Oslo kommune Næringsetaten Servicekontoret for næringslivet Tips and advice for those who are starting a Limited Liability Company THEMES IN THIS BROCHURE: Requirements for share capital Establishing a private limited liability company The company s organs Matters regulated by the Companies Act The purchase and sales of shares Changes in share capital Other mandatory registrations Tax Mandatory accounting Examples of establishment documents Things to remember when establishing a limited liability company Laws
PAGE 2 TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY INTRODUCTION... 3 1. REQUIREMENTS FOR SHARE CAPITAL... 3 2. ESTABLISHING A PRIVATE LIMITED LIABILITY COMPANY... 4 2.1. Memorandum of association... 4 2.2. Registering the company... 7 2.3. Requirements in connection with company names selection... 7 2.4. Shareholders agreement... 7 3. THE COMPANY S GOVERNING BODIES... 8 3.1. The general meeting... 8 3.2. The board of directors... 8 3.3. The managing director... 8 4. MATTERS REGULATED BY THE COMPANIES ACT... 9 4.1. The bod s obligation to act when shareholders equity is low... 9 4.1.1. Penalties and sanctions... 9 4.2. Register of shareholders and shares... 9 5. PURCHASE AND SALES OF SHARES... 10 5.1. Registration of changes... 10 6. CHANGES IN SHARE CAPITAL... 10 6.1. Increase in capital issuing of shares... 10 6.2. Reduction in capital... 10 7. OTHER MANDATORY REGISTRATIONS... 11 7.1. Employer responsibilities mandatory registration... 11 7.2. The employer s obligations... 11 7.3. Employees rights... 11 7.4. Registration in the value added tax register... 11 8. TAXATION... 12 8.1. Calculation of tax... 12 8.2 The shareholder model (aksjonærmodellen)... 12 8.3. Dividends... 12 8.4 The tax exemption model (fritaksmetoden)... 13 9. FINANCIAL REPORTING AND AUDITING... 13 Published by: Oslo kommune Akershus County Council Innovasjon Norge 10. THINGS TO REMEMBER WHEN ESTABLISHING A LIMITED LIABILITY COMPANY... 14 10.1. What you must do... 14 10.2. What you ought to do... 15 Editor: Næringsetaten, Servicekontoret for næringslivet Number printet: 3000 copies. Published in 2006 Graphic design and print: www.omegadesign.no
TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY PAGE 3 INTRODUCTION This brochure is designed for those who are considering operating business activities through a Private Limited Liability Company (LTD). The term limited liability company, hereafter referred to as limited company, means any company in which none of the participants have personal liability for the company s obligations, either jointly and severally or for any part of that which makes up the company s total obligations (i.e. liabilities), unless otherwise stipulated by law. The company is deemed to be an independent unit (legal entity). There is however no hindrance that a limited company has a single owner and that the owner is the company s only employee. If you choose to establish a limited company, you will as owner and employee have more rights in comparison to those you have as owner of a single proprietorship. In this brochure we will look at the most important points, from establishment through operation and to the management of a limited company. We emphasize that limited companies are subject to strict legislation and that this brochure does not deal with all aspects and themes of the Companies Act. TIPS! TIP 1 It can be a good idea to pay in more than the actual share capital, i.e. establish a share premium fund, thus providing the company with a financial buffer. The main characteristic of a limited company is the owners limited liability for the company s debts. None of the shareholders (owners) are liable for an amount over and above that which they have purchased shares for (share contribution). This means that even if the company goes bankrupt, creditors cannot claim that the owners shall cover the debts. The owners private finances are thus kept separate from the company s finances. There are however certain exceptions from this main rule. If in your role as founder of a limited company you have guaranteed for a loan, you are personally responsible for the amount guaranteed for. Further, as a member of the Board of Directors or if you hold a position of responsibility in a limited company, you can be made liable if it can be proved that you have deliberately acted without due diligence or purposely broken the law. There are two types of limited companies. Allmennaksjeselskaper (ASA) - Public Limited Liability Companies (PLC) - may procure share capital in the market and require a share capital of minimum NOK 1 million. In a private limited company (LTD) the shares are subscribed to by the founders of the company. This brochure deals with the latter type of limited company. 1. REQUIREMENTS FOR SHARE CAPITAL Establishing a Limited Company requires a minimum share capital of 100 000 NOK. As a principle rule the share capital should be money, but in certain cases other valuables can be permitted. For instance other valuables can be machines, cars and other equipment that are used in the company s daily activity. When using other valuables as share capital, specific documentation is required and the value of the item must be endorsed by an auditor. The value of a car is for instance estimated by using the cars assessment value, which means basing the value by deducting an annual percentual devaluation from the cars purchasing price as new. [TIP 1]
