The owners of a private limited company are stated on the shares. Shares give shareholders both rights and obligations. As a shareholder, you have the right to vote at the general meeting and you can receive dividends from the company. On the other hand, as a shareholder, you are obliged to pay in the share capital and to act responsibly in your role as shareholder.
All private limited companies must have a share register. This register must contain an overview of the names of the company's shareholders at all times, and it will normally be decisive as regards who can exercise shareholder rights. The board is responsible for establishing and maintaining the share register. The share register must be stored and kept in a secure manner at the place of business. It is normally kept in electronic form. The share register is a public document, so the general public have the right to see it.
When a company generates a surplus, a proportion of the company's profit can be distributed to the shareholders in the form of a dividend in accordance with certain rules. The amount that can be distributed in dividends must be viewed in the light of the requirement for the company to have adequate equity and liquidity.
Decisions concerning dividends are taken by the general meeting following a recommendation by the board. Dividends may not exceed the amount that the board recommends or accepts.
The size of your shareholding can be of importance in different contexts. For example, a shareholder who represents one tenth of a company's share capital may submit a written request for a particular matter to be considered at an extraordinary general meeting. The board must then convene an extraordinary general meeting at which the matter will be considered.
Shares will be of importance in relation to voting rights at the general meeting. If you own more than one third of the shares, you will have what is known as a 'negative majority'. This means you can prevent amendments to the company's articles of association, because such amendments require a majority of more than two thirds. On the other hand, if you own two thirds of a company's shares, you can for example decide whether or not to amend the company's articles of association. A shareholding of this magnitude will give you good control over the company, because you will then have a simple majority of the shares, more than half of the shares and a sufficiently large shareholding to amend the articles of association. If you own more than 50 percent of the shares, you will be able to make decisions that require a simple majority. An example of a decision that requires a simple majority of the shares at the general meeting is the election of a board of directors.
Transfer and sale of shares
Shares can be freely sold or given away without payment, unless stipulated otherwise by the law, articles of association or an agreement between the shareholders.
In the case of sale, the price must normally be determined based on market value. Sales below market value are also permissible. A gift sale will then arise. In the same way as when shares are given away, this will trigger a tax obligation.
When shareholders sell or otherwise realise shares, the gain will be taxable.
Agreements concerning the transfer of shares must be notified to the board of the company by the new owner of the shares. Such agreements must state who the agreement concerns, the number of shares being transferred and the price. The Limited Liability Companies Act contains provisions concerning consent in connection with the acquisition of shares and rules concerning right of pre-emption for the other shareholders.
When the transfer has been completed, the share register must be updated immediately. The company enters the new owner in the share register. The entry must be dated. The new shareholder must be notified by the company that he or she has been entered in the share register and what information has been entered.
If the transfer results in amendments to the company's articles of association or a change in the composition of the board, the changes must be reported to the Brønnøysund Register Centre using the "Coordinated register notification" form. The share transfer itself must be reported to the Shareholder register through the shareholder register statement. The final deadline for submission to the Shareholder register is 31 January each year.
Agreements between the company and the company's management, shareholders or associates
The company may enter into certain agreements with shareholders, a mother company, board members, general manager or others with a close relationship to any of these. However, in making such agreements the requirements are more rigid as to the procedures. The main principle is that the board of directors should approve any agreement with a real value of more than 2.5 % of the company´s net worth, according to the last approved annual accounts. The board of directors should account for, and make a declaration regarding the agreement. The entire board of directors, with the exception of any board members with a conflict of interest, should date and sign the account and the declaration from the board. An auditor must also approve the account. Subsequently, the account, the confirmation from the auditor, and the declaration from the board should be sent to all shareholders, and to the Register of Business Enterprises.
Shareholder agreements are normally established between the shareholders in a company, and regulate the relationship between them. Shareholders are not obliged to enter into such an agreement, but doing so can be beneficial. Shareholder agreements bind the shareholders who sign the agreement. There are no requirements regarding the formulation of agreements or what they must cover. Examples of circumstances which are regulated in shareholders' agreements are special rules linked to ownership and requirements concerning dividends, competition clauses, disqualification and work input.
Conflicts between shareholders
It is not uncommon for conflicts to arise between shareholders concerning the organisation of the company. It is difficult to say anything about what might lie behind conflicts in advance, but it can be a good idea to have a conscious attitude towards this. Experience suggests that it can be a good idea to:
- avoid having two owners who each own 50% of the shares, because this makes majority decisions difficult
- enter into shareholder agreements which set out what the relationship between the shareholders should be in the event of disagreement
In cases where shareholders are no longer able to work with each other, the district court may, following the initiation of legal proceedings by a shareholder or the company, decide to redeem or release a shareholder's shares. Such proceedings must be considered a last resort and there must be compelling grounds.