Structure and process, legal regulation and consentsStructure
How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?
Acquisitions and disposals of privately owned target companies, businesses or assets in Norway are normally agreed by negotiating a sale and purchase agreement (SPA) between the relevant parties. If a non-listed target company is controlled by multiple owners each holding small ownership stakes in such target, the acquisition could also be carried out by a contractual offer to the owners followed by a minority squeeze-out, or through a statutory merger.
Small to medium-sized deals where the contact is initiated by a potential buyer will often follow a traditional pattern in which the buyer, after initial discussions to establish the owner’s interest, starts by proposing a term sheet or letter of intent. Such documents are aimed at creating a consensus on the main terms of the deal and to grant the potential buyer due diligence access to the target’s books and records, and to potentially grant the buyer exclusivity for a limited time period to negotiate a final SPA. During the due diligence, the buyer will normally want to take control of the drafting process and will produce a draft SPA for the seller to review. After due diligence, the parties will seek to finally negotiate the SPA, and if the parties reach an agreement the SPA will be signed. After this the parties will, depending on the deal size, have to notify the relevant competition authorities and ensure that any other agreed conditions to closing are fulfilled prior to completion. Sometimes the parties may want to negotiate slight variations and introduce various other heads of terms, process agreements and such like, before reaching a final agreement. Typically, the seller may also insist on taking control of the drafting, even if this has been considered less common for deals negotiated on a bilateral basis.
Medium-sized to large transactions involving non-listed companies are often conducted through an auction (structured sales) process in which interest from several potential buyers is solicited. Such a process will typically involve:
- drafting an information memorandum as the basis of marketing the company, business or assets, completion of vendor due diligence and drafting of a SPA and other sale documents (approximately six to eight weeks);
- ‘round one’ expressions of interest from potential buyers who will then be permitted to undertake due diligence (approximately four to eight weeks);
- ‘round two’ offers by potential buyers with mark-ups of the transaction documentation (approximately four to six weeks); and
- negotiation of transaction documentation with one or more buyers until definitive terms are agreed with one party (up to two weeks).
Owners wanting to exit their investment in a non-listed company, business or assets through a structured sales process arranged by an investment banking firm should expect such process to take from four to six months, or even longer. A bilateral transaction may even take longer to complete due to the lack of competitive tension in the process.Legal regulation
Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?
The key corporate specific legislation governing M&A in the Norwegian market is primarily the Private Limited Liability Companies Act (1997) (LLCA), the Public Limited Liability Companies Act (1997) (PLLCA) and the Partnership Act (1985). Private acquisitions and disposals in Norway will, on a case-by-case basis, also be regulated by various other provisions found in, inter alia, the Contract Act (1918) (pertaining to almost any contract); the Sales of Goods Act (1988); the Income Tax Act (1999) and the Accounting Act (1998) (both pertaining to transactional tax considerations); and the Working Environment Act (2005). The Norwegian Competition Act (2004) provides regulations on, and the procedure to intervene against, anticompetitive concentrations. Companies that are active in the Norwegian market (generally in larger transactions) must also consider and abide by the merger control provisions set out in the EEA Agreement.
Most sales of Norwegian companies will be governed by Norwegian law. However, it is possible to agree that an SPA should be governed by the law of an overseas jurisdiction. Nevertheless, legal formalities applicable to transfers of shares, assets and liabilities that are subject to local law will always have to be complied with.Legal title
What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?
There is no statute that explicitly distinguishes between ‘full title guarantee’ or ‘limited title guarantee’ as under English law. A sale of title to shares or assets will, unless otherwise agreed between the parties, be regulated by the Norwegian Sales of Goods Act. Transfer of ownership means that the buyer, from time of completion, has the right to sell such property, and that the seller at its own cost should make reasonable efforts to give the buyer the property that is sold free of charges and other encumbrances.
A buyer of shares in a private company can exercise shareholder rights only when the transfer has been entered in the register of shareholders, or when the transfer has been reported and proved as not prevented by restrictions on trade under the articles of association (articles) or statute.
