Apr 7, 2025
The Norwegian Companies Act § 3-8 – Agreements between the company, shareholders, and management
When a company enters into agreements with its own shareholders or members of the company's management, specific corporate law issues arise. Such agreements are subject to specific procedural and validity requirements under the Companies Act to protect both minority shareholders and the company's creditors. This article provides an overview of the rules in the Companies Act and the Public Limited Companies Act § 3-8, which regulate agreements between the company and its shareholders or management. We review which agreements are covered, the exceptions to the main rule, the requirements for processing, and the consequences of any breaches of the rules.
The Purpose of the Special Rules for Agreements Between Company and Shareholder/Management
The rules of the Companies Act on agreements between the company and its shareholders or management have two main purposes:
Protection of Minority Shareholders: The rules are intended to prevent the majority of shareholders from abusing their influence to secure unacceptably favorable agreements with the company, which would violate the principle of equality in corporate law.
Protection of Creditor Interests: The rules counteract the circumvention of the procedures of the Companies Act for non-cash contributions in company formation (§§ 2-4 and 2-6) and supplement the distribution rules in Chapter 8.
These purposes are realized through special procedural and validity requirements that ensure transparency and control over the agreements.
The Main Rule for Agreements Between Company and Shareholder/Management
Which Agreements Are Covered by the Main Rule?
The main rule in Companies Act § 3-8 first paragraph first sentence imposes a duty on the board to approve agreements between the company and:
A shareholder
A parent company of a shareholder
A board member
The general manager
The condition is that the company's performance has a real value that exceeds 2.5 percent of the balance sheet total in the company's most recently approved annual accounts at the time of entering into the agreement.
The scope of the rule is extended in the first paragraph second sentence to also include agreements that the company enters into with:
Relatives of any of the aforementioned individuals
Persons acting by agreement with any of the aforementioned individuals
The rule essentially covers all types of agreements, including both those where the company provides compensation in the form of assets or services, and those where the company receives cash consideration. It is worth noting that a transaction cannot be circumvented by breaking it down into several smaller agreements.
The Threshold Value and Calculation Basis
The threshold value of 2.5 percent of the company's balance sheet total may also be based on an interim balance instead of the most recently approved annual accounts as per the second paragraph. This allows companies to use more updated figures, especially in cases where there have been significant changes in the company's balance since the previous annual accounts.
Exceptions to the Main Rule
Companies Act § 3-8 sixth paragraph contains eight important exceptions to the main rule of board approval:
1. Agreements Entered Into as Part of the Company's Ordinary Business
This exception applies to agreements made as part of the company's ordinary business and based on standard business terms and principles. For an agreement to be covered by this exception, there must be balance in the contractual relationship regarding the parties' performance and terms.
The exception not only includes agreements within the company's core business (e.g., when a car importer sells cars) but also other agreements commonly entered into by any company, such as agreements for office space rental or accounting services.
2. Low-Value Agreements
Agreements where the company's performance has a real value below 100,000 kroner are exempt from the board approval requirement. This exception is particularly practical for smaller companies, where the main rule's threshold value of 2.5 percent of the balance sheet total would cover many smaller agreements.
3. Agreements on Non-Cash Contributions in Formation and Capital Increase
Agreements made in accordance with the rules in Companies Act §§ 2-4, 2-6, and 10-2 on special rights and non-cash contributions in connection with formation and capital increases are exempt. The rationale is that these rules address the same considerations as § 3-8.
4. Salaries and Remuneration of Management
Agreements concerning salaries and remuneration for the general manager and agreements on remuneration for board members are exempt. These agreements are already specially regulated in company legislation through rules that consider similar concerns as § 3-8.
5. Securities Trading at Market Price
Agreements on the transfer of equity securities mentioned in the Securities Trading Act § 2-4 first paragraph at prices according to market quotation on a regulated market are exempt. The exemption is justified by the fact that market quotations will normally reflect the real value of the securities.
