Company law is an extensive legal area that regulates the establishment, operation, and dissolution of limited liability companies and public limited companies. This article provides an overview of key elements in company law, including rules on share capital, shareholder rights, share transfers, and the significance of shares as property rights. The article highlights important legal aspects that every shareholder and company stakeholder should be familiar with.
Share Capital and Share Contributions – The Foundation for the Company
Minimum Requirements for Share Capital
A limited liability company (AS) must have a share capital of at least 30,000 Norwegian kroner, while a public limited company (ASA) must have a share capital of minimum 1,000,000 Norwegian kroner. The requirement for minimum share capital of 30,000 kroner for limited liability companies was introduced in autumn 2011, after a reduction from the previous requirement of 100,000 kroner. This change was implemented to make Norwegian company legislation more competitive compared to foreign legislation and to counteract the establishment of Norwegian branches of foreign enterprises (NUF) for dubious reasons.
Distribution of Share Capital
The share capital shall be distributed among one or more shares to which the rights as a shareholder are attached. The shares shall be denominated in equal amounts. The relative size of each share will therefore correspond to the ratio between the share and the total number of shares in the company. The foundation document shall state the share contribution, that is, the amount to be paid for each share.
Nominal Value and Price
It is important to distinguish between a share's nominal value and its price:
Nominal value: The distribution of share capital among shares is technically done by assigning shares with a nominal value, so that the sum of the shares' nominal values corresponds to the company's share capital. The nominal value must be stated in the articles of association.
Price: This term expresses the actual value of the shares. The stock exchange price, for example, expresses the price of the share when traded on the stock exchange. Technically, the term price is a designation of the price of a share expressed as a percentage of the share's nominal value.
Premium and Discount
It is a fundamental principle that the share contribution cannot be lower than the share's nominal value; a limited liability company/public limited company is not permitted to issue shares at a discount. The reason for this is that the legislator wants to ensure that the company receives real values for the shares that are subscribed.
The share contribution can, however, include a premium, i.e., a price that is above the nominal value. This means that a larger amount is paid to the company than the capital that is nominally subscribed. The premium is unrestricted equity that the company can freely use for dividends and other distributions to shareholders within the framework of the law.
Documentation of Share Ownership
Share Certificates, Shareholder Register, and Shareholder Registry
Share certificates shall be issued for the shares. The share certificate shall be dated and state what is entered in the shareholder register/shareholder registry about the shareholder and their shareholding.
All public limited companies must have a shareholder registry in a securities depository. This shall include information about the shareholders, the number of shares they own, and information about the company and the company's shares. The registry is publicly available. In the event of a change of ownership, the previous owner shall immediately ensure that the change of ownership is reported to the securities depository.
Limited liability companies may have a shareholder registry in a securities depository, but this is not common. Limited liability companies that do not use the voluntary access to registration in a securities depository – i.e., most limited liability companies – are obliged to establish a shareholder register. This shall contain information about the shareholders and the number of shares each one owns.
Access to the Shareholder Register
Anyone has the right to inspect the shareholder register. This also applies to inspection requested by the company's competitors. An exception has been made for the shareholder's digital address.
Shareholder Rights – What Does It Mean to Own Shares?
Types of Shareholder Rights
Shareholder rights can be divided into three main categories:
Economic rights: Includes primarily the right to dividends, repayment upon capital reduction, the shareholder's preferential right to shares issued upon capital increase, and the right to merger consideration.
Disposition rights: Can be considered a special group of economic rights, and concerns the right to dispose of or acquire shares.
Management rights: Includes primarily the right to attend, vote, and exercise other rights at the general meeting, and furthermore the right to see the minutes from the general meeting, receive interim reports, bring invalidity lawsuits, etc.
Individual and Minority Rights
Shareholder rights can also be divided according to how large a proportion of shareholders must agree to exercise the rights:
Individual rights: Rights that can be exercised by the individual shareholder, regardless of how many shares they own. This applies, for example, to economic rights and management rights.
