Start-up
Main types of business entities
Initial considerations
Sole Proprietorship
Business with Unlimited Liability
Business with Limited Liability
The shareholders
Company articles
Memorandum of Association
Managing Director
Summary
Cooperatives
Norwegian branch of a foreign enterprise
Other types of enterprises.Associations and Societies
For you, about to start your own business, the choice of business entity is often the first question to arise!
Starting a new business, the alternatives are normally:
Sole proprietorship /
A company of unlimited liability («ansvarlig selskap» – ANS or «Delt ansvar» – DA). In this guide, we often refer to this type of entity as unlimited company.
A limited liability company («aksjeselskap» – AS). In this guide mainly referred to as limited company.
The choice has bearing on the responsibility you assume as owner of the business and your freedom to control the assets of the business.
The company category should match both the business sector and your financial situation.
The type of business entity affects:
Your responsibility as owner
The extent by which you may control the assets of the business
Your personal responsibility for the business debts
The formal bodies of the business, i.e. general assembly, board or a business manager
The standard types of business enterprises are discussed in some detail later. Note that this guide cannot give specific advice on what type will suit your purposes. We will, however, try to cover the implications on income, taxation and possible debts associated with each type of business entity.
Initial considerations
One of the first questions arising when a new business entity is formed, is what type of enterprise will offer the most benefits for the kind of business one intends to establish? Unfortunately, there is no single, definite answer to that question. You will have to consider the pros and contras, and perhaps seek advice from someone who has been in the same position.
Representatives of the authorities will, in general terms and to the best of their abilities, try to outline the consequences of the different alternatives, but you cannot expect advice with regard to your particular situation.
Note that your choice will influence aspects like the extent of your personal responsibilities, risks, taxes, rights and duties, and your liberty to manage the assets of the company.
It is therefore natural (in some cases even necessary) to seek advice from accountants, auditors, lawyers or other professionals before the final choice is made.
When you start a new and probably small company, you normally face the following alternatives:
Sole proprietorship (
Unlimited liability company (ANS and DA)
Limited liability company (AS)
Cooperatives (SA)
Other types of company
Sole Proprietorship (
The sole proprietorship is a type of organization where a single and real person is responsible for the business. As indicated by the term identifying the type of business, such a company will have just one owner.
In such a company you have extensive financial freedom. You are, however, also financially responsible for all debts and obligations incurred by the company. Note that there is no distinction between personal and enterprise liabilities: You are personally responsible for the company’s debts, even with your personal wealth and possessions.
In order to establish a sole proprietorship, you must be at least 18 years old, and you must not be restricted by bankruptcy quarantine. You do not have to be a resident of Norway. However, the business enterprise must have a Norwegian address.
All sole proprietorships may (but are not required to) register in the Central Coordinating Register for Legal Entities. The registration is free of charge. Sole proprietorships also have the right to register in the Register of Business Enterprises, but a fee is charged. If the business engages at least five employees and/or is conducting trade, registration is mandatory.
You may experience that many suppliers will ask for your organization number in the Central Coordinating Register for Legal Entities, perhaps to check if the new enterprise is real, i.e. another incentive for registering your business.
Many entrepreneurs start their businesses as sole proprietorships, but reorganize to limited liability (AS) companies at a later stage, for instance when the business grows. Doing so is simple. The opposite however, transforming an AS to a sole proprietorship, is much more complicated.
There are no restrictions on receiving a wage or salary and at the same time running your own sole proprietorship. Inform the Local Tax Assessment Office that your total income will consist of income from paid work and profit on business activities. On the basis of the information from you, the tax office will estimate your total income, thereby determining the advance tax payments.
In sole proprietorships the net profit is subject to taxation, together with possible income from paid work. On the other hand, given an overall positive income, loss from the business enterprise is deductible. The latter may be a great help in the start up process, if you hold on to your position in another company while trying to make your sole proprietorship a success.
A common misunderstanding is that you only pay tax for the amount of money you withdraw from your company. This is not correct. Even if you withdraw nothing, the net profit of the company is tax eligible.
Income from the sole proprietorship is calculated as part of your personal income. Together with the standard personal tax return, you have to fill in a business enterprise return that informs the tax authorities about the financial situation and performance of your company. The profit of the company is transferred to the income part of your personal tax return. The deadline for submitting the return(s) follows the deadline for business enterprises.
