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
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. However, the owner(s) must still expect to have to provide additional collateral if the newly established company wants to take out loans.
The share capital will act as collateral for the company's creditors. The company can use the share capital to make investments, but must ensure that it is solvent and has adequate equity. 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 means that a limited company would be preferable if you are planning to be several owners or to have the possibility to bring investors into the company.
The Companies Act is a useful source of information concerning the rules that private limited liability companies must comply with.
One of the advantages of establishing a limited company is that you as owner can also be an employee of the company. You will then 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
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..
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.
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.
Profits generated by a private limited company are taxed at the rate of 22% in the 2020 income year. 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 31.68% in the 2020 income year, while dividends to companies owning shares in another company are virtually tax-free.
For companies and owners collectively, the overall tax rate can be 46.7% in private limited 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.
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 6 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. The board of directors meet when necessary. The Board is responsible for the management and running of the company. At least 50 % of the board members must reside in Norway or another EU/EEA country. The company can choose to have a general manager, employed by the board of directors.
In many private limited companies, the owner alone has all these roles. Note that these requirements apply regardless of the size of the company.
In certain industries, you must have a permit to run your own business. Examples of this are the catering/restaurant and cleaning services sectors.
Some advantages and disadvantages of private limited companies
Limited personal liability for the company's commitments
Build up equity with a lower rate of tax than for sole proprietorships
Virtually tax-free dividends to company shareholders, i.e. shareholders who are not private individuals
The opportunity to be an employee
Employer's National Insurance contributions
Share capital requirements
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
After the registration has been processed, you will be assigned the company's organisation number.