Minority rights: Rights that can be exercised by a minority of shareholders as defined more specifically in the legislation. How large a minority is required depends on the requirements the legislation operates with for the right in question.
The Share as a Property Right – Economic Value and Transferability
Property Law Characteristics
The share is a property right characterized by the fact that it:
Has economic value
Can be established, changed, or transferred through private dispositions
Can be transferred to others through inheritance and creditor attachment
Can be sold, pledged, and made subject to creditor attachment
The Sale of Goods Act applies in principle to the sale of shares, even though its rules do not always fit shares equally well, since what is traded is not a physical thing, but an ideal net part in a company.
Realization of the Share's Value
A share's function as a property right must be seen in conjunction with the fact that the purpose of establishing and operating a limited liability company/public limited company is normally to make money. In practice, the profit motive for the individual shareholder can be realized through:
Returns: Ongoing payments and share in profits, typically dividends
Profit from sale: By selling the share at a higher price than the purchase price/contribution
Redemption sum: Through voluntary or compulsory redemption of the share
Liquidation dividend: Share of the company's assets upon dissolution
Valuation of Shares
The value of shares can be determined in different ways, depending on the type of company and situation:
Non-listed companies: There is no "official" market price here, and the value must be determined through negotiations based on the company's operations, equity, underlying values, and future market opportunities.
Listed companies: The stock exchange price is by definition the market value of the share, and is assumed to reflect all available information about the company's real value.
Business transfers: When transferring larger blocks of shares, the value can be influenced by synergy effects, whether it is a controlling stake, and who the buyer is.
Redemption of Shares
Particularly complicated is the determination of the share's value in redemption situations. The Companies Act contains several provisions on redemption of shares where the redemption sum is to be determined on the basis of the share's "real value":
Upon redemption after denial of consent
Upon redemption where the shareholder no longer meets requirements specified in the articles of association
Upon exercise of pre-emption rights
Upon redemption at the request of the shareholder when "weighty reasons" dictate it
Upon redemption at the request of the company in case of material breach, etc.
The Supreme Court has in several judgments provided guidelines for how "real value" should be understood in various contexts, generally based on the underlying values in the company.
Shareholder Rights in Share Transfers – Who Can Exercise the Rights?
Main Rule for Exercising Rights
The main rule is that the acquirer of a share in a limited liability company or public limited company can only exercise shareholder rights when the share acquisition has been:
Entered in the shareholder register (limited liability company)
Registered in the shareholder registry (public limited company)
Or the acquisition has been reported and substantiated, without being prevented by transfer restrictions
Exceptions for Economic Rights
Exceptions have been made to the main rule for "the right to dividends and other distributions and the right to new shares upon capital increase." The legal reason is that these rights can to a considerable extent be separated from the share, with the consequence that the acquirer can exercise them without reporting and substantiating their acquisition of the share itself.
Rights in the Transition Period
An important issue is who can exercise shareholder rights during a period where the acquirer cannot immediately obtain full shareholder rights:
In limited liability companies: The transferor can exercise the rights that are attached to the share, and which have not been transferred to the acquirer. Therefore, there can be no "interim period" where neither the transferor nor the acquirer can exercise shareholder rights.
In public limited companies: The previous owner's rights may cease even though the acquirer cannot yet exercise their shareholder rights. In an interim period, therefore, no one can exercise shareholder rights – they lie "dormant." This principle, which was established in Rt 1966 p 1120 (Polaris), still applies to public limited companies.
To avoid a situation where no one can exercise shareholder rights in an interim period in public limited companies, a provision was adopted in 2006 which states that upon a change of ownership, the acquirer and the transferor can agree, with effect for the company, that the transferor may exercise the rights as a shareholder until they are transferred to the acquirer.
Conclusion
Company law contains a complex framework of rules that regulate the relationship between the company, its shareholders, and the outside world. Understanding shareholder rights, the function of share capital, and the significance of shares as property rights is essential for everyone involved in limited liability companies, whether as owners, board members, or advisors. Particularly important are the rules on share transfers and the exercise of shareholder rights, which ensure predictability and clarity in the company's operations and the relationship between shareholders.
