Company law

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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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.