Small business in Norway – sole proprietorship

small business in norway. photo of a man sitting behind a desk.

Starting a small business in Norway: It’s easy to start a sole proprietorship (SP), also in 2022. Simultaneously, the flexibility makes it so you need to be extra aware of the traps.

Around 30 000 new sole proprietorships (SP) have been registered annually the last few years. The numbers show that many of these have a short lifespan, or are lingering in the registers.

Statistics Norway shows that only 17,8% of the sole proprietorships established in 2013 were still active five years later, in 2017.

NB! This still means that about 5347 of the 30 040 new SPs in 2013 were still active after five years.

You can see Statistics Norway’s entire statistics on this here.

The exemption from audit in LLCs didn’t stop the sole proprietorships

The obligation of audit for small LLCs was removed a few years ago, and the requirement for minimum share capital reduced to 30 000 NOK. It was then expected that more people would choose to start a limited company before starting a sole proprietorship.

This is about to happen, even if it took some time. The statistics now show that there are more active limited companies than sole proprietorships in Norway.

If you are a PLUSS-member here, you can read our comparison of the profitability in an SP and a small LLC with the owner as the only employee (in Norwegian). The numbers might surprise you, but I’ll reveal the main message: Tax-wise, running an LLC is favorable even if the profit is relatively small.

119 000 people have their primary income from SP

According to Statistics Norway (SSB), self-employed people had on average an income of 269 000 NOK in 2018 (257 000 NOK in 2017). This is a 4,7% increase. The increase was only at 2% the previous year.

At the same time, SSB informs that 119 000 people had their main income from businesses in 2018. This is a great reduction from the previous year, when the same number was at 129 000 people.

For this group, the average business income (or surplus from the business if you will) was 623 900 NOK in 2018.

You can take a closer look at this along with a different statistic at Statistics Norway. (Opens a new tab.)

Registered or not registered

Anyone running an SP is, per definition, self-employed. But the person behind has also registered in “Enhetsregisteret”. Therefore, he/she is formally a proprietor of a sole proprietorship.

There is no law of SPs like there is for private limited liability companies. Registering in “Enhetsregisteret” also doesn’t give the same protection for the business name as registering in the Register of Business Enterprises (Foretaksregisteret).

Still, for most sole proprietorships, registering in “Enhetsregisteret” is adequate.

Starting a small business in Norway: Easy to start a sole proprietorship

Registering an SP in Brønnøysundregistrene can be done quickly.

After reading this article, I recommend reading our step-by-step guide on how to start a sole proprietorship.

You should shy away from sole proprietorship if you are going to run with high risk (many employees and/or large financial commitments). In this case, there are better forms of business.

Limited liability company is the most used form of business where you don’t have the total financial responsibility. You are then, initially, only responsible for the capital you put into the company.

You can read more about limited liability companies here.

An SP gives great flexibility

Since an SP is attached to you as a person, it provides great flexibility. You can, for example, transfer money in and out of the company without anyone else interfering.

One of the disadvantages with an SP is that it could be too easy to spend money that you should have put off for taxes.

You are the one responsible for paying the taxes. It is wise to put off money for taxes (and perhaps vacation) already in the beginning because it gives you financial buffer.

One of the benefits in an SP is that most people don’t need to hand in the annual accounts to Brønnøysundregistrene, which isn’t relevant until you have a very high turnover. What this means is that your accounting numbers won’t be visible to the public like they are for limited companies.

Many people choose sole proprietorship if they are going to run a small business, without ambitions for growth. The goal is to create a livelihood for oneself. This is the reason why many people choose this form of organisation in addition to an ordinary job.

Personally responsible in the SP

Why is the risk higher if you’re running an SP than if you are running an LLC? It’s because you, as a proprietor, are personally responsible for all the obligations you assume via the business.

This means that the creditors (the ones you owe money to) can demand that you sell your house and/or other personal property to cover the debt.

This could become a heavy burden if you were to fall off the wagon.

It also entails a risk to go bankrupt personally.

This is why you need to consider which risks you assume in your company carefully. Many people have miscalculated how much it costs to get started. Avoid getting in trouble, and that your creditors take your personal property (home, car and so on) to cover what you owe.

Tax from the whole surplus from a sole proprietorship

In a sole proprietorship, you pay a full tax of the entire surplus the same year as the income occurs (or partly as remaining unpaid taxes the year after). You can put off money, but you have to tax fully and entirely from the surplus. You can’t put off money, pay taxes partly, and then pay the rest of the taxes when you take out the money for private use like you can in a limited company.

Still, many people choose to start a sole proprietorship, because it’s simple and unbureaucratic. It can, for example, be a good fit for you if you want individual freedom and practice your profession self-employed instead of employed by someone else.

The form of business is also a perfect fit for you if you wish to do it in addition to another job. If you later go all in and want to be only self-employed, it’s possible to change the SP into a limited company tax-free.

This is, for now, an extensive process, so many people choose to start a limited company from scratch, without changing tax-free. This is especially relevant if the company has few properties/values.

NB! If you have ambitions about living only by your company from the beginning, it could be a good idea to start a private limited liability company, especially if you are going to get yourself considerable fixed assets (equipments, machines and so on).

Questions and answers about SP

Is capital required in a sole proprietorship?
No, there is no requirement for a capital, nor liquidity (money you have available). The reason is that you are personally responsible for the sole proprietorship’s economy, regardless.

Is it possible to have employees in an SP?
Yes, there is nothing that stops you from hiring others. Just remember that you have the personal responsibility, and employing someone increases this responsibility notably.

Which rules apply when family members work for me in the sole proprietorship?
If your spouse works for you, you can divide the income based on work effort. It has to be realistic, and you must be able to substantiate it, but your spouse is never employed in your SP. If you have children who work for the company, they are considered salaried employees (including everything it entails of sending in the a-melding and so on).

Do I earn a pension from the surplus in the sole proprietorship?
Yes, you do. You will get the exact same proportion of the calculated person income in your pension as other salaried employees get.

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