Share capital is the amount that the founders of the private limited company have paid into the company in connection with its establishment. The amount of share capital will depend on the company’s capital requirements.
A minimum of NOK 30,000 in share capital is required. The private limited company's memorandum of association and articles of association must stipulate the amount of share capital, the number of shares and the price of each share. The share capital that is part of the company's equity may be used, but the company must always have adequate equity. The board shall determine whether the company has adequate equity and, simply put, this will mean that the company has enough money to pay its costs.
Financing of private limited companies
New companies rarely generate a surplus from the first day. This means that the company may need money over and above the minimum requirement for share capital in order to cover the company's obligations. If the company has to take out a loan, the minimum level of share capital could provide insufficient collateral for the bank to grant a loan to the company. Additional financing will then normally be obtained through an increase in the share capital or through loans to the company. Financing can be sourced internally from the shareholders or an offer can be made to external parties to purchase shares or provide loans.
Share capital increases
In many cases, it can be a good idea to increase the company's share capital over and above the minimum requirement because increased share capital will improve the credit-worthiness of the company and demonstrate that the company is solvent. Any increases in share capital must comply with the relevant rules.
In connection with the establishment of private limited companies, increases in share capital and mergers (merging of private limited companies), the company can decide to pay in a premium.
Paying a premium means that the shareholders pay in an amount per share which exceeds the nominal value of the share. Premiums are not regulated in the Limited Liability Companies Act, but form part of the company's unrestricted equity. (Capital which the shareholders have contributed as a premium or which has been generated through the company's operating profits).
Loans from shareholders
If the company wishes to borrow money, a loan agreement must be established. This also applies when the lender is a shareholder in the company. Loans from shareholders can be an appropriate solution, as it is not necessary to follow the rules concerning capital increases. The loan will be considered to be unrestricted equity and can be used without restriction in the running of the company. The loan must be genuine and there must be an agreement between the parties.
The advantage of giving the company a loan is that repayment of the loan can be adjusted to suit the company's financial situation. Interest can be paid to the lender without any need to follow the provisions of the Limited Liability Companies Act concerning dividends.
Other forms of financing in accordance with the Limited Liability Companies Act include:
- loans with a right to claim share issues or conversion rights
- subscription right shares
- independent subscription rights.
The regulations are very comprehensive in some respects. It can therefore be a good idea to seek assistance if it becomes appropriate to utilise the opportunities for generating capital.
Reduction in share capital
A company's share capital can be reduced following a decision by the general meeting. However, share capital may not be reduced to less than NOK 30,000, which is lower limit for share capital. The reduction amount can be used to cover losses which cannot be covered in any other way, for dividends to shareholders, to delete the company's own shares or to set aside appropriations to funds. Information concerning the approval and registration of share capital reductions can be found on the Brønnøysund Register Centre's website.