As the sole proprietor by definition is not a wage earner, he or she is not, in case of illness or sick leave, automatically entitled to social benefits from the first day of absence. Note that a medical insurance is not mandatory. Neither does the proprietor have to set aside money for holiday leave for him- or herself. The sole proprietor has no rights regarding the state guarantee concerning wage claims in case of bankruptcy, nor compensation for temporary or permanent
Business with Unlimited Liability
In a company with unlimited liability there are two or more owners, often referred to as companions (partners). In such a company the owners have a personal responsibility for the overall liability of the company, in full or in part, however, in a way that collectively covers the debt of the company..
In practical terms we distinguish between two main types of unlimited companies:
ANS (responsible company):
In this kind of unlimited liability company each owner has a personal responsibility for all debts (solidarity responsibility). The amount of debt one owner is unable to cover, may be charged each one of the other owners.
DA (Collective responsibility):
In this kind of unlimited liability company the owners are collectively responsible for all debts. However, each owner is responsible only for a part corresponding to his/her part of the ownership.
A creditor cannot, for instance, charge more than 10 per cent of the debt from the owner holding only 10 per cent of the ownership, even if the other owners are unable to cover their parts. When an ANS or DA type of company is established, a company assembly is obligatory. You and your partners are required to make a written and dated agreement signed by all partners. The minutes from this meeting, signed by all partners, together with the company agreement must be submitted to the Register of Business Enterprises when you want to register the company. You should be aware of some formalities: The company agreement must as a minimum state:
(a) The name of the enterprise.
(b) Names and residential addresses of all active partners. Note that the company also may have so called silent partners, i.e. partners who do not represent the company in any external relations nor have a substantial ownership/responsibility.
(c) The purpose of the company.
(d) The municipality where the company has its main office.
(e) If the partners are making capital investments, in which case the value of the investments must be stated.
In addition, the owners/partners often draw an agreement that regulate the relations between them.
Note that it is up to the partners to decide if any valuables should be deposited in the company or not, as the act does not demand cash or a nominal
In an unlimited liability company, the deposit or
It is recommended that the company builds up a financial buffer in order to reduce the risk for personal payment of debts. A financial sound company also reduces the possibility of conflicts between the partners.
It is simple to transform an ANS or DA to an AS (limited liability company), the reverse however, is much more complicated.
Unlimited liability companies are subjected to partner taxation. This means that each partner is a personal tax payer, where his/her part of the profit (or loss) is treated together with other personal income and deductible expenses. If your ownership in the company is 25 per cent, then 25 per cent of the net profit is added to your personal income. Also, 25 per cent of the value of the company capital assets is added to your personal property.
The actual ownership, i.e. your part of the company is stated in the company agreement.
Business with Limited Liability
Private limited liability companies – identified by AS – or public limited liability companies – identified by ASA – are enterprises where none of the participants are personally liable for the company’s obligations.
The founding and operation of a limited liability company is governed by Act no. 44 from 1997, “The Limited Liability Company Act” (In Norwegian: 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 assets of the company.
Should a bankruptcy occur, the creditors cannot demand compensation from the shareholders. Neither can the creditors demand that the shareholders pay up additional capital into the company beyond the sum required as the nominal value of the shares..
Since the creditors may only demand payment from the valuables and assets of the company, from their point of view it is important that the company is sound 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.
In addition, the act states a number of conditions limiting the owners’ right to use the capital and valuables of the company. There are, for instance, rules limiting the amount given as share dividends.
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 100 000. Onemight say that this is the entrance fee for establishing and running a business where the owners enjoy limited liability.
The share capital may be linked to 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.
The exception is when the owners violate the conditions stated in the Act, in order to protect the share capital or in the instances 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.
If that is the case, the shareholders may be held responsible and liable to pay compensation for the loss suffered by the company or the creditors.
Beware 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 the shareholders to 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 the shareholders who have signed the guarantee to personally honour the 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 profit, 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 conditions that may apply. When a share is sold, the buyer also receives the rights associated with the share.
As shareholder in a company you may withdraw money as share dividend or receive a salary for your work in the company. There are strict rules regarding the amount given as share dividend.
Many entrepreneurs starting limited liability companies also work in their own businesses, receiving compensation in the form of salaries/wages. In such a case you are a wage earner in your own company and will enjoy the benefits as well as the drawbacks of such a position. For instance, the company deducts tax according to the tax rate decided for you. In addition, the company will have to pay payroll tax on your gross wage/salary. On the other hand, being a wage earner means social benefits, for instance in case of illness, not available to the sole proprietor.
