In a Norwegian limited liability company (AS), the Board of Directors is responsible for everything from strategic decision-making to financial control – essentially all aspects that ensure that the company is properly managed. This article provides an overview of the board’s role and responsibility and highlights key areas to be aware of to avoid personal liability.
A closer look at what proper management entails
As the governing body of a limited liability company, the board has a duty under the Companies Act to ensure sound and responsible management.
This responsibility means that the board must:
- Ensure proper organization of the business
- Draw up plans and budgets
- Stay informed about the company’s financial position
- Ensure that activities, accounts and capital management are properly controlled
The board must also carry out any investigations it considers necessary to fulfil its responsibilities, such as monitoring the company’s equity and liquidity. Failure to do so may lead to personal liability for board members.
The Board and the General Meeting
It is up to the General Meeting (the company’s shareholders) to elect the members of the board. The General Meeting is the company’s supreme authority, and certain decisions must be made at this level. This ensures that shareholders actively participate in decisions that are particularly important at the ownership level or that involve significant changes to the company, such as:
- Mergers and demergers
- Amendments of the articles of association
- Issuing if shares
- Approval of annual accounts
- Distribution of dividends
For these matters, the board’s role is primarily preparatory. The board submits proposals to the General Meeting, which in turn makes the final decision. The board must therefore respect the authority of the General Meeting and ensure that its management remains within the limits set by the Companies Act.
Key areas for the Board—strategic management and growth
From an overall perspective, an important task for the board is to work strategically to safeguard the company’s value and the interests of its shareholders. The General Meeting will normally elect a board well suited for this purpose.
Accordingly, key areas of the board’s work are to:
- Identify opportunities for growth
- Analyze market trends
- Monitor risks that may affect value creation
Simultaneously, the board must ensure that new opportunities are balanced against risk, thereby protecting employees, suppliers, and creditors. Achieving this requires close cooperation with the general manager (CEO), who is responsible for implementing the board’s strategic decisions in day-to-day operations.
The Board’s duty to supervise the day-to-day management
An important responsibility for the board is to supervise the day-to-day management in the company. Normally, it is the board that appoints a general manager, although the articles of association may stipulate that this task falls under the authority of the General Meeting.
The general manager is responsible for overseeing the daily operations of the company in accordance with the strategy and guidelines set by the board.
This includes, among other things:
- Managing employees
- Ensuring that proper accounts are kept
- Providing the board with regular reports on the company’s development
The board is responsible for supervising this work. If the company does not have a general manager – which is not required under the Companies Act – the board collectively assumes responsibility for these tasks.
Adequate equity and liquidity
The board is responsible for ensuring that the company at all times maintains equity and liquidity appropriate to the risks and scope of its business. A company operating in an industry with significant market fluctuations will normally need more equity than a business with lower risk.
When assessing whether the company has adequate equity, it is the actual values that matter – in other words, assets deducted liabilities. For instance, a property company may have low book values yet still have adequate equity once appreciation in property values is taken into account.
Adequate liquidity means that the company must have sufficient funds to cover ongoing obligations as they fall due. This requirement also applies after any dividends have been distributed, meaning that the assessment must take into account a forward-looking perspective, normally at least twelve months ahead.
If the board finds that the company’s equity and liquidity are not adequate, it must take action within reasonable time or convene a General Meeting and purpose measures to improve the situation. Such measures could include:
- Sales of assets
- Refinancing of the business
- Raising new capital
This duty of action must be seen in conjunction with the general manager’s duty to keep the board informed about the company’s developments and underlines the importance of close cooperation between the board and the general manager.
Duty of disclosure in corporate groups
In a corporate group, it is essential that certain information is shared across the companies. The board therefore has a statutory duty of disclosure, which varies depending on whether the companies are foreign or Norwegian.
The board of a Norwegian subsidiary is obliged to provide the parent company’s board with information necessary to assess the group’s position and results. This duty applies regardless of whether the parent company is Norwegian or foreign.
Conversely, the parent company has a duty to inform the subsidiary’s board about matters that may affect the group, or decisions that may be of significance for the subsidiary. However, this duty only applies to Norwegian parent companies in relation to Norwegian subsidiaries.
Decision making and quorum
The board has a quorum when more than half of its members participate in the proceedings. Both board members – and any observers – must have been duly notified of the meeting in advance.
There are no statutory deadlines for giving notice, but members should be given reasonable time to review the matters to be discussed. It is common practice to send the notice one week in advance, although urgent matters may require the meeting to be held at shorter notice.
Nor is there any statutory minimum number of board meetings per year. However, the board must meet as often as necessary to fulfil its duties. In practice, it is recommended that the board meet at least once per quarter to follow up on the company’s strategy and financial position.
The board must also ensure that minutes are kept of its meetings. This is important for record purposes, as it demonstrates that the board had a quorum and may also serve as evidence in matters concerning board liability.
Loyalty and conflict of interest
When carrying out their duties, board members must act loyally and with due care towards the company and its interests. The Companies Act therefore imposes rules on disqualification to ensure that personal interests do not influence the company’s decision-making.
A board member is disqualified if a matter is of such particular importance to them or any related party that they must be considered to have a significant personal or financial interest in it. Examples include situations where a board member:
- Is a contracting party
- Will receive loan from the company
- Intends to sell own shares in the company
A disqualified board member may not participate in the decision.
The risk of personal liability for board members
Serving as a board member of a limited liability company is not without risk – particularly if the board fails to comply with its responsibilities. Board members may be held liable to the company, the shareholders, or third parties who suffer loss as a result of inadequate board conduct. Typical examples include:
- Failing to maintain control of the company’s finances
- Breach of the requirement for adequate equity and liquidity
- Decisions that undermine the company’s ability to meet its obligations
Whether liability arises often depends on whether the board members have complied with applicable law and the company’s article of association, and whether they acted in a manner that could reasonably be expected under the circumstances.
Liability can potentially be substantial and may jeopardize a board member's personal finances. In serious cases, criminal charges may also be relevant.
Board responsibility in Norway summarized
Being a board member of a Norwegian limited liability company comes with wide-ranging responsibilities. Above all, the board must ensure that the company is properly managed and that its interests are safeguarded. Failure to comply with the responsibilities can have severe consequences – not only for the company but also for individual board members.
Keeping track of Norwegian rules and obligations can be demanding. At Magnus Legal, we help both Norwegian and international companies navigate the requirements, prepare the necessary documentation, and review contracts to identify risks. Many of our clients prefer to use us as a trusted ongoing advisor. This allows us to gain a thorough understanding of the business and to identify solutions smoothly when questions arise. If you would like to learn more about how we can support your business in Norway, please do not hesitate to get in touch for an informal conversation.
