Business with Limited Liability

The forming and operation of a limited liability company is governed by Act no. 44 1997 “On companies with limited liability” (aksjeloven).
In a limited liability company, none of the owners is responsible for more than the sum paid as share capital. You may, however, be required to secure the company loans by a personal guarantee, collateral or some other surety. In case of bankruptcy, your liability is then the share capital plus the surety.

The actual responsibility is limited to the share capital itself, i.e. the nominal value of the shares any owner owns. The company's creditors may only seek compensation from the valuables of the company.
Should a bankruptcy occur, the creditors cannot demand compensation from the shareholders. Neither can the creditors demand that the shareholders deposit additional capital into the company beyond the sum required as the nominal value of the shares.

Since the creditors only can demand payment from the valuables and fortune of the company, from their point of view it is important that the company is solid and has a fair working capital that is not likely to be withdrawn from the company. The Limited Liability Company Act therefore states that all the shareholders have to pay a minimum amount of money – the share capital – that the owners normally cannot withdraw from the company.

The Act states a number of conditions limiting the owners' right to use the capital and valuables of the company. For instance, there are strict rules as to the sum that may be withdrawn as dividend.
Likewise, there are limitations to the amount of money the owners may lend from the company.

The act states that the share capital shall be at least NOK 30 000. One might say that this is the entrance fee for establishing and running a business where the owners enjoy limited liability.

The share capital may be established as a single or a number of shares with the same nominal value. Any one shareholder may own one or more shares.
The liability of a shareholder is limited to the capital paid to the company at the start.

The exception is when the owners violate the conditions stated in the Act in order to protect the share capital or in cases where the owners clearly have conducted acts that jeopardize the valuables of the company or put the creditors at a risk of suffering a loss.
In such instances, the shareholders may be held responsible and liable to pay compensation for the loss suffered by the company or the creditors.

Note also that the standard rule of limited liability may be overruled by agreements. In cases of mortgages or loans, it is customary that the banks demand that the shareholders personally present guarantees that secure the loans established in the name of the company. Such a guarantee means that if the company is unable to meet its obligations, the bank may demand that the shareholders who have signed the guarantee personally meet these obligations.

The Shareholders
The shareholders are the owners of the company. The term "share" simply means a part ownership of the company. One or more persons may own the company, and a single person may own one or more shares.

When a share of the company is acquired, one particular responsibility is assumed: The responsibility to pay for the share within the time limit expressed in the Act. As compensation, the shareholder gets a number of "rights" in his/her dealings with the company.
The shareholder is for instance entitled to his/her share of the dividend, and he/she may attend the general assembly and vote on the issues raised.

The share is, as previously mentioned, a part ownership in a company and may as such be regarded as a valuable. Shares may be traded or mortgaged, but note the limits that may apply. When a share is sold, the buyer also receives the rights associated with the share.

Company Articles
All companies with limited liability must have Company Articles of association. The Act states certain conditions that the rules must fulfil. In addition, the Company Articles may cover aspects not explicitly stated in the Act.
Note that the Act in fact gives extensive rights to state other Company Articles than those that otherwise would apply according to the words of the Act. The Company Articles may only be altered by the General Assembly.

The Company Organisation
The top-level body of the company is the General Assembly. All the shareholders have the right to attend the General Assembly, and normally, the right to vote.
Usually one share gives one vote. In addition, the company must have a board (of directors). The members of the board are responsible for the day-to-day business affairs of the company. The company may also have a manager.

For companies with a share capital of less than NOK 3 million it is not necessary to appoint a general manager.

Important rules in the early stages:

• Private companies with limited liability are required to start with a share capital of minimum NOK 30 000.
  In addition to cash, the share capital may consist of assets, such as machinery, cars and office equipment. The founders must prepare a statement of such share capital entries.
  An auditor must confirm the statement .
• One shareholder is sufficient.
• At least 50% of the board must be residents of Norway. In addition, the managing director must be a resident of Norway.
  The provisions do not apply to citizens of states within the European Economic Area when named citizens are residents of these states.
  The Norwegian Ministry of Trade and Industry may give exemptions from the standard residency requirements .
• The company must be founded, prepare company articles and hold the forming general assembly in accordance with the law on companies with limited liability.
  The company must be registered with the Central Coordinating Register of Legal Entities within 3 months of the forming general assembly .
• The company is required to engage an auditor unless the board of directors has decided not to appoint one. The following conditions must be fulfilled if the board of directors has decided not to appoint an auditor:

   

  The annual turnover is NOK 5 million or less

  The total balance sheet is less than NOK 20 million

  The average number of employees not exceed 10 man labour year

   

  Parent companies in a corporation will always be obliged to appoint an auditor.

The Memorandum of Association must – among other things – include:

• The sum paid for each share.
• The deadline for payment of the share capital.
• A list of the board members and engaged auditor.

The company Articles of Association must – among other things - include:

• The name of the company.
• The name of the municipality from where the company will operate.
• The type of business.
• The share capital.
• The nominal value of each share.
• The number of members of the board.
• A list of issues to be addressed by the general assembly.