How to start a private limited liability company in 2022

Person i startblokka, illustrasjon til artikkel om det grunnleggende om aksjeselskap. (private limited liability company)

Learn how to start up a personal private limited liability company and what you need to consider before starting in 2022.

Almost half of the people who start a company in Norway choose a private limited liability company (LLC). LLC is also the form of company that is increasing the most. In Norwegian LLC is called AS (aksjeselskap).

Between 20 000 and 25 000 new LLCs are established every year in Norway.

By the beginning of 2019, there were, according to Statistics Norway (SSB), 234 524 active limited companies in Norway. So many as three out of four (77,5%) had up to four employees.

NB! As many as 113 595 limited companies had zero employees. That makes up almost half of all Norwegian limited companies (48%).

It is common for limited companies to have only a few employees, even though the big companies are the ones we hear about in the media.

The last known statistics from SSB also show that about half of the newly established limited companies are gone five years after the establishment.

Meets challenges

This shows that many people meet “rocks in the sea” on the way. That could be for example that the private limited liability company

  • has finance that is too weak,
  • doesn’t have products (goods and/or services) that customers wish to buy,
  • is not good enough at thinking sales (it’s not enough if the product is the best in the world,)
  • underestimates the work required to get established in a market,
  • spends too much time on administrative work and too little time on sales and product development.

As you can see below, the challenge is not the formal part of starting a limited company. The challenge is to run it well, correctly and purposefully.

Sole proprietorship or private limited liability company?

This is the question many people ask themselves before starting their own business.

To make a long story short: It’s become much easier to start and run a one-man-LLC today than just 8-10 years ago.

The key initially lies in the law of shares, which has been considerably simplified since 2012. There have been several rounds of changes and simplifications.

An example: You can now be both manager and board leader in your own LLC (without having to have at least one vara member, as you did before).

You can read about the latest changes here.

There have been few changes for sole proprietorships. This is, among other things, because this form of organisation doesn’t have its own law.

One of the most critical changes for SPs is that the rights to sick pay have become better in the last 2-3 years.

The myth that an LLC requires a high turnover

The notion that you need a high turnover for it to be profitable to choose an LLC over an SP is one of the most resilient myths I know in this area.

I make an overview of taxes and fees for sole proprietorships and limited companies every year, where I compare in the best way possible. For 2022, one of the calculations shows that you have more left after taxes in an LLC than in an SP, if both of the alternatives have 450 000 NOK in profits after fees.

This, combined with the fact that it is considerably much easier to run an LLC now than only a couple of decades ago, means that more people should choose this form of organisation.

In addition to this, the corona pandemic brought another difference to light: As an employee in your own LLC, you have the opportunity to lay yourself off. You do not have this opportunity in an SP.

Easier to start an LLC – and to run your own limited company

Several changes to the rules have made it easier to start a private limited liability company. Simplifications have also made it easier to run a limited company. For example, the share capital requirement has been reduced to 30 000 NOK, which has helped the number of LLCs increase.

That’s one of the reasons there is a continuously larger part of new-establishers who choose to start an LLC.

As late as summer 2017, the law of shares was simplified in several points. For example, it became easier to run a limited company solely digitally without documents on paper.

NB! In December 2017, the Parliament also made changes to the law of accounting, for example that small limited companies (meaning most of the limited companies in Norway), don’t have to compile and deliver an annual report when it comes to the annual settlement.

Changes to the rules and the conditions for the companies happen irregularly.

In 2019 it also became easier to bring an LLC to an end, and easier to settle profit. A lot is happening to make choosing a limited company instead of a sole proprietorship more and more attractive. I think it’s interesting to follow.

Help to start a private limited liability company

Before we proceed, I would like to make an approach to those of you who haven’t started a business yet but are dreaming of it or have plans to.

Almost ten out of ten new businesses in Norway are SPs or LLCs. Because of this, we’ve made two guides to starting up, which show you how to start up, step by step. We have consciously chosen to focus on these two forms of organisation because almost everyone chooses one of them.

Guide to starting an LLC

Here is our guide to starting and registering a limited company – step by step. This one is available to everyone.

Guide to starting an SP

If you wish to go for a sole proprietorship, you’ll find a step by step guide to starting up an SP here. This guide is also open and available to everyone.

My wish is for your business to survive the first five years, and to become solid and viable. That’s why I would rather you spend your time on how to run the business. That’s what’s difficult.

