Business activities in company form are subject to extensive regulations that balance the principle of freedom of enterprise with the need for social regulation. These regulations have great practical significance for the establishment, operation, and dissolution of businesses.
The starting point in Norwegian law is freedom of enterprise, which includes:
Freedom to decide whether to start a business
Freedom to decide whether the business should be operated in company form
Freedom to choose which company form to use
In principle, no legal basis is required to conduct business activities in the form of a general partnership or limited liability company/public limited company. However, this freedom is limited through numerous laws and regulations, especially for certain types of businesses. For example, banks can only be established as public limited companies or savings banks, and stock exchanges (regulated markets) must be organized as public limited companies.
This article provides an overview of key legal frameworks that apply to business activities in company form, focusing on public law framework legislation.
Registration Legislation
Central Coordinating Register for Legal Entities
The Central Coordinating Register for Legal Entities functions as a central "collection register" for businesses subject to registration in Norway. The purpose is to simplify information gathering by allowing one to relate to a single register to find information registered in various affiliated registers such as the Register of Business Enterprises, the Foundation Register, and the VAT Register.
Registration obligation in the Central Coordinating Register presupposes that the business has an obligation to be registered in an affiliated register. All entities that are registered are assigned an organization number.
Register of Business Enterprises
The Register of Business Enterprises is the central register for all business activities, regardless of organizational form. The registration obligation includes:
Limited liability companies and public limited companies
General partnerships
Sole proprietorships that engage in trade or employ more than five permanent full-time employees
Registration must occur before the business activity begins. Important aspects of the registration obligation:
Registration as a validity requirement: Registration is not a validity condition for the establishment of a company, but lack of registration may entail other consequences.
Changes in registered matters: There is also an obligation to register changes in previously registered matters, including a board member's resignation or the dissolution of the business.
Consequences of non-registration: Failure to register is punishable and may result in ongoing coercive fines.
Significance of registered information:
Anyone can request access to the register (public access)
Registered information is decisive for third-party rights
For general partnerships, registration is necessary for deviant forms of liability to have effect against third parties in good faith
Tax Legislation
Main Principles in Company Taxation
There is a fundamental distinction in taxation between:
Limited liability companies/public limited companies, which are independent tax subjects
General partnerships and limited partnerships, which are not independent tax subjects (partnership taxation)
The tax rules are based on a neutrality principle which suggests that tax rules should not influence the choice of company form. In practice, however, there are significant differences in taxation that make the company form potentially of great tax importance.
Taxation of Limited Liability Companies and Shareholders
Limited liability companies and public limited companies are independent tax subjects with the following characteristics:
The tax rate for companies' income is 22 percent (2021)
The company is exempt from municipal and county tax
The company does not pay tax on personal income
For shareholders:
Tax liability for dividends and gains on realization of shares
Deduction right for losses on realization of shares
Shielding deduction to avoid double taxation of normal returns
Partnership-Taxed Companies
General partnerships and limited partnerships are not separate tax subjects. Instead, the participants are taxed directly for their share of the company's profit or loss:
The taxation is based on a joint settlement (net taxation) where the result is calculated at the company level before distribution to the participants
Full tax coordination between the result from company participation and the participants' other income and deduction items
Profits are taxed as ordinary income at 22 percent
Distributions from the company to individual participants are taxable beyond a shielding deduction (participant model)
For limited partners and silent partners, the deduction right for deficits is limited.
Accounting and Auditor Act
Accounting Obligation
Accounting obligation applies to:
Limited liability companies and public limited companies
General partnerships (with certain exceptions)
The accounting obligation includes:
Ongoing accounts (registration obligation) and documentation of registered information (documentation obligation)
Annual accounts consisting of income statement, balance sheet, and cash flow statement with notes
Annual report
The annual accounts have great importance in a company law context:
It establishes the company's equity, which is decisive for the distribution of dividends
It provides a basis for assessing whether the board's management is legal
It provides information to potential buyers and investors
It is important for creditors, employees, and tax authorities
Auditing Obligation
Auditing obligation applies in principle to:
Limited liability companies and public limited companies
Larger general partnerships
Important exceptions:
Small limited liability companies can opt out of auditing under certain conditions
General partnerships only have an auditing obligation if operating income, balance sheet total, or number of employees exceed certain threshold values
The auditor shall prepare an auditor's report in connection with the company's annual accounts. The annual accounts, annual report, and auditor's report are public documents that must be registered in the Accounting Register.
Business Names Act
The Business Names Act regulates companies' official names and provides protection against others' unauthorized use of similar business names or trademarks. Protection can be obtained either through registration or by putting the business name into use.
Key requirements for business names:
Business names for general partnerships must contain the words "general partnership" or the abbreviation "ANS" (with unlimited liability)
With shared participant liability, the business name must contain the words "company with shared liability" or the abbreviation "DA"
Business names for limited liability companies must contain the word "limited liability company" or the abbreviation "AS"
Business names for public limited companies must contain the word "public limited company" or the abbreviation "ASA"
The protection against similar business names generally extends only to companies that conduct activities of the same or similar type (industry similarity), but well-known business names may enjoy broader protection.
Competition Act
The purpose of the Competition Act is to promote competition to contribute to the efficient use of society's resources, with particular regard to consumer interests. The law entails limitations on contractual freedom through:
Prohibition of competition-regulating agreements (§ 10)
Agreements that have the purpose or effect of preventing, restricting, or distorting competition
Such agreements are not only subject to public law sanctions but are also privately invalid
Prohibition of improper exploitation of dominant position (§ 11)
Addresses market-dominant actors' abuse of their position
Control of business mergers (Chapter 4)
The Competition Authority can intervene against business mergers that will lead to or strengthen a significant limitation of competition
The sanction system is threefold:
Coercive fines until a prohibited condition is corrected
Violation fees for intentional or negligent violations
Criminal liability for intentional or grossly negligent violation of certain provisions
Securities Trading Act
Stock Exchange Listing and Securities Trading
The Securities Trading Act regulates the trading of listed financial instruments, including shares. Key elements include:
Conditions for stock exchange listing:
Only shares in public limited companies can be listed
The shares must be expected to be subject to regular trading
The shares must have general interest
At least 25% of the shares must be spread among the public
The shares must in principle be freely transferable
Disclosure obligations and prospectus requirements:
Listed companies have special disclosure obligations to the stock exchange and the public
When making a public offer and admission to stock exchange listing, preparation of a prospectus is required
Market abuse and insider trading:
Prohibition of illegal dissemination of inside information
Rules to ensure market integrity and investor confidence
Good business practice:
Securities firms must follow the principle of good business practice
Ensures, among other things, equal treatment of investors in share issues
Mandatory bid obligation upon takeover:
Protects minority shareholders in acquisitions
Triggered when someone becomes the owner of shares representing more than one-third of the votes
Gives the minority the opportunity to dispose of the shares on identical terms
Notification obligation and flagging:
Notification obligation for insiders to prevent misuse of inside information
Flagging obligation for major share acquisitions to inform the market about the ownership structure
These regulations together ensure that the stock exchange functions as an efficient, trustworthy, and well-ordered marketplace where all actors are treated equally and have access to the same information.
Conclusion
Business activities in company form are subject to an extensive and complex regulatory regime that balances the principle of freedom of enterprise with the need for social control. This regulation aims to protect various interests - from company participants and creditors to employees, consumers, and society as a whole.
For business actors, it is important to have good knowledge of these regulations to ensure correct establishment, proper operation, and possibly dissolution of business. At the same time, it is important to be aware that the regulatory framework is dynamic and under continuous development through legislation, case law, and supervisory practice.