In connection with a change of ownership to the shares in a private company, shareholder rights can be exercised by the seller, unless the rights have been transferred to the buyer (under the LLCA). For both non-listed and listed public companies, the PLLCA contains more or less the same rule, except that for public companies, the register of shareholders is created in a security registry. In addition, the articles of public companies may provide that the right to attend and vote at the shareholders’ meeting can be exercised only if the transfer has been entered in the register of shareholders five working days before the meeting.
A seller and a buyer may agree that title to the shares or assets sold should remain with the seller, and that the buyer itself only holds a beneficial interest in such shares or assets. Consequently, the seller holds the legal title to the shares or assets in question on behalf of the buyer, while the right to receive the economic benefits of the shares or assets is held by the buyer. Accordingly, the beneficial interest in such shares and assets may be transferred without having to update the shareholders’ register or, if the transferred asset is real estate, without updating the land registry (if relevant) for the target company in question. A transfer solely of the beneficial interest to such assets may, however, expose the beneficial owner to a loss if he or she at a later stage wants to obtain full legal title to the assets in question, and it then turns out that the holder of title is insolvent or has had to file for court composition proceedings, etc.Multiple sellers
Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?
In general, a buyer will prefer all sellers to sign the same SPA, or to agree to be bound by the same terms and conditions through executing some sort of adherence agreement to the SPA. A buyer wanting to acquire all shares in a Norwegian company will, as a principle, have to persuade all shareholders to sell. Minority shareholders refusing to sell may, however, be forced to sell pursuant to drag-along provisions contained in a shareholders’ agreement requiring the transfer of title to shares if specific conditions are satisfied. Drag-along provisions in a company’s articles are not very common in Norway, but such provisions can occasionally be seen.
Minority shareholders may, under Norwegian law, be subject to a squeeze-out following an acquisition of shares by an existing or new shareholder. The LLCA and PLLCA provide that, if a parent company, either solely or jointly with a subsidiary, owns or controls more than 90 per cent of another company’s shares and voting rights, the board of directors of the parent company may by resolution decide to squeeze out the remaining minority shareholders through a forced purchase at a redemption price. Minority shareholders have a corresponding right to demand the acquisition of their shares by a shareholder with a stake of more than 90 per cent of the company’s shares. A resolution to carry out a legal merger will also bind all minority shareholders, provided a majority of two-thirds (both in votes and in capital) of those shareholders attending the companies’ shareholders’ meetings approves the merger.Exclusion of assets or liabilities
Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?
If the transaction is structured as an acquisition or disposal of a business (contrary to a share sale and purchase), the parties can in general choose which assets or liabilities they wish the transaction to comprise. In such transactions, there is generally no automatic transfer of assets and liabilities. However, a buyer cannot structure a transaction as a sale or business and thereby avoid responsibility with regard to employees engaged by the target business. In business transfers, the employees, their employment contracts and all related benefits and obligations are, in general, automatically transferred to the buyer as of the date of the transfer (see question 34).
Further, in a business sale (asset transfer), the buyer may also be at risk of inheriting the seller’s liability for contaminated land even if the parties have agreed otherwise among themselves. The Norwegian courts could also hold the seller liable even after the contaminated properties are sold. In some cases, even the seller’s shareholders may be liable for investigation and clean-up costs if a subsidiary formerly owning the properties is liquidated, even if the property was polluted before the shareholders acquired their shares in the company that later took over the contaminated properties.
In a business transfer (asset purchase), third-party consents and approvals are usually required, while in a share purchase, third-party consents are generally not required (subject to consents from public authorities and change of control provisions).Consents
Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?