PAGE 4 TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY 2. ESTABLISHING A PRIVATE LIMITED COMPANY "Share" means an ownership part in a limited company. Both private persons and commercial enterprises may subscribe to shares in a limited company. All founders of a limited company must be of legal age. A limited company may have a single shareholder. The general rule is that all shares have the same rights in the company, unless otherwise agreed. 2.1. MEMORANDUM OF ASSOCIATION An agreement to establish a limited company means that the founders purchase shares in the company and become shareholders. The agreement the shareholders enter into is called a Memorandum of Association. The Companies Act demands certain information that must be included in this document. The Memorandum of Association includes the company s Articles of Association. See example below. MEMORANDUM OF ASSOCIATION FOR The Firm Ltd. FOUNDERS On 4.8.2005 the founders resolved to establish the company "The Firm Ltd." (The Firm AS) Name of Shareholder 1 (national ID No.: 11037355366). Address: Selskapsgaten 2, 0457 Oslo Who subscribes to 900 shares. Name of Shareholder 2 (Enterprise Registration No.: 946 262 615). Address: Næringslivsgaten 8, 1376 Selskapsvik. Who subscribes to 100 shares. SHARE CAPITAL The company s share capital was subscribed with NOK 100,000.-. A total of 100 shares were subscribed each with a face value of NOK 100.-. The founders paid a premium rate of NOK 107.50 per share. The costs of establishment to cover registration fees and auditor s fees are estimated to be NOK 7,500. Costs of establishment are covered by the share premium fund. Registration fee to the Register of Business Enterprises NOK 6,000.- Auditors fees NOK 1,500.- Sum establishment costs NOK 7,500.- The whole of the share capital shall be paid in soonest and at the latest by 18.08.2005. Shareholders cannot transfer subscription rights or shares that have not been paid for without the prior permission of the Board of Directors. OPENING BALANCE The founders approved and adopted the opening balance for The Firm Ltd. The opening balance is attached hereto and is deemed to form part of this Memorandum of Association. ARTICLES OF ASSOCIATION The founders approved and adopted the Articles of Association for The Firm Ltd. The Articles of Association are attached hereto and are deemed to form part of this Memorandum of Association ELECTIONS The following Board of Directors was elected pursuant to the Articles of Association: Chairman U. R. Beautiful Member Jo Lee Roger Member Tom A. Hawk Willie Duit was elected as Managing Director Aud I. Tor DA was elected as the Company s auditor. SIGNATURES The undersigned hereby declare by affixing their signatures hereto The Firm Ltd. as established and the shares subscribed. Oslo, 4th August 2005 Shareholder 1 Shareholder 2 900 shares 100 shares
TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY PAGE 5 The Companies Act imposes the demand that the Articles of Association shall at the minimum include the following: The company s official name/ firm In which municipality the company shall have its head office The company s object clause The amount of share capital Face value of the shares Number of Members of the Board of Directors The order of business on the agenda of the Shareholders General Meeting If the company is to have a managing director or be registered in the Norwegian Central Securities Depository (VPS ASA), this shall be stated in the Articles of Association. The following is an example of Articles. ARTICLES OF ASSOCIATION FOR The Firm Ltd. 1 The Company s name is The Firm Ltd. and it is a limited company. 2 The Company s business office is in the Municipality of Oslo. 3 The company s activities are: The import and sale of rice 4 The Company s share capital is NOK 100,000 divided between 1,000 shares each of face value NOK 100,-. 5 The Company s Board of Directors shall have from 3-7 members. The members of the Board of Directors are elected by the Shareholders General Meeting. 6 The Board of Directors represents the company publicly and signs on its behalf. The Board of Directors can award members of the Board of Directors or named employees power of attorney to sign for the company. The Board of Directors can award procuration. 7 The Company s shares can be sold freely, but the other shareholders have pre-emptive rights pursuant to the following: The Board of Directors can rule that pre-emptive rights do not apply when the company is engaged in negotiations with potential investors who wish to invest capital in the company. When shares are to be transferred the other shareholders have pre-emptive purchase rights. When the company receives notification that shares have been transferred or the owner wishes to transfer them, the other shareholders shall be notified within 14 days. Pre-emptive rights are invoked for all and any form of change of ownership, with the exception of when the acquirer is the previous owner s direct relation in up or down family line. All shareholders have the same priority in relation to the right to take over the share or shares. When more than one shareholder in the company invokes pre-emptive rights, the shares are divided pro-rata in accordance with the individual shareholder s existing holding. Shares that cannot be distributed equally shall be distributed amongst the shareholders by drawing lots. Pre-emptive rights are invoked by notifying the company in writing. The notification must be in the company s hands at latest two months after the company received notification of the change of ownership. Pre-emptive rights otherwise apply on equal terms. If notification is received that the transfer is a gift or gift-sale, or if the stated purchase price is contested, the redemption sum shall be fixed in accordance with the actual value of the share at the time the demand was put forward. If agreement is not reached within the same time limit imposed for invoking pre-emptive rights, the price shall be decided through valuation. If the parties fail to agree on the choice of evaluator, the parties shall each appoint one evaluator who shall jointly appoint a third evaluator. Costs incurred in connection with the valuation shall be borne equally by the parties. The redemption sum shall be paid within one month after pre-emptive rights were invoked or where applicable within two weeks after the dispute concerning the redemption sum has been settled and is legally binding.
