Important changes for Norwegian limited liability companies of limited size – audit- and share capital requirements
Changes to the regulations regarding audit liability for smaller companies have been proposed. The changes will probably be resolved during the spring session 2011 and will imply significant changes for limited liability companies (AS) with limited revenue. Minimum share capital requirement will also be reduced significantly.
1 Introduction
All companies obliged to submit annual accounts and with an annual revenue of NOK 5 million or more are today required to
audit their accounts. Some companies, including all limited liability companies, are also liable for audit notwithstanding
the size of the operating income.
This implies that joint-stock companies with limited sale in particular are forced on fees for audit services that often may onerous on the company. The consequence is that this organizational structure is impractical and is thus overthrown to the benefit of other structures as sole proprietorships or foreign “shelf companies” (NUF).
The Ministry of Finance has among other things proposed that a more closely defined category of limited liability companies shall be exempted from compulsory audit. With respect to other Norwegian company structures, the Ministry of Finance has proposed to continue the present provisions by adding some adjustments to the proposed new rules for certain limited liability companies.
2 Companies comprised by the proposal
The proposal implies that limited liability companies (AS) fulfilling the following three requirements will be exempt from the audit liability:
- Firstly, the company must have annual revenue of less than MNOK 5.
- Next, the company’s balance must be less than MNOK 20.
- Nor must the company have a number of employees that exceeds ten man-labour years, based on an average.
3 The company’s general meeting must resolve that the company shall employ the exemption
The Ministry’s proposal implies that a company that does fulfill the requirements, and wants to be exempt from audit, must resolve to this in the general meeting. The resolution must have the same number of votes as for amendment of the company’s articles of association – at least two thirds of the votes and two thirds of the share capital present in the general meeting.
If there is no such resolution the company will be liable for audit even if the three requirements listed above have been fulfilled.
For companies established before the enforcement of the new rules, the general meeting may resolve to employ the exemption also for the present accounting year. They might thus resolve early in 2011 that the accounts for 2011 shall not be subject to audit.
The proposal also implies that Norwegian branches of foreign companies (NUF) with limited liability shall be equivalent with Norwegian limited liability companies with respect to audit.
Holding companies are not included in the proposal. This means that several Norwegian limited liability companies, approximately 16,000, cannot benefit from the new rules. In these cases it might be possible to carry out a merger between the parent company and the subsidiary, if the existence of the holding company is not strictly required.
4 Disclosure requirements
The limited liability companies voting out audit will be required to report that the audit liability has been voted out. The disclosure requirements imply that:
- The company with respect to the financial statement each year shall report that the audit liability has been voted out.
- The company shall inform if they use an authorized accountant or whether they keep the accounts themselves.
Such information shall also appear in the company’s tax statement.
5 Changes in the attestation regulations
Furthermore the proposal suggests establishing limited liability companies with a share capital of NOK 30,000. It is also implied that the company’s bank shall be able to confirm cash deposit of the share capital. If the deposit is made by way of contribution in kind, this must be confirmed by the auditor.
The requirement for auditor’s attestation of tax statements and control statements of registered and reported amounts will lapse if the company resolves to employ the audit exemption.
However, one must expect that the tax offices will carry out more inspections.
6 Continued accounting liability – access to imposing audit liability
A possible limitation of the audit liability in accordance with the proposal will not imply that the company’s accounting liability will be limited. The company’s accounting liability will be the same.
The Ministry thus also proposes that the tax authorities shall have access to imposing audit liability for up to three years on companies and NUFs that are covered by the exemption. The access to making such impositions will be given when it has been established that the company violates the Tax Assessment Act, the VAT Act, the Tax Payment Act or the Accounting Act. The essential term is whether the accounting liability has been complied with in accordance with the accounting legislation.
7 The Ministry’s basis for the proposal
The basis for the proposal is a balancing of the considerations of the audit liability and the consideration of simplification for the smaller companies. The Ministry finds that for the companies meeting the above requirements the simplification consideration weighs the most.
One factor that seems to have been important in this assessment is the international development. Most EU countries, including Denmark and Sweden, have introduced exemptions from the audit liability for the smallest stock companies. Harmonization and competition considerations thus suggest a limitation of the audit liability in Norway.
The proposal especially focuses on tax control considerations and prevention and fight against financial crimes, but the Ministry has nevertheless found simplification considerations to be decisive.
8 Amendments of the Companies Act
Two additional important changes for smaller limited liability companies have also been proposed. The minimum share capital requirement shall be reduce to NOK 30,000. The company may further cover the incorporation costs. The company’s bank may also confirm the depositing of the share capital.
With respect to dividends the proposal suggests that dividends can be distributed on basis of an inter-account balance. This means that a profit can be distributed at an earlier stage, it will no longer be necessary to wait until year’s end and for the ordinary general meeting to make the resolution to grant dividend.