By law, shares in a private limited liability company (AS company) have limited negotiability, in that shares can be acquired only if the company grants its consent to the acquisition, unless otherwise stipulated in the company’s articles. However, in general, consent can be refused only on ‘justifiable grounds’. A transferee who is already a shareholder will need corresponding consent to increase his or her ownership interest in such a company. Other transfer restrictions may also be contained in the articles. If shares in a private company are to be sold or change owner in other ways, the other shareholders have a pre-emption right to purchase the relevant shares, unless otherwise stipulated in the articles. For limited companies established before 1 January 1999 (that is, before the entry into force of the LLCA) the general rule is the opposite: board approval and right of first refusal apply only if they are explicitly stipulated in the articles. For public limited companies (ASA companies), both listed and non-listed ASA companies, the shares are freely negotiable. However, even such companies have extensive options to limit the assignability of their shares.
Acquisitions of companies and businesses in Norway may also be subject to the merger control regime set out in the Norwegian Competition Act (2004). If the following jurisdictional thresholds are satisfied, a party acquiring lasting control of a company or business must notify the transaction to the Norwegian Competition Authority (NCA): the combined group turnover of the acquirer and the target in Norway is 1 billion Norwegian kroner or more; and at least two of the undertakings concerned each has an annual turnover in Norway exceeding 100 million kroner.
Provided these thresholds are fulfilled, notification is mandatory and must be given prior to completing an acquisition of a business combination in Norway. The NCA will also be empowered to issue decrees ordering that business combinations falling below these thresholds still have to be notified, provided it has reasonable cause to believe that competition is affected or if other special reasons call for investigation. Such a decree must be issued no later than three months from the date of the transaction agreement or from the date control is acquired, whichever comes first. If a filing is required under the EU merger control regime, no filing is needed with the NCA.
There is no general legislation that requires notification to or clearance of a governmental agency when a foreign-owned (or foreign-controlled) company makes an acquisition in Norway. However, in certain sectors governing vital national interests, such as the power and energy sector (including oil, gas and hydropower) and the finance sector (including financial, credit, and insurance institutions), certain limitations on ownership and business operations apply. Such rules apply both for foreign and domestic buyers.
Until recently, Norway had not implemented any type of specific national security review of acquisitions such as, for example, the type of review conducted by the US Committee of Foreign Investments, but the state has acquired controlling stakes in many large Norwegian corporations, in particular where those corporations hold investments in sectors considered vital from a security perspective. A new National Security Act has, however, now been adopted by the Norwegian parliament, which grants the government wider powers to intervene and stop acquisitions of shares in a company holding investments in sectors considered vital from a Norwegian national security perspective (see question 36).
Are any other third-party consents commonly required?
In an asset purchase transaction, third-party consents and approvals are usually required, while in a share purchase, third-party consents are generally not required (subject to consents from public authorities and change of control provisions).
An asset transaction involving the sale of all or substantially all of a selling company’s business and assets may be a factual liquidation under Norwegian law. This could trigger requirements for shareholder consent to put the selling company into liquidation or to change its purpose. A liquation is normally less confidential than a share transaction.
An acquisition or business combination structured as a legal merger or demerger will require consent from both the involved companies’ shareholders. Moreover, the merging or demerging companies’ creditors are entitled to demand payment or security for their claims before the transaction can be completed.Regulatory filings
Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?
Transfer tax or stamp duty does not apply on a share purchase. In an asset purchase, and depending on the assets, transfer tax and various public fees can be triggered. For example, the sale of real estate incurs a 2.5 per cent transfer or registration tax (stamp duty), calculated on the market value of the real estate, and a nominal registration fee of 525 kroner if the transfer is recorded in the Land Register. Registration is in principle necessary to protect the buyer’s title. If shares in a company owning real estate are acquired (and not the property itself), no transfer tax is levied. If a transfer of real estate is due to a legal merger or demerger, registration of the transfer of title in the Land Register is exempt from registration tax. In such cases, a nominal registration fee to the Registry of Business Enterprises has to be paid. Transfer of ownership to motor vehicles in connection with an asset sale has to be registered with a driver and vehicle licensing office. Such registration will incur a registration fee. Transfers of real estate and ownership to motor vehicles owing to a transformation of a legal entity carried out under tax continuity following 1 January 2016 are now exempt from such transfer or registration tax and registration fee.