Forms of Business Incorporation

Which form of business organization should I choose?


Forms of Business Incorporation

The legal structure/form of business incorporation for your new enterprise should be determined based on the specific assessment of your circumstances. The various forms of business incorporation, such as sole proprietorship, private limited company and partnership, all have their respective advantages and disadvantages.

You can read more about these legal structures on Altinn to get a good idea of the kind of business incorporation that will work best for you. Your choice of business incorporation will depend on many factors, but primarily these: Whether you want to be an employee in your enterprise, your personal rights as owner, the level of responsibility/risk you are prepared to take, the scope of business, business registration, tax, the number of owners/partners and how the business is organized and what you want to call the company.

The most common forms are:

  • Sole proprietorship (Enkeltpersonforetak/ENK)

  • Partnership

    • General partnership (Ansvarlig selskap/ANS)

    • General partnership with shared liability (Selskap med delt ansvar/DA)

  • Limited Liability Company (Aksjeselskap/AS)

This comparison table will give you a quick overview of the difference between these forms of business incorporation.

Note: You can always change to a different form of incorporation at a later stage. However, keep in mind that you will not be able to keep the same organisation number if you change the form of business incorporation after starting your company.

Sole proprietorship (ENK)

A sole proprietorship (self-employed) is a single-person business where the owner is personally liable for the business. It is the cheapest and easiest form of business to start as it has fewer rules and financial commitments. It is also the simplest to close if you no longer want to run the business.

  • There is no spesific law covering sole proprietorships in Norway

  • Registration is free in the Central Coordinating Register for Legal Entities. If the company has five or more employees, is a wholesale or retail entreprise, the business MUST also be registered in the Register of Business Enterprises.

  • The owner is not classed as an employee. You do not pay employers`s National Insurance contributions.

  • The owner pays tax on the profit from the business. In addition, you are required to pay advance tax on expected profits for the year.

  • You as the owner are personally liable for all business debt which means that there is a risk of becoming personally bankrupt if your company fails and you are forced to settle debts from your personal finances.

  • The owner is not classed as an employee, which means you get less sickness benefit and do not quality for unemployment benefits if your business fails. You will only get sickness benefits on the 17th day at 80 % of the sickness benefit. As such, it is advisable for the owner to take out supplementary insurance with the National Insurance Scheme (NAV) as additional protection. But they do not qualify for unemployment benefit or care benefit should be company fail.

Limited Liability Company (AS)

Unlike a sole proprietorship, a limited liability company is considered by law to be separate from its owners, which means they are not personally liable for the company debts. It can have one or more owners/shareholders, who can also be employees in the enterprise. However, to start a limited company the owners must pay NOK 30,000 up front as share capital.

  • Governed by the Limited Liability Companies Act. A limited liability company cannot be wound up without a public announcement. The law requires that the company must have a board of directors, have a general manager, hold annual general meetings and have a memorandum of association and articles of association. It must also appoint an auditor if turnover exceeds NOK 6 million.

  • Mandatory registration in the Register of Business Enterprises.

  • Opening balance - signed by shareholders and auditor. This is the amonut of money in the account at the start of the accounting period for the company.

    Company registration form - signed by the board of directors

    Memorandum and articles of association - signed by all the shareholders

    Auditor`s declaration - signed by the company auditor

  • A memorandum of association (MOA) is a binding legal document that defines the relationship between the company and its shareholders. The MOA and the articles of association can be considered the “constitution” of the company and determines how the company functions. The MOA must be dated and signed by all shareholders, and include the names, addresses, personal ID numbers/organisation numbers of all the shareholders. The MOA must detail the monetary amount per share and the number of shares held by each shareholder. In addition, it must list these following items:

    • Deadline for payment of share capital contributions

    • Names of members of the board of directors

    • Name of autitor, if relevant

    • Any special agreements must be specified in the memorandum of association

    • Articles of association (see below)

    • The opening balance

  • Articles of association is a document that specifies the regulations for a companys operations and defines the companys purpose. This includes explanations of how the company executes tasks within the organisation, including the process for appointing directors and the handling of financial records.

    This document must contain the following:

    • The companys official name

    • The objective of the company

    • The amount of the share capital

    • The nominal value of the shares

    • The number of board members

    • Matters to be considered at the annual general meeting

    • General manager and contact person

    Templates for these documents can be obtained on the Altinn website

  • The annual general meeting (AGM) is a mandatory yearly gathering for any limited liability company. This is when the company directors present the annual report on the company`s performance and strategy going forward. (Exception: Small companies are not required to submit an annual report.)