PAGE 6 TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY 8 All share transfer shall be subject to the approval of the Board of Directors. The Board of Directors shall rule on approval as soon as possible after the acquisition has been notified to the company. Approval can only be withheld if there is due and valid reason. Approval cannot be withheld in cases of change of ownership by inheritance or by other means when the acquirer is the previous owner s relative in up or down direct family line. The acquirer shall be informed of the decision without undue delay. If approval is withheld the acquirer shall also be informed of what must be done to bring the circumstance in order. If the acquirer has not been informed that approval has been withheld within two months after the company had received the notification, approval is deemed to have been given. 9 The Ordinary Shareholders General Meeting shall be held annually prior to the last day of June. The notification to attend the General Meeting shall be issued in writing and shall be sent a minimum of one week prior to the date of the meeting. The notification shall state the orders of business on the agenda. Proposals from shareholders must, in order to be included on the agenda for the Shareholders General Meeting, be put forward in writing to the Board of Directors in sufficient time prior to the meeting so that they can be included in the notification. Proposals that arrive later than one week prior to the date of the Shareholders General Meeting cannot be treated by the Shareholders General Meeting unless all shareholders agree. The Chairman of the Board of Directors shall lead the Shareholders General Meeting unless a different chairman for the meeting is elected. Each share has one vote at the Shareholders General Meeting. The shareowner can be represented by a proxy with written power of attorney. 10 The Ordinary Shareholders General Meeting shall deal with: 1. Approval and adoption of the Annual Accounts and Annual Report, hereunder the distribution/cover of profit/loss. 2. Stipulation of fees for the Board of Directors and approval of Auditor s fees. 3. Election of the Chairman of the Board of Directors, members of the Board of Directors and the Auditor. 4. Other matters pursuant to legislation or regulations shall be dealt with by the Shareholders General Meeting or that are included in the summons to attend. 11 An Extraordinary Shareholders General Meeting can be held when the Board of Directors deems it necessary. The Board of Directors shall call an extra-ordinary General Meeting when the Auditor or shareholder(s) representing at least 10 % of the share capital so demand in order to have a specific matter dealt with. The Board of Directors shall ensure that an Extraordinary Shareholders General Meeting is held within one month after the demand has been put forward. The notification to attend an Extraordinary Shareholders General Meeting shall be sent at the latest one week prior to the date of the meeting. The Extraordinary Shareholders General Meetig can only deal with the items included on the agenda in the notification to attend, unless all shareholders agree otherwise. 12 The Company s shares shall be registered in the Register of Shareholders as soon as possible after establishment of the company. 13 Refer otherwise to legislation governing limited share companies at any given time. The company s Memorandum of Association shall also include: The name, address and national ID No./enterprise registration No. of all the shareholders The number of shares to be subscribed by each share subscriber The date by which share capital shall be paid in Who shall be members of the Board of Directors The company s Auditor Furthermore, the founders must prepare an opening balance that must be attached to the Memorandum of Association. The opening balance is a list of the company s assets, capital, and liabilities. An auditor shall confirm the opening balance. You will find an example of an opening balance on the next page. When all the above has been done, the Memorandum of Association can be signed. When all the founders have signed, the company is deemed to have been established.
TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY PAGE 7 OPENING BALANCE in The COMPANY limited company On the date of establishment 4th August 2005. ASSETS Bank deposits: NOK 107,500 Sum assets: NOK 107,500 SHAREHOLDERS EQUITY AND LIABILITIES Share capital NOK 100,000 Share premium fund NOK 7,500 Sum Shareholders Equity and Liabilities: NOK 107.500 I hereby confirm that the opening balance is entered in accordance with the regulations of the Accounting Act. Place, date. Auditor Aud Itor DA Kirkeveien 311 0345 Oslo 2.2. REGISTERING THE COMPANY All limited companies shall be registered in the Register of Business Enterprises in Brønnøysund. Registration must be done within three months after the Memorandum of Association has been signed. The form "Samordnet registermelding Del 1 Hovedblankett" is used to register the company. A fee of NOK 6,000 is charged to register a limited company (in 2006). The notification sent to Brønnøysund shall include a statement by the auditor confirming that the company has received payment for the shares. This means that all share capital must be paid in before the company may be registered. The opening balance with the auditor s declaration shall not be dated earlier than 4 weeks prior to company establishment. It is important to understand that the company cannot commence its business activities until the company is registered. TIPS! TIP 2 Apply for protection of the company name and trademarks etc. to the Norwegian Patent Office. For more information refer to www.patentstyret.no 2.3. REQUIREMENTS IN CONNECTION WITH COMPANY NAMES SELECTION Pursuant to the Act concerning Business Enterprise Names there is a requirement that the name of the enterprise must contain a minimum of three letters from the Norwegian alphabet. The name of the business enterprise may not consist solely of the name of a country, county, or municipality, neither shall the name be misleading. Names of limited companies shall include the term aksjeselskap or the short form AS. [TIP 2] 2.4. SHAREHOLDERS AGREEMENT Pursuant to the Companies Act there is no mandatory obligation to have a shareholders agreement, but it may be the ideal solution for you. A shareholders agreement is an agreement between the shareholders independent of the Articles of Association and agreements relating to the establishment of the company. A shareholders agreement neither can nor shall be registered in Register of Business Enterprises. The Companies Act imposes certain limitations on what can be agreed in the Articles of Association. A shareholders agreement can cover anything you wish. A few examples of clauses in a shareholders agreement are: The parties, background and goals Stockoptions programs for the company s employees Board of Directors expenses The sale of shares Regulations governing external investors
PAGE 8 TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY The resolving of disputes Stock Exchange listing Term of agreement TIP 3 TIPS! In the case of limited companies with less than 20 shareholders the General Meeting can be held without the shareholders being physically present. This can be done if the Board of Directors feels it to be justifiable. The Board of Directors must nonetheless adhere to the formal requirements for calling a Shareholders General Meeting. TIPS 4 When electing the members to the Board of Directors it is always wise to think about the role you want the Board of Directors to play in addition to its mandatory duties. Choosing members strategically can provide the company with a source of expertise and thus a useful resource for the day-to-day management and operation of the company. If you wish to enter into a shareholders agreement it s a good idea to contact a lawyer who can advise you to make sure there is no conflict between the Articles of Association and shareholders agreement. 3. THE COMPANY S GOVERNING BODIES 3.1. THE GENERAL MEETING Pursuant to the Companies Act 5-1 the Shareholders General Meeting is the company s highest authority. All shareholders have the right to attend, and as a general rule one share represents one vote when resolutions are to be voted on. The Ordinary Shareholders General Meeting must be held once annually to approve and adopt the Annual Accounts, Annual Report, and any other business shown in the agenda in the summons to attend. The meeting must be held before 1st July. [TIP 3] 3.2. THE BOARD OF DIRECTORS Pursuant to the Companies Act 6-1, all limited companies shall have a Board of Directors. The Board of Directors is responsible for the administration of the company and is elected by the General Meeting. If share capital is NOK 3 millions or more, the Board of Directors must consist of at least three members. A Board of Directors can also have only one member, and the member can be the sole proprietor. Be aware however that if the Board of Directors has only one or two members, at least one deputy board member must be elected. At least half the members of the Board of Directors must be domiciled in Norway or, if they are Norwegian citizens must live in an EEA state. Otherwise, please refer to our brochure on the work of the Board of Directors at: www.naringsetaten.oslo.kommune.no [TIP 4] 3.3. THE MANAGING DIRECTOR In limited liability companies with share capital of less than NOK 3 millions, there is no mandatory obligation to appoint a Managing Director. If share capital is more than NOK 3 millions, a Managing Director is mandatory. If you choose to have a Managing Director, he or she shall be appointed by the Board of Directors (BoD) and shall be responsible for the daily management of the company. The Managing Director must be domiciled in Norway or be a Norwegian citizen and domiciled in an EEA state.
TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY PAGE 9 4. MATTERS REGULATED BY THE COMPANIES ACT 4.1. THE BoD S OBLIGATION TO ACT WHEN SHAREHOLDERS EQUITY IS LOW The Managing Director shall inform the Board of Directors (BoD) in writing or in a meeting, on the company s activities, position, and result at least once per quarter. This is because the law demands that the Board of Directors shall immediately deal with the matter if it must be presumed that shareholders equity is lower than an acceptable level. The Board of Directors shall in such cases call a General Meeting and propose measures to ensure that the company has sufficient shareholders equity. This also applies if shareholders equity has fallen to less than half of the share capital. If the Board of Directors does not find grounds to propose measures to ensure that the company again attains a responsible level of shareholders equity (for example through increasing the share capital, limiting operations or negotiating with creditors), the Board of Directors shall propose that the company is wound up. [TIP 5] 4.1.1. Penalties and sanctions If the Managing Director, members of the Board of Directors, auditor or management employees who are authorised to make decisions on behalf of the company, wilfully or negligently contravene articles of law, such acts are punishable by fines and/or imprisonment for up to one year. 4.2. REGISTER OF SHAREHOLDERS AND SHARES All limited companies shall keep a register of shareholders. All shareholders shall be entered in the said register in alphabetical order and with national ID numbers and addresses. Below is an example of a register of shareholders and share certificate. REGISTER OF SHAREHOLDERS FOR The FIRM Limited Company As of the date of establishment, 4.8.2005: The company s share capital is NOK 100,000.- divided between 1,000 shares each of face value NOK 100,-. As of the date of establishment the distribution of shares in The Firm Ltd. is as shown hereunder: Shareholder 1 (National ID No: 11037355366) 90,000 shares. Share numbers:1-900 Address: Selskapsgaten 2, 0457 Oslo Shareholder 2 (Business Enterprise Registration No.: 946 262 615) 10,000 shares. Share numbers: 901-1000 Address: Næringslivsgaten 8, 1376 Selskapsvik TIPS! TIP 5 Schedule Board Meetings at least quarterly, and include permanent orders of business on the agenda that comply with the mandatory requirements for reporting laid down in the Companies Act. Shareholder 1 Selskapsgaten 2 0457 Oslo SHARE CERTIFICATE FIRM Limited Company was established on the 4.8.2005, and in the company s register of shareholders Shareholder 1 is entered as a shareholder with the following information: SHAREHOLDER: Shareholder 1 NATIONAL ID NO.: 11037355366 ADDRESS: Selskapsgaten 2, 0457 Oslo NUMBER OF SHARES: 900 SHARE NUMBERS: 1-900 If there are any errors in the registered information you must contact the company through the office of U. R. Beautiful Oslo 4.8.2005 The Firm Ltd.
PAGE 10 TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY 5. PURCHASE AND SALE OF SHARES The company s Articles of Association can include regulations governing trading in the company s shares. This may take the form of a requirement for approval on change of ownership. This means that a share can only change hands if the Board of Directors gives its approval. The Board of Directors can nonetheless only withhold approval if there is due and valid reason. The company is free to introduce other rules in connection with the transfer of shares. 5.1. REGISTRATION OF CHANGES When the change of ownership has taken place, the new owner(s) shall be entered in the Register of Shareholders. The company as such, does not cease to exist. 6. CHANGES IN SHARE CAPITAL 6.1. INCREASE IN CAPITAL ISSUING OF SHARES If you wish to increase the share capital this can be done through a share issue. The issuing of new shares involves inviting the company s current shareholders or external investors to purchase new shares issued by the company. This brings fresh capital into the company that can be used to finance continued operations or to expand the company s activities. The issuing of new shares must be approved and adopted by a Shareholders General Meeting and means that the Articles of Association must be amended accordingly with regard to the value of the share capital and thus requires a 2/3 majority approval of the Shareholders General Meeting. 6.2. REDUCTION IN CAPITAL If you wish to pay out money to the owners without paying dividends, a capital reduction must be approved and adopted by a Shareholders General Meeting. This means, in the same way as for an increase in capital, that the value of the share capital changes and thus requires a 2/3 majority approval of the Shareholders General Meeting.
TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY PAGE 11 7. OTHER MANDATORY REGISTRATIONS 7.1. EMPLOYER RESPONSIBILITIES MANDATORY REGISTRATION In its role as an employer a limited company is subject to a number of laws and regulations. Owners (shareholders) that work in the company are deemed to be employees in the same way as all other employees in the company. If there is just one owner (shareholder) and he or she is the sole employee, then the company has the same obligations as any other employer. When registering the company in the Register of Business Enterprises, one must therefore tick off the box that shows that the company has or is expected to have employees. Employees shall be registered individually in the Register of Employers- and Employees Unit. This can be done via the Internet at: www.nav.no, or by submitting form IA-25-01.05 to the Register of Employersand Employees Unit. In addition the company has a mandatory obligation to take out insurance cover for its employees. This is done with a private insurance company. 7.2. THE EMPLOYER S OBLIGATIONS Pursuant to the Payment of Taxes Act 4, cf. 5 and 6, the employer shall deduct advance income tax for paid work or employment tasks. A dedicated payment form (post/bank giro) shall be used to pay in advance tax deductions. The tax withholdings shall be deposited in a dedicated Tax Account that can only be drawn against using a special KID (KID: Customer Identification) Number allocated by the City Treasurers Office. All companies or others who employ personnel must pay employers social services contributions on paid out wages. These contributions shall also be paid in using a special giro. In Oslo employers social services contributions are 14.1 % (2005). If an employee becomes ill the company must pay his/her wages for the first 16 days. [TIP 6] 7.3. EMPLOYEES RIGHTS Pursuant to the Holidays Act all employees have the right to 25 working days as holidays (6 working days = 1 week) every holiday year. Employees over 60 years have the right to 6 extra days holiday. The employee has the right to take the main portion of the holidays, in this case amounting to 18 days, consecutively between 1st July to 30th September. Pursuant to the Main Agreement between the LO (The Norwegian Confederation of Trade Unions) and NHO (Confederation of Norwegian Enterprise) employees in companies bound by this agreement have the right to a fifth holiday week. In addition all employees have the right to holiday pay. Holiday pay for employees with 25 working days holiday is deducted from wages at 10.2 %. Holiday pay for employees with the right to a fifth holiday week is deducted from wages at 12 %. TIPS! TIP 6 Remember the deadlines for payment of employers social services contributions and employees pre-paid tax withholdings. There are six due dates per year: 15/1, 15/3, 15/5, 15/7, 15/9 and 15/11 In addition employees have the right to unemployment benefits when unemployed. For further information refer to our brochure on employers obligations at www.naringsetaten.oslo.kommune.no 7.4. REGISTRATION IN THE VALUE ADDED TAX REGISTER All sales (and imports) of goods and services are subject to Norwegain VAT (there are a few exemptions) and must register in the Value Added Tax Register. Use the form «Samordnet registermelding - del 2». The following conditions must be met before the enterprise can be registered in the Value Added Tax Register: 1. Must be commercial activity. All who are actively engaged in commerce are liable to pay VAT. 2. Must be commercial activities within the letter of the law (mval). Entail commercial activities such as the supply of goods or services against payment. The same is the case for the import, withdrawal or exchange of goods/services. The general lower limit for registration in the Value Added Tax Register is NOK 50 000. The lower limit encompasses the entrepreneur s total turnover and withdrawals over a 12-month period. A gross sales/turnover report shall be submitted for each of the following VAT terms: 1st term: January/February 2nd term: March/April 3rd term: May/June
PAGE 12 TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY 4th term: July/August 5th term: September/October 6th term: November/December [TIP 7] 8. TAXATION 8.1. CALCULATION OF TAX As previously stated owners who work for the company are treated as all other employees in the company. In the same way as the other employees, the owners tax cards are handed in to the company and personal income tax deductions are made in accordance with the pay-as-you-earn (PAYE) system. The company is taxed on the financial results. If the company makes a profit, tax will be assessed. The company income taxes are paid in arrears. This is because during the first year of operations there is no basis on which to calculate tax. From the second year of operations tax is calculated on the basis of the previous year s profits. Company income tax is 28 % of the financial results. 8.2 THE SHAREHOLDER MODEL (AKSJONÆRMODELLEN) Share dividends and gains less the returns from an alternative, risk-free investment are taxable income for personal shareholders. The Shareholders Model leads to an equitable tax treatment of foreign and domestic investors. TIPS! TIP 7 Registered business enterprises with turnover less than NOK 1 million in annual turnover, VAT not included, may, by application to the County Tax Office, submit annual reports. Turnover is defined here as the supply of goods and services against any form of remuneration. The annual report shall cover the full calendar year. If it is clear that turnover will in all likelihood exceed NOK 1 million, you must notify the County Tax Office without delay. The Shareholder Model The Split-income model (Delingsmodellen) has been discontinued RISK and remuneration rules will be discontinued Equal tax treatment of dividends for Norwegian and foreign companies The Shareholder Model implies taxation of individual shareholders on their share income less a relief allowance (skjermingsfradrag) tax relief. The taxation on the shareholders share income is based on actual paid out dividends and gains. The net gains are taxed as capital income gains (28 %), not personal income. In other words and as far as it concerns the individual shareholders and dividends, the government assesses taxes twice: - 28 % tax on company profits (payable by the company) - 28 % tax on dividend less a shelter rate (payable by the individual shareholders) 8.3. DIVIDENDS Dividend payments to shareholders on record are decided by the General Shareholders Meeting. The individual shareholders are liable for the taxes assessed againgt dividends.
TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY PAGE 13 Taxable dividends Shareholders payable dividends less the relief allowance constitute the base for the extra tax (28 %) implemented by the tax reform coming into effect January 1st 2006. The relief allowance (Risk free return on investment) is calculated by multiplying the Basis for Relief Allowance with the Rate of Relief Allowance. The basis for relief allowance The acquisition costs for the shares plus any transaction costs. The rate of relief allowance An after tax risk free rate of return for individual investors. The rate of relief allowance has been set at the equivalent of the annual effective synthetic yields on 3 months government Treasury bills. See www.norgesbank.no; statistics. An example: Bør Børson owns all the shares in the company Bøbø AS. The shares were bought for NOK 100.000 (acquisition costs). The company shows a profit of NOK 100.000, and the after tax profit will be distributed to shareholders as dividends. Company taxation: Gross profit NOK 100 000 Corporate income tax (28 %) NOK 28 000 Dividends for distribution to shareholders NOK 72 000 Individual shareholders taxation: Dividends for distribution to shareholders NOK 72 000 Less relief allowance (skjermingsfradrag); NOK 100 000 (shareholding capital) X 0.016 % NOK 1 600 Amount subject to individual taxation NOK 70 400 Individual shareholders tax: NOK 70 400 X 28 % NOK 19 712 TIPS! TIP 8 It is adviseable to emply the services of an authorised accountant if you feel incapable of performing the tasks yourself. This will free up time for you to run your company. Marginal tax assessments NOK 47 712 / NOK 100 000 = 47.7 % 8.4 THE TAX EXEMPTION MODEL (FRITAKSMETODEN) The tax exemption model explains the rules and regulations with the regard to the taxation of capital gains and dividends payable to corporate shareholders, and as a general rule they are exempt from paying taxes on capital gains and dividends. The corporate shareholders may however not make allowances for capital loss on their income statement, thus in the case of corporate shareholders, the rules (in short) are: - Tax exemption on dividends between limited liability companies (AS) - Tax exemption on capital gains between limited liability companies (AS) - No allowances for capital loss on their income statement for intercompany share transaction For more information go to: www.skatteetaten.no 9. FINANCIAL REPORTING AND AUDITING All limited liability companies (AS) in Norway shall keep accounts (bookkeeping) in accordance with The Accounting Act and Bookkeeping Act. The Financial statements and Annual Report are to be filed with the Register of Company Accounts in Brønnøysund annually and always latest by August 1. A limited liability company is required to have an annual statutory independent audit of its accounts. The Company must engage the services of an State authorised auditor who shall examine and approve the accounts. [TIP 8]
PAGE 14 TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY 10. THINGS TO REMEMBER WHEN STARTING UP A LIMITED COMPANY 10.1. WHAT YOU MUST DO Incorporation Prepare the Memorandum of Association Prepare the proposal for the Articles of Association Prepare the opening balance for the company. This must be certified by the auditor (dated not more than four weeks from the date of incorporation) Stipulate the face value of the shares and number of shares issued a minimum share capital of NOK 100,000.- is required. Prepare the Register of Shareholders Check that you can register the desired company name. Contact the Brønnøysund Registers. Appoint an auditor for the company. The Auditor must provide a written declaration that he/she is willing to assume responsibility for auditing the company. Register the company with the Brønnøysund Registers at the latest 3 months after the Memorandum of Association is signed. This is done by sending in the samordnet registermelding (hovedblankett) or via the Internet www.brreg.no Remember the required enclosures: Memorandum of Association Articles of Association (By-laws) Declaration of Intent from the auditor with confirmation that share capital is paid in Opening balance certified by the auditor Capital Open a company bank account for the deposit of the share capital (take a copy of the Memorandum of Association for the bank) Proof of deposit of share capital and notification to the Brønnøysund Registers All receipts and proof of deposits for and on behalf of the new company must be delivered to the auditor. Key company staff Decide who shall sit on the Board of Directors. You must have at least one member of the Board of Directors and one deputy. If share capital is NOK 3 millions or more you must have at least 3 members of the Board of Directors Decide if the company shall have a Managing Director. If share capital is NOK 3 millions or the company must have a Managing Director. Decide who may sign for and on behalf of the company (signatory/procurer) When the company employs personnel Register employees in the Register of Employers- and Employees Unit. Take out industrial accident insurance for employees with a private insurance company Open a bank account specifically designated for tax withholdings Prepare employment contracts Prepare an HES plan (health, environment and safety) for the company Normal operation Include your Enterprise Registration No and company name on all business documents such as letterheads, invoices, order forms and so forth that represent the company publicly. Ensure that your accountant /auditor have updated your accounts to the payment deadlines for VAT, tax deductions (withholdings) and employers social services contributions. Submit the (audited) accounts to the Brønnøysund registers within one month after they have been approved and adopted by the Shareholders General Meeting and before 1st August Hold meetings of the Board of Directors at least quarterly.
