Apr 8, 2025
Introduction to the Basics of Norwegian Corporate Law – Share Capital, Shareholder Rights, and Transfer of Shares
Corporate law is a comprehensive area of law that governs the establishment, operation, and dissolution of limited liability companies (LLC) and public limited companies (PLC). This article provides an overview of key elements in the company law for LLCs, including rules on share capital, shareholder rights, share transfer, and the importance of shares as a property right. The article highlights important legal aspects that every shareholder and company actor should be familiar with.
Share Capital and Share Deposits - The Foundation of the Company
Minimum Requirements for Share Capital
A limited liability company must have a share capital of at least 30,000 Norwegian kroner, while a public limited company must have a share capital of at least 1,000,000 Norwegian kroner. The requirement for a minimum share capital of 30,000 kroner for LLCs was introduced in fall 2011, after a reduction from the previous requirement of 100,000 kroner. This change was implemented to make Norwegian company law more competitive compared to foreign legislation and to discourage the creation of Norwegian branches of foreign enterprises (NUF) for insincere reasons.
Distribution of Share Capital
The share capital shall be distributed into one or more shares to which shareholder rights are attached. The shares must have equal nominal values. The relative size of each share will therefore correspond to the ratio between the share and the total number of shares in the company. The incorporation document shall specify the share deposit, i.e., the amount to be paid for each share.
Nominal Value and Share Price
It is important to distinguish between a share's nominal value and its price:
Nominal Value: The distribution of share capital into shares is technically done by indicating the shares with a nominal value, so that the sum of the shares' nominal values matches the company's share capital. The nominal value must be set in the articles of association.
Share Price: This concept reflects the actual value of the shares. The stock market price, for example, indicates the price at which the share trades on the exchange. Technically, the term share price is a designation for the price of a share expressed as a percentage of the share's nominal value.
Premium and Discount
It is a fundamental principle that the share deposit cannot be lower than the share's nominal value; a limited or public limited company is not allowed to issue shares at a discount. The reason for this is that the legislator wants to ensure that the company receives real value for the shares subscribed.
On the other hand, the share deposit can include a premium, which means a price above nominal value. This implies that a larger amount is paid to the company than the capital nominally subscribed. Premium is free equity that the company can freely use for dividends and other distributions to shareholders within legal limits.
Documenting Share Ownership
Share Certificates, Shareholder Book, and Shareholder Register
Share certificates must be issued for the shares. The share certificate must be dated and indicate what is recorded in the shareholder book/register regarding the shareholder and their shareholding.
All public limited companies must have a shareholder register in a securities depository. This should include information about the shareholders, the number of shares they own, and information about the company and its shares. The register is publicly available. In the case of ownership transfer, the previous owner must immediately ensure that the change of ownership is reported to the securities depository.
A limited liability company may have a shareholder register in a securities depository, but this is uncommon. LLCs that do not use the voluntary option of registration in a securities depository - that is, most LLCs - are obliged to establish a shareholder book. This should contain information about the shareholders and the number of shares each owns.
Access to the Shareholder Book
Everyone has the right to access the shareholder book. This also applies to access requested by the company's competitors. Exceptions are made for the shareholder's digital address.
Shareholder Rights – What Does It Mean to Own Shares?
Types of Shareholder Rights
Shareholder rights can be divided into three main categories:
Economic Rights: Primarily includes the right to dividends, repayment on capital reduction, the shareholder's preemptive right to shares issued upon capital increase, and the right to merger consideration.
Disposition Rights: Can be considered a special group of economic rights and concern the right to dispose of or acquire shares.
Management Rights: Primarily include the right to attend, vote, and exercise other rights at the general meeting, and further the right to see the minutes of the general meeting, receive interim reports, initiate nullity lawsuits, etc.
Individual and Minority Rights
Shareholder rights can also be divided based on how many shareholders must agree to exercise the rights:
Individual Rights: Rights that can be exercised by the individual shareholder, regardless of how many shares they own. This includes, for example, economic rights and management rights.
