the legal rights and obligations that follow a share, is held by the person registered as shareholder in the company's shareholder register. There are some exceptions, f.ex. when a binding agreement regarding transfer of the shares has been entered into, or if a company owning more than 90 % of the shares has declared its intention to acquire the remaining shares.

 

All shares quoted on Norwegian stock exchanges shall be register­ed in Norwegian Registry of Securities. The shareholders' rights are in principle connected to what is registered in this registry.

 

The Board of Directors, being as a main rule elected by the General Meeting, are responsible for the operations of the company, whereas the General Manager is responsible for the day to day conducting of the operations. In companies with 50 employees or more, the employees have the right to elect 1/3 of the directors, either directly or in larger companies, through the Corporate Assembly.

 

 

 

LIMITS ON POWERS OF COMPANY AND DIRECTORS

 

11. Are there any limits imposed on the powers of a company, or the authority of the Directors to exercise those powers?

 

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The object of a company shall be laid down in the Articles of Association. Unlike what is the practice in other countries, the object is most commonly formulated in a very short and wide way, thereby including most forms of business activities, unless a limitation is especially wanted.

 

Third parties dealing with the Company in good faith do in practice not have to worry about whether the dealing is within or without the objective of the Company, as long as the person dealing on behalf of the Company holds the formal position to deal with such matters.

 

The object of the Company is of course binding to the Directors and General Manager of the Company versus the Shareholders of the Company.

 

The Directors of the Board are naturally bound by instructions given by the General Meeting. In case of a disagreement, the Director will have to resign from the Board.

 

 

 

12. What are the rights and liabilities of the Shareholders of the Company?

 

 

The rights of the Shareholders are principally laid down in the Articles of Association and the Joint Stock Company Act. The shares may be divided into various classes with various rights and obligations. Such classes are normally used to differ voting rights and dividend rights. Due to our regulations regarding state consent for foreign citizens or companies to acquire real estate and to run certain activities, it is practical to divide shares held by Norwegians in one class and by foreigners in another class.

 

The Joint Stock Company Act contains certain rules to protect minority shareholders. Examples are:

 

- Resolutions favoring a group of shareholders

- Equal rights to dividend within the same class of shares

- To require a formal inquiry into the Company through a Court Order.

- Certain rights to apply for a Court Order to have the Company dissolved or to claim his shares to be redeemed.

- Amendments in the Articles of Association favoring certain groups of shareholders.

 

 

Transfer of shares may be restricted in the Articles of Association in the way that such transfers need the approval of the Board of Directors, or combined with a first right of refusal for the other Shareholders. A Shareholder will in most circumstances not be liable for the obligations of the company beyond his part of the share capital. However, under certain circumstances, a Shareholder may be liable in his capacity as a Shareholder through an act of negligence, causing a third party to suffer a loss.

 

 

 

13. What are the rights and liabilities of the Directors of a Company?

 

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Subject to the limitations provided in the Joint Stock Company Act, the Management of the Company's affairs is vested in the Board or, if the Company has a General Manager, in him and the Board jointly. The function of the Board is thus not simply to supervise and control the operation of the Company, hereunder hire and fire the General Manager, as is the case in some countries. The administrative authority of the Board also extends to the day to day management of the Company.

 

The Board must ensure satisfactory organisation of the Company's activities.

 

A Director is normally not personally liable for the liabilities of the Company. However, as is the case with the General Manager and in certain cases also for others acting on behalf of the Company, a Director may be liable through for example

 

- negligence

- continuing to trade after an insolvency has occurred, thus causing third parties to suffer a loss

- participating in actiones that may be to the benefit of only a part of the shareholders

 

 

 

 

FINANCING A COMPANY'S BUSINESS

 

 

14. How do companies finance their business?

 

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Generally, Norwegian law opens for pledging as security nearly all assets of any commercial value. This includes real estate (buildings and land), short term investments of any kind, investments in subsidiaries and other long term investments, office furniture, machinery and equipment in combination with pledging the lease agreement or real estates, receivables of any kind, inventory raw materials, inventory work in process, inventory finished products and motor vehicles. As a general rule, the security has to be specified. Floating security is generally not allowed, with the exception of motor vehicles, office furniture, machinery and equipment and inventory.

 

The Shareholders equity is, in addition to the share capital, most commonly contributed through guarantees or loans given to the Company by the Shareholders.

 

The Joint Stock Company Act opens for other financing forms, f.ex. convertible loans to share capital, or authority to the Board of Directors according to a resolution passed by the General Meeting to issue an emission, in addition to regular emissions.

 

 

 

INSOLVENCY

 

 

15. What happens if a Company becomes insolvent?

 

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When a company becomes insolvent, there are three typical ways to deal with the matter:

 

1. Apply for a bankruptcy proceeding to be opened. This proceeding is governed by the Probate Court, and will ultimately lead to a final liquidation of the Company.

 

2. The second alternative is compulsory composition procee­dings, which start according to a request from the insolvent Company, and which either leads to a composition proposal being accepted by the creditors, or a bankruptcy situation.

 

3. The third alternative is a voluntary composition, in which some sort of solution is negotiated with the creditors, in various forms.

 

Generally, in alternative 1, the power of the Board of Directors and General Manager ceases to exist upon the day the bankruptcy proceedings are opened. Their responsibilities are taken over by a Trustee, which normally will be a solicitor who will act as a representative for the creditors as a whole. His task is to wind up the Company, selling off all free assets, and to obtain as much dividend as possible.

 

The priority chain is as follows:

 

a) secured claims

b) claims with first priority (wage claims)

c) claims with second priority (tax claims)

d) claims without priority

e) sub-ordinated loan capital

 

A company going through a composition procedure as described in alternative 2, is obliged to add to its company name "under gjeldsforhandling", which indicates its present position.

 

 

 

16. How does a Company come to an end?

 

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A Company comes to an end either through a resolution passed by the General Meeting with a qualified majority, followed by a certain procedure laid down in the Joint Stock Company Act, to secure that all creditors are covered through payment or security before any payments are made to the Shareholders. The last stage in this procedure is to formally notify the Company Register.

 

 

Such dissolvement can further be instituted by the Probate Court, provided that the Company f.ex. does not have an Auditor, is not registered with the Company Register, and by some other specified reasons.

A third way to dissolve a Company is through a completed bankruptcy proceeding, which ends with a formal notice to the Company Register that the Company has ceased to exist.

 

A company can also be ruled to dissolve through a Court Order, provided that the personal relations between the shareholders have developed in such a way that the operations of the company are severely affected.

 

 

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The information contained in this brief is given in good faith, and is believed to be correct. However, no responsibility for errors or omissions shall be attached to this law firm and to Euro-American Lawyers Group. The information is provided for guidance only for use of member firms of Euro-American Lawyers Group and their clients, and shall not be relied upon in substitution for advice from the member firm in the relevant jurisdiction.