Public legal frameworks for business activities in corporate form – key Norwegian regulations

Business activities in corporate form are governed by a comprehensive regulatory framework that balances the principle of business freedom with the need for societal regulation. This regulatory framework has significant practical importance for the establishment, operation, and dissolution of businesses.

The starting point in Norwegian law is business freedom, which entails:

1. The freedom to decide whether to start a business

2. The freedom to determine whether the business should be conducted as a corporation

3. The freedom to choose which corporate form should be used

As a rule, no legal authority is required to conduct business in the form of a general partnership or a (public) limited company. However, this freedom is limited through a number of laws and regulations, especially for certain types of business. For example, banks can only be established as public limited companies or savings banks, and a stock exchange (regulated market) must be organized as a public limited company.

This article provides an overview of the key legal frameworks applicable to business activities in corporate form, focusing on the public legal framework legislation.

Registration Legislation

Central Coordinating Register for Legal Entities

The Central Coordinating Register for Legal Entities functions as a central "joint register" of businesses that are obligated to register in Norway. Its purpose is to simplify information gathering by enabling one to refer to a single register to find information registered in various related registers such as the Register of Business Enterprises, the Stiftelsesregisteret (Foundation Register), and the VAT Register.

The obligation to register in the Central Coordinating Register for Legal Entities presupposes that the business is required to be registered in a related register. All registered entities 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 companies and public limited companies

• General partnerships

• Sole proprietorships that conduct trade or employ more than five full-time employees

Registration must occur before the business activities commence. Key aspects of the registration obligation:

1. Registration as Validity Requirement: Registration is not a condition for the validity of the establishment of a company, but lack of registration can lead to other consequences.

2. Changes in Registered Matters: There is also an obligation to register changes to previously registered matters, such as a director resigning or the dissolution of the business.

3. Consequences of Lack of Registration: Lack of registration is punishable and may result in ongoing coercive fines.

4. Significance of Registered Information:

   • Anyone can demand access to the register (publicity).

   • Registered information is crucial for third parties' rights.

   • For general partnerships, registration is necessary for divergent liability forms to be effective against third parties in good faith.

Tax Legislation

Main Principles in Corporate Taxation

There is a fundamental distinction in taxation between:

1. Limited companies/public limited companies, which are independent tax subjects

2. General partnerships and limited partnerships, which are not independent tax subjects (participant taxation)

Tax rules are based on a principle of neutrality, which implies that tax rules should not influence the choice of corporate form. In practice, however, there are significant differences in taxation that mean the corporate form can have substantial tax implications.

Taxation of Limited Companies and Shareholders

Limited companies and public limited companies are independent tax subjects with the following characteristics:

• The tax rate for corporate income is 22 percent (2021)

• The company is exempt from municipal and county taxation

• The company does not pay tax on personal income

For shareholders:

• Tax liability for dividends and gains from the sale of shares

• Deduction right for losses from the sale of shares

• Shielding deduction to avoid double taxation of normal returns

Participant-Taxed Companies

General partnerships and limited partnerships are not independent tax subjects. Instead, participants are taxed directly for their portion of the company's profit or loss:

• The assessment is based on a joint settlement (net taxation) where the result is calculated at the company's level before allocation to the participants.

• Full tax coordination between the result from the company participation and the participants' other income and deductions.

• Profits are taxed as ordinary income at 22 percent.

• Distributions from the company to personal participants are taxable beyond a shielding deduction (participant model).

For limited partners and silent partners, the right to deduction for losses is limited.

Accounting and Auditing Acts

Accounting Obligation

The accounting obligation applies to:

• Limited companies and public limited companies

• General partnerships (with certain exceptions)

The accounting obligation includes:

1. Ongoing Accounting (registration obligation) and documentation of registered information (documentation obligation)

2. Annual Accounts consisting of the income statement, balance sheet, and cash flow statement with notes

3. Annual Report

The annual accounts play a significant role in corporate law context:

• They determine the company's equity, which is crucial for dividend distribution

• They provide a basis for assessing the legality of the board's management

• They provide information to potential buyers and investors

• They are significant to creditors, employees, and tax authorities

Audit Obligation

The audit obligation generally applies to:

• Limited companies and public limited companies

• Larger general partnerships

Important exceptions:

• Small limited companies can opt-out of auditing under certain conditions

• General partnerships only have an audit obligation if revenue, balance sheet total, or the number of employees exceed certain thresholds

The auditor must prepare an audit report in connection with the company's annual accounts. The annual accounts, annual report, and audit report are public documents to be registered in the Register of Accounts.

Enterprise Name Act

The Enterprise Name Act regulates companies' official names and provides protection against unauthorized use of similar company names or trademarks. Protection can be achieved either by registration or by the name being put into use.

Key requirements for company names:

• The company name for a general partnership must contain the words "general partnership" or the abbreviation "ANS" (with unlimited liability)

• For shared participant liability, the company name must include the words "company with shared liability" or the abbreviation "DA"

• The company name for a limited company must include the word "limited company" or the abbreviation "AS"

• The company name for a public limited company must contain the word "public company" or the abbreviation "ASA"

The protection against similar company names generally extends only to companies conducting business of the same or similar type (industry similarity), but well-known company 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 involves restrictions on contractual freedom through:

1. Prohibition against competition-restricting agreements (§ 10)

   • Agreements aimed at or resulting in hindering, restricting, or distorting competition

   • Such agreements are not only subject to public legal sanctions but are also privately invalid

2. Prohibition against abusive use of a dominant position (§ 11)

   • Targets market-dominant actors' abuse of their position

3. Control of mergers and acquisitions (chapter 4)

   • The Competition Authority may intervene in mergers that will lead to or reinforce a substantial restriction of competition

The sanction system is threefold:

• Penalties until a prohibited condition is corrected

• Fines for willful or negligent violation

• Criminal liability for willful 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:

1. Conditions for Stock Exchange Listing:

   • Only shares in public limited companies can be listed

   • The shares must be expected to be regularly traded

   • The shares must have public interest

   • At least 25% of the shares must be spread among the public

   • The shares must, in principle, be freely transferable

2. Disclosure Obligation and Prospectus Requirements:

   • Listed companies have special disclosure obligations to the stock exchange and the public

   • A prospectus must be prepared in case of a public offer and stock exchange listing

3. Market Abuse and Insider Trading:

   • Prohibition against illegal dissemination of insider information

   • Rules ensuring the market’s integrity and investors’ trust

4. Good Business Conduct:

   • Securities firms must follow the principle of good business conduct

   • Ensures equal treatment of investors in share issues

5. Mandatory Offer Requirement in Takeovers:

   • Protects minority shareholders in acquisitions

   • Triggers when someone becomes owner of shares representing more than one-third of the votes

   • Gives the minority the opportunity to dispose of shares on identical terms

6. Reporting and Flagging Obligations:

   • Insiders’ reporting obligations to prevent misuse of insider information

   • Flagging obligation upon major share acquisitions to inform the market about ownership structure

These regulations aim to 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 corporate form are subject to an extensive and complex regulatory regime that balances the principle of business freedom with the need for societal governance. 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 a good understanding of this regulatory framework to ensure proper establishment, responsible operation, and potential dissolution of business. At the same time, it is important to note that the regulatory framework is dynamic and under continuous development through legislation, case law, and regulatory practices.