Minority Rights: Rights that can be exercised by a minority of shareholders as defined by legislation. The size of the minority required depends on the legal requirements for the particular right.
The Share as a Property Right – Economic Value and Transferability
Characteristics of Property Rights
The share is a property right characterized by:
Having economic value
Being able to be created, altered, or transferred through private arrangements
Being able to be transferred to others by inheritance and creditor levy
Being able to be sold, pledged, and subjected to creditor levy
In principle, the Sales Act applies to the sale of shares, although its rules do not always fit shares well, since what is traded is not a physical thing, but an ideal net part in a company.
Realization of the Share’s Value
A share's function as a property right must be seen in conjunction with the purpose of establishing and operating a limited liability/pubic limited company, which is normally to make a profit. Practically, the profit motive for the individual shareholder can be realized through:
Yield: Ongoing payments and shares in profit, typically dividends
Profit from Sale: By selling the share at a higher price than the purchase price/deposit
Redemption Amount: Through voluntary or compulsory redemption of the share
Liquidation Dividend: Part of the company's assets upon dissolution
Valuation of Shares
The value of shares can be determined in different ways, depending on the type of company and situation:
Non-listed Companies: Here, there is no "official" market price, and the value must be determined through negotiations based on the company's operations, equity, underlying values, and future market opportunities.
Listed Companies: The market price is by definition the share's market value and is assumed to reflect all available information about the company's true value.
Business Transfers: When larger share packages are transferred, the value may be affected by synergy effects, whether it is a controlling block, and who the buyer is.
Redemption of Shares
Particularly complex is determining the value of a share in redemption situations. The Companies Act contains several provisions on share redemption where the redemption amount shall be determined on the basis of the share's "real value":
Upon redemption due to consent refusal
Upon redemption where the shareholder no longer meets the statutory requirements
Upon exercise of pre-emption rights
Upon redemption at the request of the shareholder when "compelling reasons" dictate
Upon redemption at the request of the company in case of significant breach, etc.
The Supreme Court has in several rulings provided guidelines on how "real value" should be understood in different contexts, generally based on the underlying values in the company.
Shareholder Rights upon Share Transfer – Who Can Exercise the Rights?
Main Rule for Exercising Rights
The main rule is that the acquirer of a share in a limited or public limited company can only exercise shareholder rights when the share acquisition is:
Entered in the shareholder book (LLC)
Registered in the shareholder register (PLC)
Or the acquisition is reported and justified, without being hindered by transfer restrictions
Exceptions for Economic Rights
Exceptions have been made to the main rule for "the right to dividends and other distributions and the right to new shares in case of capital increase". The rationale is that these rights can be significantly separated from the share, allowing the acquirer to exercise them without reporting and justifying the acquisition of the share itself.
Rights in Transition Period
An important issue is who can exercise shareholder rights during a period when the acquirer cannot immediately gain full shareholder rights:
In LLCs: The transferor can exercise the rights associated with the share that have not passed to the acquirer. Therefore, no "interim period" can arise where neither the transferor nor the acquirer can exercise the shareholder rights.
In PLCs: The previous owner's rights may cease to exist even if the acquirer has not yet been able to exercise their shareholder rights. During an interim period, there is therefore no one who can exercise the shareholder rights – they lie "dormant". This principle, established in Supreme Court ruling Rt 1966 p. 1120 (Polaris), still applies to PLCs.
To avoid a situation where no one can exercise shareholder rights during an interim period in PLCs, a provision was adopted in 2006 that specifies that upon ownership change, the acquirer and the transferor may agree, with effect for the company, that the transferor can exercise the rights as a shareholder until they pass to the acquirer.
Conclusion
The company law for limited liability companies contains a complex framework of rules regulating the relationship between the company, its shareholders, and the outside world. Understanding shareholder rights, the function of share capital, and the significance of shares as property rights is essential for everyone involved in companies, whether as owners, board members, or advisors. Particularly important are the rules on share transfer and the exercise of shareholder rights, which ensure predictability and clarity in the company's operations and the relationship between shareholders, emphasizing the nuances of Norwegian law being introduced in this blog post.