Limited companies more adapted for individuals

Back to LLCs: You can now, even more than before, run your company by yourself. Examples:

  • You can be both the manager and the only trustee.
  • You can choose to be a trustee (leader) and not have a manager.

There are still more strict, formal requirements to an LLC than to an SP (sole proprietorship). The reason for this is that there is a whole law attached to LLCs (the law of shares).

At the same time, there have been several simplifications that make it easier to run an LLC, for example when it comes to completing the obligated reports and meeting activity.

For example, you no longer need to keep management protocols and protocols from annual general meetings on paper. It’s enough to keep it digitally.

The basics of limited companies

It’s become easier to start an LLC, and it isn’t necessary to spend thousands of NOK to have other people do this job.

Here is what you must do:

  1. Form the company. You can now do this entirely digitally.
  2. Register in the Register of Business Enterprises before you start running the company.

Above is the super simple overview, and I remind you of Miniforetak’s thorough step by step guide to how you can complete the registration of the limited company.

Check if the name is available

A small tip before you start: Check if the name of your private limited liability company is available.

You can do this on the official website Navnesøk (which isn’t easy to find).

Enter the name you are considering for your limited company, and you’ll get to see if

  • it is available,
  • the URL is available (no-domener) and
  • if anyone has registered a trademark on the name.

NB! If another limited company has caught the name, you’re in trouble. If a sole proprietorship has secured the name, it’s usually not a problem. The SP has to include the surname of the proprietor in the business name. This way, the names won’t be identical.

A limited company is a juridical unit

Unlike sole proprietorships, limited companies are a juridical unit which entails, among other things, that you are initially only responsible for the capital you invest in the company.

For example, if you invest the minimum amount of 30 000 NOK, this is the amount you are initially responsible for.

That is the main rule. In practice, you also often have to certify possible loans that the company takes up personally.

Pay attention to possible board responsibility as well. Many owners of small limited companies are both board leader and manager in the company.

Regardless, the law of shares protects both you as a shareholder and the creditors (those the limited company owes money to).

Because of this, the law of shares has clear demands to both capital and liquidity in the company. Liquidity can be explained as your ability to at any time pay the bills your company gets.

The board, whether it’s only yourself or with others, is obligated to step in if it turns out the liquidity and capital are no longer at an appropriate level.

Be also aware that you are obligated to hand in the limited company’s annual accounts to Brønnøysundregistrene.

You can change an SP to a limited company tax-free

An SP can be made into an LLC tax-free. There are some requirements for you to do that. We have more content on this for PLUSS-members.

Another option could be to keep the SP as is and start an LLC as well. Perhaps close down the SP and form an LLC.

This is especially relevant if you have few/small properties/values in your sole proprietorship.

Generally, I absolutely recommend starting a limited company if your ambitions are to run the company full-time.

It has become a myth that you need to have a high turnover before it pays off. There are many reasons for this, not least simplifications of rules and law of shares.

Even though changing from SP to LLC in many cases can be done tax-free, per today it entails a cost, to the auditor for instance. The auditor has to verify that the values you are transferring are real.

NB! It is uncertain if the demand to auditor verification will disappear, but per today this is how it is.

A bit about the history of private limited liability companies

Everything comes and goes in waves. Before the industrial revolution in the 1800s, most people had their workplace attached to their own home: shoemakers, blacksmiths, coopers (barrel-makers) and so on.

With the industrial revolution came the factories, and automatization of the work took off. We got mills, ready-to-wear-clothing factories and so on. Simultaneously the maritime navigation was already a large enterprise.

Larger capital amounts were put at risk, and there was a need to reduce the risk.

According to Store Norske Leksikon (SNL), the first actual limited companies were established in the 1600s. The reason was that the trading companies running maritime navigation against the colonies needed big capital.

The struggle for the owners was that they could lose their entire fortune if the ship disappeared. Through a limited company, the ownership could be split between more owners, including owners who went in with smaller parts of the capital.

Store Norske Leksikon also says that the transition to the system of limited companies took off during and after World War One.

Sole proprietorships/self-employment still make up the largest part of businesses in Norway.

Still, in the last few years, we have seen that limited companies make up a consistently larger part of the new companies.

Opprett konto her – og få en kortfattet sammenligning av enkeltpersonforetak og aksjeselskap.

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