From sole proprietorship to limited liability company

Previously, it was a requirement that you had to pay NOK 100 000 to establish a limited company. Many people chose to establish their company as a sole proprietorship instead. In 2012, however, the amount you had to pay to establish a limited company was reduced to NOK 30 000, and today more and more people choose to establish a limited company (AS) rather than a sole proprietorship.

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Do you have a sole proprietorship but want to change it into a limited liability company? In this article, we explain what a sole proprietorship is, when you should and how you can convert your sole proprietorship into a limited liability company, and how Insa can help you.

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What is a sole proprietorship?

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A sole proprietorship (ENK) is characterized by being owned by one person with unlimited liability and risk. In cases where the risk is very high, it can be considered whether the legal form should be changed to limit liability.

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The owner of the enterprise cannot be listed as an employee himself, but the owner can have employees. This means that the owner does not receive any salary payments, but can dispose of the profits himself. The profits of the enterprise are considered as your income and must be taxed. The owner must pay wages to the employees and employer's contributions.

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There will also be fewer social rights for the owner than there are for the employees. Social rights are defined as sickness benefits, unemployment benefits and pensions.

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Another characteristic of a sole proprietorship is that it is not a separate legal entity. This leads to a confusion between the finances of the sole proprietorship and the person running it. For this reason, sole proprietorships are not very attractive to investors.

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Signs that you should switch from a sole proprietorship to a limited company:

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• You earned more than NOK 100,000 last year (if you earn more than NOK 750,000 a year, a sole proprietorship is unprofitable for tax purposes)
• You want multiple owners (e.g. to spread the risk)
• You want less risk for yourself as a private individual
• You will be more attractive to investors and banks

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How to switch from sole proprietorship to limited liability company?

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• The first step is to start a limited company in the usual way. Alternatively, you can use an existing limited company that has never been in use. Either way, it is important to have the right documentation to show that you are changing from a sole proprietorship to a limited liability company.
• The share capital is set at NOK 30 000 - this is the minimum requirement. Of the NOK 30 000, NOK 5570 must be paid to Brønnøysundregistrene. You can use the rest as you wish.
• Activities, liabilities and assets must be transferred - different rules when it comes to debts, real estate and assets.
• The documentation must be in place. It should show the assets, liabilities and equity of the business. This must be verifiable by an expert.

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What happens after the transformation?

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After you have changed your legal form from a sole proprietorship to a limited liability company, the first change will be that your limited liability company will have an organization number. Furthermore, the AS will be seen as a legal person. This may result in some contracts having to be amended or adjusted. New account numbers and customer relationships with the bank will also be required.

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The company must be registered in the VAT register after you have invoiced for €50,000.

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Insa lawyers can help you with this:

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A transition from a sole proprietorship to a limited liability company may at first glance seem somewhat complicated, but we have skilled lawyers who can assist you...

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• with all types of transactions
• ...both as individuals and small companies
• ...advising on business and share sales, mergers, demergers and conversions
• ...with the drafting and assessment of agreements
• with contract checks
• in negotiations and dispute resolution

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If you have any questions related to the change of company form, please contact us at Insa advokater here.