A fundamental question in company law is whether the company itself or its participants should be considered the subject of rights, obligations, and competences. This concerns the company's status as an independent legal person or legal entity. The question has practical significance for a number of matters, such as who can enter into agreements, act as a party in legal proceedings, relate to public authorities, and be subject to taxation.
This article illuminates the concept of companies' legal personality in Norwegian law, with particular focus on limited liability companies, public limited companies, and general partnerships. The article addresses the legal basis for companies' status as legal persons, and what practical significance this has.
The Legal Basis for Companies' Legal Personality
Status Rule on Legal Personality
In Norwegian company law, a clear status rule is established that both limited liability companies, public limited companies, and general partnerships are separate legal entities – independent legal persons. This status rule functions as a starting point when the interpretation of specific legal rules does not provide clear answers.
Legal Foundation for Limited Liability Companies and Public Limited Companies
For limited liability companies and public limited companies, the status rule follows from established unwritten law, confirmed and presumed in a number of Supreme Court judgments. This is also indirectly expressed through the Limited Liability Companies Act and the Public Limited Companies Act § 2-20, first paragraph, which states that the company after registration "as such" can acquire rights and incur obligations.
This means that a registered limited liability company or public limited company can:
Enter into property law agreements in its own name
Act as plaintiff and defendant in the courts
Act as a party before administrative bodies
Own assets and be responsible for liabilities
Legal Foundation for General Partnerships
For general partnerships, the status rule is derived directly from the Partnerships Act § 2-1, which states that such companies as a general rule are independent legal entities. This means that general partnerships can also take property law and procedural law positions in their own name.
The legal personality of general partnerships is not in conflict with the fact that participants have unlimited personal liability for the company's obligations. The two aspects – the company's status as a legal entity and the participants' liability for the company's obligations – are separate issues.
The Relativity of Legal Personality
Specific Interpretation Before Application of the Status Rule
Although the main rule is that companies are independent legal entities, it is important to note that this status rule is not absolute. A specific interpretation of the legal rules must be made before relying on the main rule.
This means that companies' legal personality can be relative – a company can be an independent legal entity in some contexts, but not in others. This is also called the doctrine of relative legal personality.
Examples of Exceptions to the Main Rule
A classic example of the relativity of legal personality is the tax rules for general partnerships. Although general partnerships have traditionally been considered independent legal entities in property law contexts, they have simultaneously been considered non-independent legal entities in tax law contexts. Thus, it has been the participants, and not the company itself, who have been tax subjects.
This illustrates that a company's status as a legal entity can vary depending on the legal context we are in.
Identification and Piercing the Corporate Veil
When Company and Shareholder Can Be Identified
In company law, questions sometimes arise as to whether company and shareholder can be identified, and about piercing the corporate veil. This is particularly relevant when the company form is used in a way that appears to be a misuse or a circumvention of rules.
In such situations, the courts can exceptionally disregard the company as an independent legal entity and instead identify the company with its owners. This is often referred to as "liability breakthrough" or "piercing the corporate veil."
High Threshold for Piercing the Corporate Veil
Norwegian courts have generally shown restraint in accepting piercing the corporate veil. The Supreme Court has stated that it takes a lot before such identification can be made, since it would undermine a fundamental principle in company law – the principle of limited liability.
Piercing the corporate veil may, however, be relevant in cases where:
The company form has been misused in an improper manner
There is a significantly undercapitalized company
There is a mixing of the company's and owners' financial affairs
Other special circumstances suggest that the company and owners should be identified
Practical Significance of Legal Personality
The Company's Legal Capacity
An immediate consequence of companies being considered independent legal entities is that they have legal capacity in a procedural sense. This means that the company itself, and not its participants, can act as a party in legal proceedings.
For companies with many participants (typically limited liability companies), it would be very impractical if all participants had to act as parties in legal proceedings concerning the company. The company form makes it possible for the company to act as a unit externally.
Consequences for the Company's Property Relations
The status rule that companies are independent legal entities also means that the company has its own assets, separate from the participants' assets. This has significance for:
The company's creditors, who can seek recovery from the company's assets
The participants' creditors, who in principle cannot seek recovery from the company's assets
Sale and other dispositions over the company's assets, which must be made by the company (through its bodies) and not by the individual participant
Company Law Capacity to Act
As an independent legal entity, the company has the capacity to act, but must necessarily act through physical persons. The company's capacity to act is exercised through its bodies (general meeting, board, managing director) and representatives who act on behalf of the company.
This system of bodies and representation ensures that the company can function in a legal context, even though it is not a physical person.
Conclusion
The clear main rule in Norwegian law is that both limited liability companies, public limited companies, and general partnerships are independent legal persons.
At the same time, it is important to recognize the relativity of legal personality – the question must be assessed specifically for each individual legal rule. In some cases, there may also be grounds for disregarding the company's status as an independent legal entity through piercing the corporate veil or liability breakthrough.
The understanding of the company as a legal person represents a balance between practical needs in business and fundamental legal principles. It gives companies the necessary legal status to function effectively in society, while recognizing that companies are ultimately human constructs that must act through physical persons.