Company articles
All companies with limited liability must have Company Articles of Association. The Act states certain minimum conditions that the articles 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.
Among other things, the company articles should state:
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.
Memorandum of Association
In addition to the Company Articles, the Act requires certain additional contents of the Memorandum of Association:
Primarily, all founders must be identified by name, address and personal identification number (fødselsnummer).
The memorandum must also state how many shares each founder buys. One person may buy several or even all shares, and the founders may buy different number of shares.
The memorandum must state the price for each share. It may be decided that the share subscription be paid in the form of money or in other goods/valuables. If the latter, there are certain rules as to the documentation of the value of the goods/valuables.
Note that the sum paid for the share can never be lower than the nominal value as indicated by the Company Articles. However, it may be higher.
In such a case, it is said that the shares are bought at a premium.
The Memorandum of Association declares the latest date for payment of the share capital into the company’s account. The Act states that the share capital must be paid in full before the company is registered in the Central Coordinating Register of Legal Entities. The company must be registered within 3 months after the signing of the Memorandum of Association. Consequently, it is advised that the final date for payment of the share capital is before the 3 months have passed.
In addition, the memorandum decides the members of the board and the auditor of the company.
General Assembly, board of directors and managing director
The
In addition, the company must have a board (of directors). The members of the board are responsible for the
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.
In small companies, organising the management of the company may be very simple. Often it is sufficient that the company has appointed a board (of directors). The board may even have only one member, possibly, but not necessarily one of the shareholders.
In general, the enterprise may itself decide on the number of members on the board. However, if the share capital is NOK 3 million or more, at least three members are required. The actual or minimum number of members must be stated in the Company Articles.
The board is elected by the company’s General Assembly. The General Assembly decides on electing/appointing deputies to the board members. At least one deputy is required if the board only has one or two members.
At least half the number of the board members must either have permanent residence in Norway or live in and be subjects of European Economic Area (EEA) states.
The members of the board are normally elected for two years. The Company Articles may decide longer or shorter service times, but four years are the maximum. The service time ordinarily starts at the time of election, and lasts until the conclusion of the General Assembly in the last year of service.
The board has the actual leadership of the company, not only the business part, but also the overall operations and conduct of the company.
According to the Limited Liability Company Act, the board has the responsibility to ensure that the company is adequately organized. In addition, the board must see to that necessary plans and budgets are worked out.
Managing Director
Appointing a director or not, should be decided based on the best interests of the company. The board will normally look for the type of organization that is both sound and best suited to the expected business operations.
Managing director is the Limited Liability Company Act’s term for the person in charge of the
Different terms may be used, e.g. in Norwegian “administrerende direktør”, “forretningsfører”, «daglig leder», etc. The Act applies whatever title is given to the manager.
The managing director is normally employed by the company. In addition, the manager may well be a member of the board. That is entirely left to the discretion of the General Assembly.
The manager must be a resident of Norway, or be a subject and resident of one of the EEA member countries.
Summing up:
Private limited companies are required to start with a share capital of minimum 100 000 NOK.
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. An auditor must confirm the statement.
One shareholder is sufficient.
At least 50 per cent of the board members 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 EEA when named citizens are residents of these states.
The company must be founded, must prepare company articles and hold the forming general assembly in accordance with the Limited Liability Company Act.
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.
The company must submit the annual report to the Register of Company Account at the Brønnøysund Register Centre before 1 August the year after the end of the financial year.
Cooperatives (SA)
By a cooperative is meant a group whose main objective is to promote the economic interests of its members by the members taking part in the society as purchasers, suppliers or in some other similar way, when
the return, apart from a normal return on invested capital, is either left in the society or divided among the members on the basis of their share of the trade with the group, and
none of the members is personally liable for the group’s debts, either in whole or for parts which together comprise the total debts.
The members are not obliged to contribute capital to the cooperative unless the individual member has agreed to this in writing when subscribing for membership or in a separate agreement. Any duty to contribute capital must be limited either to a certain amount or in some other way. The requirement of agreement does not apply to a duty to pay a membership contribution if so stipulated in the statutes.
