Private limited companies (AS)
Are you planning to start up a business on your own or together with other people? Will the business entail commercial risk? Do you want rights as an employee and the opportunity for others to invest in your company? If so, a private limited company may be an appropriate organisational form for you.
The key features of private limited companies:
- Limited personal liability
- Rights as an employee
- Separate legal person
- Can have one or more owners
What is a private limited company?
A private limited company is a separate legal person and your liability as owner is limited to the share capital you have invested in the business. According to The Companies Act, all private limited liability companies must have a share capital of at least NOK 30,000.
The share capital ensures that there is a minimum amount of money in the limited company but the start-up costs will often be higher than NOK 30,000. When you set up a private limited company, you should therefore have sufficient funds in addition to the share capital to cover the company's costs (paid-in capital in excess of par).
The limited liability, flexibility and transferability of the shares makes a limited liability company a suitable option if you are planning to be several owners or to have the possibility to bring investors into the company.
The Companies Act sets out the rules that private limited liability companies must comply with.
The Limited Liability Companies Act (in Norwegian only)
Some points that are important for you to consider when considering establishing a limited liability company:
Financial risk
Starting a limited company is not risk-free, but can reduce the personal responsibility you take on as an owner. The reason for this is that the limited company is its own legal entity. As an owner, you have no greater financial responsibility than what you pay into the company, normally in the form of share capital. The owner(s) must nevertheless be expected to provide an additional guarantee if the newly started limited company wishes to take out a loan.
Therefore, I like to say that the greater the financial risk, the more sensible it is to start a limited company.
Central to the assessment of financial risk is the need for capital and the scope of the business. To answer this, you must decide what costs the start-up entails, and what investment needs there are. It may also make sense to ask yourself questions about the scope, for example, are you going to run for yourself and get yourself an income? (lower risk) Or are you planning for more employees and growth? (higher risk). The greater the capital requirement and scope, the more financial risk you will normally take.
Employees
One of the advantages of establishing a limited company is that you as an owner can also be an employee of the company. As an employee of your own company, you have the same social security rights as other employees. The company will have employer responsibility for you, and you will receive a salary.
Owners of limited companies can opt not to be an employee even if they work for the company. Payments from limited companies to owners can also take place in the form of dividends. However, you will not accrue social security rights on the dividends that are paid.
Social security rights
Sick-pay
As owner and employee, you will be entitled to 100 % sick-pay from the first day of sickness. However, you should note that NAV covers sick-pay from the 17th day. During the first 16 days, it is the company as employer that must pay sick-pay.
Unemployment benefit
As owner and employee of the company, you accrue the right to unemployment benefit in the event of unemployment in the same way as other employees. Contact NAV to find out the conditions for receiving unemployment benefit.
Pension
As owner and employee of the company, you will accrue pension rights on what you receive in salary in the same way as other employees. If your company has other employees, it will normally be required to set up an occupational pension scheme for its employees. You should be aware that most people will experience a substantial reduction in their income when they retire.
Tax
Profits generated by a private limited company are taxed at the rate of 22%. This tax is paid in two instalment in the year after the income year.
Private limited companies can decide to pay dividends. Dividends to personal shareholders are taxed at the rate of 37.8%, while dividends to companies owning shares in another company are virtually tax-free.
For companies and owners collectively, the overall tax rate can be 51.5% in private limited companies. If the company does not distribute dividends, it means that the company can accumulate capital that is taxed at 22 percent.
Tax for private limited liability companies
Value added tax
Value added tax (VAT) is a sales tax on goods and services. Some goods and services are exempt from VAT or subject to reduced rates. Private limited companies with a vatable turnover of more than NOK 50,000 over a 12-month period must register in the VAT Register.
The Norwegian Tax Administration – Registration in the Value Added Tax Register
Accounts
Commercial activity normally also triggers a bookkeeping obligation. This means that you must retain documentation of your incomes and expenses and arrange them in a system. Private limited companies are also subject to the accounting obligation. This means that the company must submit annual accounts to the Register of Company Accounts every year. If you do not know much about accounting, you should consider asking an accountant to do it for you.
All private limited companies with a turnover of less than NOK 7 million can normally opt not to have their annual accounts audited.
Roles in private limited companies
The general meeting is a private limited company's supreme authority. The company's shareholders have the right to attend and vote at these meetings.
The board of directors is appointed by the general meeting and must consist of at least one person of legal age. The board member cannot be under bankruptcy disqualification or be convicted to loss of rights. The board of directors meet when necessary.
The Board is responsible for the management and running of the company. The company can choose to have a general manager, employed by the board of directors. The general manager and at least 50 percent of the board members must reside in Norway, Switzerland, The United Kingdom, or another EEA state.
In many private limited companies, the owner alone has all these roles. Note that these requirements apply regardless of the size of the company.
The Brønnøysund Register Centre on roles, signature and procuration
The Limited Liability Companies Act on the residence requirement (in Norwegian only)
Permits
In certain industries, you must have a permit to run your own business. Examples of this are the catering/restaurant and cleaning services sectors.
Planning
Setting up a limited company is a big step. Realising your dream can also be both expensive and take up a lot of your time. In order to find out what will be required of you, it is important to take the time to prepare a thorough plan before you register your limited company.
Registration and organisation number
Registration of a private limited company is done via the Coordinated register notification in Altinn.
After the registration has been processed, you will be assigned the company's organisation number.
