Incorporating a Norwegian limited company (aksjeselskap, AS) takes time. Between signing the incorporation documents and completing registration in the Register of Business Enterprises (Foretaksregisteret), days or even weeks may pass. During that period, you may need to lease premises, hire staff or sign supplier contracts – but the company is not yet a fully-fledged legal entity towards the outside world.
The question is therefore not just who signs, but who is actually liable if something goes wrong before registration is completed. The rules follow from Section 2-20 of the Norwegian Companies Act (aksjeloven), and they have direct implications for founders who want to get started quickly.
When Does a Limited Company Become a Legal Entity?
A limited company exists internally between the shareholders from the moment of incorporation. But towards third parties – suppliers, landlords, employees and other outsiders – it is registration in the Register of Business Enterprises that determines whether the company can acquire rights and incur obligations.
Under the first paragraph of Section 2-20, the company as such cannot acquire rights or incur obligations towards third parties before it is registered, except those arising from the incorporation document or from legislation. It is the actual entry in the register that gives legal capacity in private law relationships – not merely that a filing has been submitted.
In practice, this means you cannot treat an unregistered AS as an ordinary contracting party. If you sign a lease in the company's name before registration, it is not the company that is liable – unless the contract falls within the exceptions below.
Which Contracts Can the Company Enter Into Before Registration?
The rule in Section 2-20 is not absolute. There are several situations in which the company may nevertheless be bound before registration.
Contracts arising from the incorporation document
If the incorporation document contains provisions that the company shall acquire specific assets, assume specific obligations or enter into specific agreements, these bind the company regardless of registration. Such rights and obligations are conditional on the company actually being incorporated, but once it is, the company is bound without registration itself being decisive for whether the counterparty can demand performance.
This is why an unregistered company may in certain cases have creditors and even be subject to bankruptcy proceedings on the basis of obligations made incorporation conditions.
Contracts arising from specific legislation
Specific statutory provisions may also allow the company to incur obligations before registration. A typical example is the ability to appoint a CEO and engage an auditor during incorporation. The provisions on compensation claims against board members and the general manager likewise do not require the company to be registered.
The relationship between shareholders
Between the shareholders themselves, the company already exists from incorporation. Shareholders' obligation to pay in share capital follows from the incorporation document and is not covered by the main rule on lack of legal capacity towards third parties. But in relationships outside the incorporation document and subscription basis, a shareholder stands in the same position as an outside third party.
Who Is Personally Liable for Contracts Entered Into on the Company's Behalf?
If someone enters into a contract in the company's name before registration, and the obligation is not already binding on the company under the exceptions above, the second paragraph of Section 2-20 applies: those who incurred the obligation are personally and jointly liable.
This will typically mean board members, or the CEO if one has already been appointed and acted on the company's behalf in accordance with the representation rules in Chapter 6 of the Companies Act.
Who can be jointly liable?
Personal liability is not limited to the person who personally signed the agreement. Others may also be held liable if:
- a board member entered into the contract, and other board members were aware of it or had given authority to the counterparty,
- an employee entered into the contract, and the CEO and/or board members were aware of it or had given authority.
However, the mere fact that someone is employed as CEO does not in itself make the board personally liable for that person's dispositions.
The rule applies not only to pure contractual obligations. For non-contractual obligations, personal liability may rest on the person who initiated the activity on behalf of the unregistered company.
When does personal liability cease?
Personal liability is not unconditional. If the contract was entered into subject to the company's registration, or with an express statement that it is made on behalf of a company under formation, there will normally be no question of personal liability – provided this is clearly stated in the contract.
When the company is registered, it assumes the obligation and personal liability ceases from the same moment. No separate approval from the company is required for the assumption to take effect.
What Happens to Contracts Entered Into Before Incorporation?
Section 2-20 applies only to obligations incurred on behalf of an existing company. If someone enters into a contract on behalf of a future company before incorporation, and without this being made an incorporation condition in the incorporation document, liability is governed by general contract law – not Section 2-20.
Such agreements cannot be enforced against the company, and they do not become binding upon registration unless the company approves them after incorporation. This is an important distinction: a contract you sign "on behalf of an AS to be incorporated next week" does not automatically create company liability once registration is completed.
What Happens When the Company Is Registered?
Once the company is registered in the Register of Business Enterprises, the company automatically assumes the obligations incurred on its behalf prior to registration – provided the obligation falls within what would otherwise bind the company under the representation rules in the Companies Act.
This follows from the second paragraph of Section 2-20. The company becomes liable instead of the person who entered into the contract, and personal liability ceases. It makes no difference whether the counterparty knew or did not know that the company was unregistered.
For mutually binding contracts – where both parties have obligations – registration means the company becomes both entitled and obligated.
When is separate approval required?
Obligations that do not automatically pass to the company upon registration require the company to approve the contract expressly or by implication. This applies particularly to contracts entered into before incorporation without being made incorporation conditions. In such cases, personal liability is also likely to cease if the company approves the contract.
When Can the Counterparty Withdraw from the Contract?
The third paragraph of Section 2-20 gives the counterparty – the party who contracted with the unregistered company – a limited right to withdraw from the agreement. Which right applies depends on whether the counterparty knew the company was not registered.
What if the counterparty did not know the company was unregistered?
If the counterparty did not know the company was unregistered at the time of contracting, they have an unconditional right to withdraw up until the company is registered. This right also applies after the company has actually been registered, if the counterparty did not know of the lack of registration when the contract was entered into.
What if the counterparty knew the company was unregistered?
If the counterparty knew the company was unregistered, they normally cannot withdraw – unless the parties have made an express reservation to that effect. But if the company is not filed for registration within the deadline in Section 2-18, or the filing is rejected before that deadline expires, a counterparty who knew of the lack of registration may also withdraw.
In any event, the right to withdraw lapses once the company is registered and thereby becomes obligated. The counterparty has then achieved the right against the company that the contract was intended to create.
Only actual knowledge that the company was not registered is relevant. It is not sufficient that the counterparty ought to have known.
The parties may depart from the rules in the third paragraph by express agreement.
How Can You Protect Yourself as a Founder in Practice?
Many founders want to hit the ground running and enter into agreements while the company is still being incorporated. In many cases this is entirely legitimate – but it is important to understand that until registration is completed, you may be personally liable for obligations you take on in the company's name.
A shelf company can be an alternative if you need a registered company quickly and want to avoid this risk. Read more about the trade-off in incorporating an AS yourself or buying a shelf company.
To limit your exposure:
- Delay significant contracts until registration is complete, where practically possible.
- State expressly in the contract that you are acting on behalf of a company under formation, and that the obligation is conditional on registration.
- File for registration as quickly as possible after the incorporation documents are signed and the share capital has been paid in.
- Consider whether the contract should be included in the incorporation document if it is so central that the company should be bound regardless of registration.
Related articles
- What is a shelf company, and when is it worth it?
- When can directors and general managers be personally liable in a Norwegian limited liability company?
- What is a shareholders' agreement, and do you need one when starting a Norwegian limited liability company?
At Stift, we handle the entire incorporation process for you – from preparing the incorporation documents to completing registration in the Register of Business Enterprises – so you can minimise personal exposure and start trading with confidence. Get in touch to get started.
