New law proposals:
Simplification of the Companies Act and removal of the audit obligation for small companies
As assigned by the Ministry of Justice and the Police, legal practitioner Gudmund Knudsen has written a review on simplification and updating of the Companies Act. The review addresses the rules on a company's incorporation, share capital and organisation.
Sverre Sandvik, January 2011
The purpose is to simplify the law and adjust it more to the needs of small and medium-sized companies. Important amendments are proposed to several central regulations in company law. The proposals have now been issued for hearing. Based on the statements made in this respect, the Ministry of Justice and the Police will submit a final proposal to Stortinget.
Main elements of the proposal:
Incorporation of companies
- The requirement to have an opening balance sheet is removed
- Payment of the share capital can be confirmed by a bank instead of an auditor
- The share capital can be used to pay the incorporation costs
Capital requirements
- The minimum share capital is reduced from NOK 100 000 to NOK 30 000
- The company is only required to pay half of the share deposit in connection with the incorporation
- The requirement to have a premium fund is removed
- Extraordinary dividends can be distributed based on intermediary balance sheets, and the general meeting can authorise the board of directors to determine such dividends
- Permission to establish fraction shares
- The 10 percent limit for the company's acquisition of own shares is removed
- The permission to grant loans between group companies is extended so that loans within EEA companies are allowed
- The prohibition against financial assistance is removed
The company's organisation
- The company decides whether it should have a general manager, and needs only have one or two board members
- The general meeting can be held in a more flexible and informal way
- The board of directors is given general permission to handle issues without holding a meeting
Incorporation
Minimum requirements for the contents of the articles of association
It is proposed that the statutory minimum requirements for the contents of the articles of association are reduced to the company's name, business municipality, business activities, share capital and the nominal value and number of the shares.
Requirement to submit an opening balance sheet is removed
Pursuant to section 2-8 (1) of the Companies Act, the founders of a company shall prepare, date and sign an opening balance sheet and enclosed it to the incorporation document. The auditor shall then confirm that the opening balance sheet is in accordance with the Accounting Act. The same requirements are made in connection with mergers, pursuant to section 13-6 (1) no. It is proposed to remove both these requirements, as the underlying considerations are dealt with in other provisions of the Companies Act.
Confirmation of receipt of share deposit
Pursuant to current law, the auditor must confirm that the company has received the share deposit. It is proposed that the bank receiving the deposit can confirm the payment instead of the auditor.
Incorporation costs
It is proposed that the company's share capital can be used to cover the incorporation costs. In this way, one will avoid incorporation costs on top of the capital deposit.
Electronic incorporation form
Pursuant to the current Companies Act, the incorporation document must be in paper form and be physically signed by the founders. It is proposed to simplify the incorporation proceedings by introducing a form in Altinn that can be filled out and signed electronically.
The capital requirements in the Companies Act
Minimum requirement for share capital is reduced to NOK 30 000.
It is proposed to lower the requirement for minimum share capital from NOK 100 000 to NOK 30 000, which will make it simpler and less expensive to incorporate a company. The purpose of the proposal is also to make the Norwegian rules more competitive, and to reduce the number of tradesmen who choose to organise the enterprise as a Norwegian branch of a foreign enterprise ("NUF").
Only half of the share capital must be paid upon incorporation
It is proposed that up to half of the share deposit to be settled by cash can be paid after the company has been incorporated.
Removal of the requirement to have a premium fund
It is proposed to remove the requirement to have a premium fund. This implies that the premium (i.e. the subscription amount per share exceeding the share's nominal value) will be added to the free capital that the company can use for dividends and other distributions to the shareholders.
Amendments to the rules on dividends
Several amendments in terms of dividends are proposed to make rules more flexible. Amongst other things, it is proposed that the company can distribute extraordinary dividends during the accounting year based on an intermediary balance sheet, and that the general meeting can authorise the board to determine such dividends. It is also proposed to remove some of the limitations as to how much dividends can be distributed.
Permission to establish fraction shares
As an alternative to the current arrangement with shares with a nominal value, it is proposed to introduce shares relating to a fraction of the share capital. The arrangement is introduced in several countries, including Sweden, Denmark and Finland. If fraction shares are introduced, many provisions in the Companies Act relating to the shares' nominal value will have to be amended.
However, the way the proposal is worded, the practical difference between shares with a nominal value and fraction shares will be limited.
Rules on acquisition of own shares
It is proposed to remove the current rule that the total nominal value of own shares cannot exceed 10 percent of the share capital, so there is no upper limit to the number of shares the company can acquire. It is assumed that this amendment will be of great practical significance, for instance in connection with transfers of ownership and generational changes.
Extension of the rules on shareholder loans
The permission to grant loans between group companies, cf. section 8-7 of the Companies Act, is proposed to apply between companies in the EEA.
The prohibition against financial assistance is repealed
It is proposed to introduce as a main rule that the company can offer financial assistance for acquisitions of shares in the company. However, certain procedures must be followed, including obtaining the approval of the general meeting with a two third majority and that the financial assistance is limited to an amount equal to the distributable reserves of the company.
The company's organisation
The general meeting and board of directors
No amendments are proposed to the basic structure of the organisational rules. Companies are still required to have a general meeting and a board of directors. However, it is proposed that companies may freely decide whether to have a managing director. Currently, companies with a share capital of more than three million kroner are required to have a managing director. It is also proposed to amend the requirement for the composition of the board, so that all companies are given the possibility to have only one or two board members.
Meeting rules
A new provision to the Companies Act is proposed that will allow the shareholders to hold a general meeting without complying with most of the formal requirements in the Companies Act. This arrangement will give the shareholders the freedom to hold general meetings in a more flexible and informal way, such as by phone, by circulation of documents or by way of electronic communication. It is assumed that most of these changes represent a clarification and codification of existing law.
It is also proposed that the board of directors is given general permission to address matters in other ways than holding a physical meeting.
The Public Companies Act
The proposed amendments of the incorporation and capital rules for private limited companies also apply to public limited companies unless there are compelling reasons why they should not. The proposed amendments to the company's organisation do not apply for public limited companies.
Removal of the audit obligation
In December, the Government proposed to remove the audit obligation for small companies. If adopted by Stortinget, there is reason to expect that the proposal is adopted in more or less the same form as it was submitted and that it will apply to the financial year 2011.
According to the proposal, the audit obligation will be removed for limited companies and other enterprises with limited liability with an annual operating income of less than five million kroner, with a balance sheet amount of less than 20 million kroner and an average number of employees not exceeding 10 man-years.
However, all parent companies are still required to have their accounts audited, irrespective of size. This may also result in the same obligation for subsidiaries.