A cooperative also exists if the interests of the members are promoted through the members’ trade with an enterprise which the cooperative owns alone or together with other cooperatives, including a secondary cooperative.
A cooperative may be established by at least two persons and must always have at least two members. Should there be fewer members, the enterprise is to be dissolved.
Both natural persons and legal entities may be founders of the society. Those who are not of legal age and capacity may not be founders.
The founders must date and sign a memorandum of incorporation. Once all the founders have signed the memorandum of incorporation, the membership has been subscribed for and the enterprise has been established.
Requirement as to the content of the memorandum of incorporation
The memorandum of incorporation shall contain statutes for the enterprise, see below.
The memorandum of incorporation shall also state:
1. the founders’ names or business enterprise names, addresses and dates of birth or organisation numbers,
2. the names, addresses and dates of birth of those who are to be directors.
If the founders are to contribute capital in connection with the establishment of the enterprise, the memorandum of incorporation shall also state:
1. the amount that each founder is to pay and the total capital that the founders are to contribute,
2. the date when the capital is to be contributed.
If one or more of the founders are to settle a capital contribution in assets other than money, the memorandum of incorporation shall state the assets concerned, the name and address of \the founder concerned and the terms that are to apply.
The statutes shall as a minimum contain provisions regarding:
the enterprise’s name,
the municipality in Norway where the enterprise is to have its registered office,
the activities to be carried out by the enterprise,
the size of any membership contributions, whether interest is to be paid on these, and whether these are to be repaid if a member withdraws from the enterprise,
whether a membership fee is payable,
how the annual profit may be utilised,
the number of, or the lowest and highest number of, directors,
the issues that are to be discussed at the ordinary general meeting and
how the net assets are to be divided if the enterprise is dissolved.
European Cooperative Societies – a new kind of enterprise entity in Norwegian legislation
The Act on European Cooperative Societies (the SCE Act) will make it easier for a cooperative to move its headquarters from one EEA country to another without having to dissolve the enterprise in the first and
Norwegian branch of a foreign enterprise (NUF)
A foreign enterprise that wishes to extent its operations to Norway, may register a branch of the enterprise in this country.
If a branch is established in Norway, it is the main office (headquarter) that is responsible for the Norwegian part of the operations.
If the branch has no employees, a Norwegian representative must be appointed. The representative will be responsible for tax obligations. The branch is normally obliged to pay taxes to Norway, and must otherwise operate according to the Norwegian legislation. If foreign citizens are employed, these must have work and residence permits.
There are no equity capital requirements in order to set up the branch. To register the business, one submits the form Combined Register Return to the Brønnøysund Register Centre. The following documents must accompany the return:
A certificate of registration from the authorities in the country where the main office is located.
Minutes from the managing board of the enterprise showing that a decision has been made to set up the Norwegian branch.
Name of the person responsible for the Norwegian branch, or alternatively, the Norwegian representative and a declaration of consent from him/her.
All documents and annexes submitted to the Register of business enterprises must be in the Norwegian language.
The business address (in Norway) of the branch must be stated.
Note that the Combined Register Return must be signed by the members of the board and the manager in Norway. If neither is appointed, the return must be signed by the person authorized to commit the enterprise by his/her signature.
Bankruptcy in a Norwegian branch of a foreign enterprise (NUF)
The manager or representative of the branch may petition for bankruptcy. Only the part of the enterprise located in Norway will be taken under bankruptcy proceedings. The trustee (appointed by the court) will notify the foreign enterprise register about the possible liquidation of the branch.
Other types of enterprises
Associations and Societies
There are types of organizations which are not regulated by specific acts, but nonetheless, are subjected to certain rules and conditions. Such organizations may be societies, associations and for instance charity organizations (often referred to as NGOs –
If you want to register a society in the Central Coordinating Register for Legal Enterprises, you have to certify that the organization is founded and currently exists. Hence, you need to submit both the Articles of association and the founding document in order to register.
If you want to register a society in the Central Coordinating Register for Legal Enterprises, you have to certify that the organization is founded and currently exists. Hence, you need to submit both the Articles of association and the founding document in order to register.
You may find other types of enterprises like limited partnerships (in Norwegian «kommandittselskap») and foundations. These types of companies are rarely used for business activities conducted by small and medium sized enterprises (SMEs). Hence, they are not considered here.
When you:
establish a company…
hire employees or…
sell goods and services liable to VAT and other taxes…
… the authorities must be notified
