Shareholders' agreements in Norway: Important elements and legal considerations

In the article "Setting Up a Limited Company in Norway? Key Considerations for Your Articles of Association" we argued that the articles of association in limited liability companies should be more tailored to the function the company is to fulfil. Following this, the shareholders should consider entering into a shareholder agreement that further safeguards the company's commercial needs.

There are several advantages to using a shareholder agreement. Regulation in the shareholder agreement allows for individually tailored solutions beyond what can be included in the articles of association. The agreement can be made confidential, as opposed to the articles of association, which will be publicly available in the Norwegian Register of Business Enterprises. A shareholder agreement can also be changed relatively easily, whereas the articles of association must be amended in accordance with the statutory procedure.

What should a shareholder agreement contain?
A shareholder agreement will usually express the overarching objectives or business plan for the company. In addition, the shareholder agreement will contain provisions that support the achievement of these objectives, such as:

• Obligation to capitalize the company (equity/debt);
• Provisions on the exercise of voting rights (concentration agreements or dispersion agreements), including provisions on elections to and decisions in governing bodies;
• Dividend policy;
• The right to transfer and pledge shares, including rules on pre-emptive rights and consent requirements;
• Non-competition clauses and possibly an obligation to purchase goods and services from each other (which must be assessed against the constraints of competition law); and
• Tag-along and drag-along rights.

The shareholder agreement and its relationship to the Norwegian Companies Act and the Articles of Association
The relationship between the shareholder agreement and the Norwegian Companies Act and the articles of association is often examined. We believe some simple guidelines can be helpful:

1. The shareholder agreement binds only the parties. The law and the articles of association, on the other hand, are binding for everyone. Should, for example, the shares come into the hands of someone who is not bound by the shareholder agreement, provisions in the shareholder agreement cannot, as a starting point, be enforced against this person. If, on the other hand, the provision follows from the articles of association, a new acquirer must usually adhere to the articles of association.
2. The shareholder agreement must stay within the framework of mandatory provisions in the Norwegian Companies Act and other business legislation. For example, the shareholders cannot agree to vote for dividends or financial assistance to the owners to a greater extent than the law allows.
3. A shareholder agreement must usually yield to provisions in the articles of association. If a shareholder agreement is in conflict with the articles of association, it may be set aside as invalid. However, a shareholder agreement can be interpreted such that the parties to the agreement have waived their right to assert rights set forth in the articles of association or that they have committed to vote for changing the articles of association.

Should the company be a party to the shareholder agreement?
We usually do not recommend that the company or the company's board members are parties to a shareholder agreement. The reason is that the company and its board are subject to both legal and statutory provisions that may conflict with provisions in a shareholder agreement. Additionally, the board must make decisions in the best interests of the company, while the shareholder agreement may suggest a different solution. If the shareholders wish to bind the board, this should rather happen through an amendment to the articles of association or through instructions from the general meeting.

Breach of shareholder agreement
In the event of a breach of a shareholder agreement, the usual contractual remedies will, in principle, apply. First and foremost, a party who breaches the shareholder agreement may be liable for damages to the other parties. Since the calculation of damages can be difficult, liquidated damages are sometimes agreed upon as a sanction in the shareholder agreement. However, even if a shareholder and party to the shareholder agreement votes contrary to its provisions, the company's decision does not, as a starting point, become invalid for that reason.