6. Intra-Group Credit Agreements in Wholly Owned Groups
Agreements covered by Companies Act § 8-7 third paragraph first sentence no. 2 and 3, cf. second sentence, are exempt if the parent company or legal entity owns all the shares in the company. This applies to credit and the provision of security in group and group-like relationships.
7. Financial Assistance for Share Acquisitions
Agreements made in accordance with the rules in or pursuant to § 8-10 are exempt. This applies to agreements on credit and other financial assistance for the acquisition of shares in the company, which are already subject to specific restrictions.
8. Agreements Approved by the Financial Supervisory Authority
Agreements approved by the Financial Supervisory Authority under the rules in the Financial Institutions Act chapter 20, including agreements on intra-group support, are exempt from the board approval requirement.
Processing Requirements
Board Obligations When Entering into Agreements
For agreements covered by Companies Act § 3-8, the board has the following obligations:
Prepare a Statement: The board shall ensure that a statement is prepared according to the rules in Companies Act § 2-6 first and second paragraphs.
Issue a Declaration: The board shall issue a declaration stating:
That the agreement is in the company's interest
That there is reasonable correspondence between the value of the exchanged performances
That the requirement regarding reasonable equity and liquidity in § 3-4 will be met
Signing: The statement and declaration shall be dated and signed by all board members, except those board members who were disqualified in the board's deliberation.
Handle Objections: If a board member has objections to the statement or declaration, they shall sign with a reservation and provide an account of the objections in the statement.
Duty to Inform and Publicize
The board shall promptly send the statement and declaration to:
All shareholders with a known address
The Register of Business Enterprises
The dissemination to shareholders ensures that they receive information about the agreement. Shareholders may request that board members provide further information at the general meeting. Submission to the Register of Business Enterprises establishes notoriety and publicity about the documents.
Consequences of Breaching the Rules
When Does the Agreement Become Invalid?
The legal effects of violating Companies Act § 3-8 are regulated in the provision's fifth paragraph. Only violating the requirement for board approval can lead to invalidity. Violating the requirements for a statement, declaration, or information duty does not have such an effect.
For invalidity to occur, the company must show that the counterparty knew or should have known that the board had not approved the agreement. The burden of proof lies with the company, and the starting point is therefore that the agreement is valid unless the company can prove the counterparty's bad faith.
Good Faith Assessment
When assessing whether the counterparty was in good faith, the following factors will be relevant:
The Counterparty's Connection to the Company: Counterparties with a particularly close connection to the company, such as the general manager, will usually not be in good faith.
Duty to Investigate: The Companies Act presupposes that counterparties generally have no duty to investigate, unless there is a special reason for suspicion.
Restitution Obligation
If an agreement is declared invalid, the parties' performances must be restored. If the received cannot be restored, the obligation becomes a liability for value compensation. This is particularly relevant for services or when the received has been consumed.
The person who on behalf of the company has contributed to the breach, and who was in bad faith, has an independent restitution obligation under the rules in Companies Act § 3-7 second paragraph.
Special Rules for Public Limited Companies
For public limited companies, different rules apply depending on whether the company is listed or unlisted:
Unlisted Public Limited Companies
For unlisted public limited companies, a rule applies that essentially corresponds to Companies Act § 3-8.
Listed Public Limited Companies
For listed public limited companies, special and more comprehensive rules apply in Public Limited Companies Act §§ 3-10 to 3-19 on significant agreements between listed companies and related parties. These rules implement EU legislation in the area and include, among other things:
Requirement for general meeting consent for the relevant agreements
More comprehensive rules on disclosure
A broader definition of "related party" than the circle of persons covered by Companies Act § 3-8
Conclusion
The rules of the Companies Act and the Public Limited Companies Act on agreements between the company and its shareholders or management constitute an important framework to ensure that such agreements are entered into on market terms and with necessary transparency. The rules protect minority shareholders from the majority's abuse of influence and protect creditors from the erosion of the company's capital base.
For practical handling of these rules, it is important to be aware of the threshold value, exceptions, and specific procedural rules. In case of doubt about whether an agreement is covered by the rules, as a precaution one should follow the procedures in § 3-8 to avoid the risk of invalidity and potential liability.
