Change of company form

You have started a company, but find that the legal form you chose is not suitable for you and your company after all. What do you do? Are you tied to the company form you have chosen and have to start again, or can you transfer the same company to another company form?

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The legal form you choose sets the framework for your organization, responsibilities, taxes, risks, obligations and rights. A change of company form means that you change or reorganize your business into something new.

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What are the most common types of companies?

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Sole proprietorship - perhaps the easiest form of company to start. Setting up a sole proprietorship offers great freedom of action and simplicity, but the downside is that there is no separation between your personal finances and the finances of the sole proprietorship.

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General partnership - most commonly divided into either an ANS (general partnership) or a DA (joint liability). An ANS and DA are forms of company where the participants in the company are personally liable for the company's financial obligations. ANS and DA have simpler procedural rules and are easier to operate than a limited liability company, but in return they carry a greater share of the risk for the company's obligations.

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Limited liability company - a form of company with limited liability for the company's owners. Ownership in a limited liability company is divided into shares and the owners are not personally liable for the company's obligations to its creditors. However, there are a number of requirements concerning the procedure and management of affairs, and the way in which the limited liability company can distribute dividends to its owners.

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Other - There are also many that are organized as limited partnerships, partnerships or public limited companies, but this is more rare. Norwegian registered foreign enterprise (NUF) was more common before. Now that the share capital requirement for starting a limited liability company has been reduced to NOK 30 000, NUFs have become increasingly rare.

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What are the most common forms of reorganization and transformation of company form?

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• ENK transformed into AS
• NUF to AS
• ANS/DA to AS
• ENK to ANS/DA

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Do you need to convert your company to another legal form?

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In the past, it was common for many businesses to start their company as a sole proprietorship or NUF. The reason was that there was previously a minimum requirement in the Limited Liability Companies Act that you needed NOK 100 000 to establish a limited company. In addition to this, there were ongoing auditing costs. However, after a change in the law that lowered the share capital requirement from NOK 100 000 to NOK 30 000, more and more people started ASs, in line with what the legislator wanted to achieve.

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The government has also made it easier to convert a company from a corporate form to an AS. For example, a founder who starts a sole proprietorship should be able to easily change the company form if the company grows out of that particular company form. For example, the state recognizes the conversion from a sole proprietorship to an AS as tax-free.

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A limited liability company has many advantages compared to e.g. NUF, ANS and ENK. A limited liability company has limited liability, is flexible and is more suitable if multiple owners are desired (especially if there are to be different levels of activity among the owners).

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There are different levels of risk associated with the different types of company. A limited liability company makes a clear distinction between your personal finances and the company's finances. If a limited liability company goes bankrupt, only the paid-up share capital can be lost (with the exception of the owner's or board of directors' actions in tort). If you run a sole proprietorship, on the other hand, you privately risk losing your personal assets such as your car, boat or holiday home.

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Limited liability companies as a corporate form involve some additional paperwork

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If you decide to change your legal form to a limited liability company, you should be aware that it will involve more time spent on paperwork and documentation than before. There are several criteria where the rules are stricter for a limited company than for a sole proprietorship, NUF or ANS. Some of these are for example:

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• Establishment and operation (a number of formal requirements that must be met and documented for both the establishment and operation of a limited liability company)
• Pay (stricter requirements and procedures for the payment of salaries)
• Bookkeeping
• Annual meeting (requirements for minutes and their submission)
• Accounting requirements and submission of accounts to the Accounting Register

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What can Insa lawyers help you with?

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• Our team has solid expertise in the areas of commercial law
• Advice and assistance in business and share sales, mergers, demergers and transformations
• We have expertise in all types of transactions
• Checking contracts before signing
• We can assist you in drafting and assessing contracts
• Assistance in negotiations and disputes

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Are you considering converting your company form and have questions? Contact us at Insa advoakter, free of charge, here.

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