TIPS AND ADVICE FOR THOSE WHO ARE STARTING A LIMITED LIABILITY COMPANY PAGE 15 If you are uncertain of your obligations you may check with the Register of Reporting Obligations of Enterprises in Brønnøysund. 10.2. WHAT YOU OUGHT TO DO Formulate your business idea (1 to 3 sentences) and prepare a business plan Take out necessary business insurances (fire, third party liability etc) Register the company name as a trademark (Trademark protection) Agree on routines for co-operation with your accountant, auditor, bank and others. Prepare routines for marketing, for example telephone catalogue entries. Order business cards, letterheads, product brochures etc.. USEFUL INTERNET ADDRESSES PS: The rates and prices quoted in this brochure are from 2005 and are subject to regular change. Here are some links tp Internet addresses where you can find updated information on rates and prices. The Brønnøysund registers Oslo County Tax Office Oslo Tax Collectors Office Oslo Tax Assessment Office Inspectorate of Labour Social Security www.brreg.no www.skatteetaten.no www.kemnerkontoret.oslo.kommune.no www.likningskontoret.oslo.no www.arbeidstilsynet.no www.nav.no OTHER BROCHURES IN THE SAME SERIES Tips and advice on preparing a business plan Tips and advice for marketing your own company Tips and advice on renting/leasing business premises Tips and advice on good financial management The above brochures are available at Tips and advice on practical work as a Director www.naringsetaten.oslo.kommune.no Tips and advice for those starting a partnership Tips and advice for those starting a sole proprietorship Tips and advice for those planning to import goods into Norway LAWS (SEE WWW.LOVDATA.NO) Law of 13.06.1997 No. 44 Law on limited companies (Companies Act) Law of 21.06.1985 No. 79 Law on the sole rights to company names and other business markings (The Act concerning Business Enterprise Names) Law of 21.06.1985 No. 78 The Act on the registration of Business Enterprises Law of 17.07.1998 No. 56 Law on Annual Accounts etc. (The Accounting Act) Law on bookkeeping of 19.11.2004 No. 73 The Bookkeeping Act and regulations on bookkeeping Law of 20.12.2002 No. 94 Law on value added tax (the Vat Act) Law of 24.04.1988 No. 21 Law on holidays (The Holidays Act)
Næringsetaten, Servicekontoret for næringslivet Address: Tollbugt 27, entrance Øvre Slottsgt. 0157 Oslo Telephone: 23 46 01 11 Fax: 23 46 00 50 Internet address: www.naringsetaten.oslo.kommune.no E-mail: postmottak@naringsetaten.oslo.kommune.no Akershus fylkeskommune Address: Schweigaards gt. 4, 0185 Oslo Telephone: 22 05 50 00 Fax: 22 05 50 55 Internet address: www.akershus.no E-mail: postmottak@akershus-fk.no Innovasjon Norge Office address: Akersgt. 13 Postal address: Postboks 448 Sentrum, 0104 Oslo Telephone: 22 00 25 00 Fax: 22 00 25 01 Internet address: www.innovasjonnorge.no E-mail: oslo@invanor.no Etablerersentrene i Akershus AS Address: Postboks 91, 2051 Jessheim TUNET, Sør Gardermoen kultur- og næringspark, 2060 Gardermoen Telephone: 64 82 22 67 Fax: 64 82 22 69 Internet address: www.etablerersentrene-akershus.no E-mail: postmottak@etablerersentrene-akershus.no