Starting a business in Norway – board member duties
In this guide, you will learn about the legal duties and responsibilities of board members in Norwegian private limited companies, including governance obligations, financial oversight, shareholder considerations, and the board’s duties during financial distress and insolvency.
Introduction
When a private limited liability company (Nw. “aksjeselskap”, “AS”) is established, the board of directors (“Board”) assumes a broad and dynamic responsibility that endures throughout the entire life of the company from incorporation through to any critical phases that may arise.
The Board’s duties extend beyond mere compliance with legislation and regulations; they encompass active management, ensuring sound operations, and taking the necessary steps when challenges emerge. A well-functioning board is critical to the company’s success.
This article examines what the Board actually does in practice and their duties pursuant to Norwegian law.
The Board’s duties
The board’s duties in an AS are governed principally by the Norwegian Private Limited Liability Companies Act (Nw. “aksjeloven”, “NPLLCA”), the company’s articles of association (Nw. “vedtekter”), and any board instructions issued by the general meeting.
In addition, the Board must at all times promote the interests of the company, this is a concept commonly referred to as the “company interest” (Nw. “selskapsinteressen”) in Norway. This means that the Board must act in the best interests of the company as an independent legal entity, in accordance with law, the articles of association and lawful resolutions passed by the general meeting. The shareholders’ economic interests will ordinarily be an important consideration, but the company interest is not always identical to the shareholders’ interests. In each individual case, the Board must carry out a broad and balanced assessment in which the interests of creditors, employees, key counterparties and others are given appropriate weight.
The tension between company interest and shareholder interest is a classic debate in corporate governance, specifically, how a board should protect the company’s interests where shareholders seek to place their own interests ahead of the company’s (“shareholder activism”).
The board of directors’ role during ordinary operations
In ordinary circumstances, the Board bears overall responsibility for ensuring that the company is managed soundly and in accordance with the law, the articles of association and the resolutions of the general meeting. This includes:
- Planning and strategy: The Board must establish plans and budgets for the business and follow up to ensure they are adhered to.
- Organisation: The Board is responsible for ensuring that the company is soundly organised. This includes ensuring that the day-to-day management and administration have the resources to carry out their tasks and that competent personnel are appointed.
- Financial oversight: The Board must at all times remain informed of the company’s financial position and ensure that equity and liquidity are maintained. This also involves monitoring accounts, internal controls and reporting procedures.
- Supervision: The Board must supervise the day-to-day management and the business generally. This includes intervening where tasks are not carried out soundly and the Board may instruct management, reverse decisions and implement necessary changes.
- Disclosure obligations: The Board must ensure that shareholders and others receive the necessary information about the company.
An appointed CEO (Nw. “daglig leder”) typically plays a central role in day-to-day operations, while the Board functions primarily as a supervisory and strategic body at the overarching level.
Companies without a CEO
Where no CEO has been appointed, the Board assumes responsibility for day-to-day management regardless of its size. Hence, the Board must be particularly attentive and proactive, even in ordinary operating conditions. It is not sufficient to maintain only an overarching overview, the Board must ensure that all day-to-day tasks, obligations and duties are followed, including ongoing financial monitoring, payment of taxes and levies, and contract management. This heightens the supervisory responsibility and requires the Board to be more proactive than in companies that have a CEO.
When problems arise – heightened duties
Where the company encounters financial difficulties, the Board’s duties are intensified and the Board must move to become an active manager, ensuring:
- Ongoing assessment of the financial position: The Board must continuously assess whether the company’s equity and liquidity remain adequate. Where doubt arises, the board must consider remedial measures.
- Measures to rectify the situation: The Board must implement measures to improve the financial position, for example by raising new capital, renegotiating loans or reducing costs.
- Notification and disclosure: The Board must ensure that shareholders and, where relevant, creditors receive the necessary information about the situation.
The weaker the financial position becomes, the more actively the Board must respond and monitoring alone is no longer sufficient.
The Board’s duty to act and duty to file for bankruptcy
Where it is no longer possible to restore the company’s financial position, the Board has a duty to propose dissolution of the company. Where the company is insolvent, that is, where it is unable to meet its payment obligations as they fall due and its liabilities exceed the value of its assets, the Board must file for bankruptcy on behalf of the company. This must be done by the Board as a whole, by way of a valid board resolution, and does not require the approval of the general meeting.
What happens if the Board fails to do its job?
Board members may be held personally liable if they fail to fulfil their duties, particularly in situations where the company is performing poorly and the Board fails to act promptly enough. It is therefore essential that the board has sound reporting procedures in place, meets regularly, and documents its assessments and decisions.
Next steps
Getting Board governance right requires more than good intentions; it requires a clear understanding of the legal framework, sound internal procedures and timely professional advice.
We regularly assist boards of directors, shareholders and management teams with corporate governance, financial distress, personal liability risk and general corporate housekeeping. Whether you are a newly appointed board member seeking to understand your obligations, an existing board navigating a period of financial difficulty, or a shareholder concerned about how your company is being managed, we are here to help.
Contact us today for an informal chat on how we can assist you.