    The general meeting, sometimes described as the general assembly, is the supreme authority in a company. An ordinary general meeting must be held within six months after the end of each financial year, so for instance if the financial year ends in December, the annual meeting must be held before July 1 of the following year. The Board of Directors will issue the notice to convene the Annual General Meeting, and all the shareholders have a right to attend and cast their votes in matters linked to the company such as approving the annual report. (Exception: Small enterprises, as determined by the Norwegian Accounting Act, do not need to submit an annual report.) The annual accounts must be submitted to the Brønnøysund Register Centre by August 1.

    An extraordinary general meetings (EGM) can be held if any special matters arise or if at least 10 % of the shareholders request for such a gathering. More information on general meetings can be found on Altinn.

  • All limited liability companies must have a board of directors who serve as the company`s governing body. This is an elected group of people who represent the shareholders, meet at regular intervals and supervise the activities of the organisation.

    The board consists of at least one member.

    The board is responsible for the management of the company

    • Preparing plans and budgets

    • Must be kept up to date on information regarding the company`s financial situation

    • The board appoints the general manager

    • Board members can be held liable for damages and be held criminally liable for acting negligently

  • The general manager (GM) is the person responsible for the day-to day management of the company.

    The GM is obliged to attend board meetings and implement the board´s adopted plans and strategies. Additionally, the GM must, at a meeting or in writing, inform the board at least every four months about the company`s activities, position and financial performance.

  • The owner(s) of a limited liability company can be employed and receive a salary from the company. Total payroll costs (gross pay and employer`s National Insurance contributions) are expensed by the company. Personal tax based on employment is deducted in advance by the company as the employer based on the tac deduction submitted to the company.

  • Profit in the limited liability company is taxed at a rate of 22 % in arrears. Dividend distributed to shareholders is taxed at a rate of 31,68 %.

  • Bookkeeping (annual report) and auditing required.

  • Limited liability based on invested share capital. In the event of compulsory liquidation, you as an owner will lose only your share of the capital contribution.

  • Your personal rights are based on your salary as an employee and not the dividend that you receive as a shareholder. As a wage earner, you are regarded as a `normal´ employee - even if this limited liability enterprise is your own company. Therefore, you have the same personal rights as all employees.

    This means you will get 100 % sickness pay from the first day of absence due to sickness with the company covering sickness benefit for the first 16 calendar days. You will also be entitled to unemployment benefit.

    For additional information, read the Working Environment Act (http://www.lovdata.no/) and the HSE Regulations and guidelines (https://www.arbeidstilsynet.no/en/).

Registering your new company

It’s easy to register your company with the Brønnøysund Register. You can use the prescribed form or perform this electronically via https://www.altinn.no.  


Naming your new company

A memorable or descriptive business name can boost your company´s visibility. A descriptive name can work to your advantage as it gives a clear explanation of the nature of business. However, a downside is that other companies may select a name that is very similar to yours making it difficult for customers to distinguish your business from your competitors.

So, think carefully, select a name that you are comfortable with and check if the domain name is available. You can use navnesøk.no to find out whether the name you want to use is available as a domain name, enterprise name and trademark in a single search. You should also ensure that others do not have legal rights to the name.

Furthermore, to protect your enterprise name, you can register it in the Register of Business Enterprises. If you have a sole proprietorship, it is the full name, including your surname, which will be protected.

Here’re some other points to consider when selecting and registering a name for your new enterprise in Norway:

  • The name shall not be misleading

  • Must contain at least three letters from the Norwegian alphabet

  • Cannot consist solely of the name of a country, county or municipality

  • Sole proprietorships must include the family name of the proprietor

  • Limited liability companies must include 'AS' after the company name

You can protect your company name, product name and logos through trademark registration with the Norwegian Industrial Property Office. The rights to names/logos can be valuable and important in a competitive situation, so we do recommend that you trademark protect them at an early stage. It is also advisable to quality assure the name and logo to avoid confusion with another company’s name/logo. In addition, you can also patent protect your proprietary product with the Norwegian Industrial Property Office.

Additional advice

  • Register your employees in NAV's AA Register (the Norwegian Labour and Welfare Administration's employer/employee register)

  • Take out occupational injury insurance for your employees

  • Draw up employment contracts for all employees

  • Open a tax withholding account with your bank

  • Remember that the employer's national insurance contributions of 14.1% is payable six times a year

  • Set aside holiday pay for your employees at 10.2% of their salary so that this is shown as a liability in your accounts. This is an accounting provision.

  • Prepare an HSE plan (health, safety and the environment)

  • The law (OTP Act) determines that employers must pay mandatory occupational pension of 2% of gross income.

 
 
Chapter 2 - Accounting