What is a Shareholder Loan from AS?

A shareholder loan from a limited liability company is a loan that a limited liability company gives to one of its shareholders . This is a common form of financing in smaller companies, but it comes with strict rules and tax consequences that must be followed carefully.

What is a Shareholder Loan?

A shareholder loan occurs when a limited liability company lends money to a person or company that owns shares in the company. This can be:

• Direct shareholders: Individuals or companies that own shares directly
• Indirect shareholders: People who control the company through other companies
• Related parties to shareholders: Spouses, children, parents and other close family members

The loan must be documented in writing and follow market terms to avoid tax problems.

Tax Consequences

Shareholder loans have significant tax implications for both the company and the borrower:

For the Company (Lender)

• Interest calculation: The company must charge market interest on the loan.
• Interest income: Interest received is considered taxable income for the company.
• Documentation: All loans must be documented in writing with clear terms and conditions.

For the Shareholder (Borrower)

• Benefit: If the loan is granted at a below-market rate, the difference is considered a taxable benefit.
• Interest expense: Interest paid may be deductible depending on what the loan is used for
• Repayment: The loan must be repaid according to the agreement

Market Interest Rate

One of the most important requirements is that the loan must have a market interest rate . This means:

Standard interest rate

The Norwegian Tax Administration sets a standard interest rate that is updated annually. For 2024, the standard interest rate is: - 3.0% for loans to shareholders - The interest rate is adjusted based on developments in market interest rates

Consequences of too low an interest rate

If the loan is granted at below the standard interest rate, the difference is calculated as: - Taxable benefit for the shareholder - Dividends that may trigger dividend tax

Documentation requirements

All shareholder loans must be documented in writing with the following information:

Loan agreement

• Loan amount: How much is being borrowed
• Interest rate: Market interest rate to be paid
• Repayment plan: How and when the loan will be repaid
• Collateral: Any collateral for the loan
• Default provisions: What happens in the event of non-payment

Accounting

The loan must be recorded correctly in the company's accounts : - Balance sheet: The loan is recorded as a claim on the shareholder - Income statement: Interest income is recorded as financial income. - Notes: Shareholder loans must be specified in the notes to the financial statements

Practical Examples

Example 1: Home purchase

A shareholder needs NOK 500,000 to purchase a home: - Loan amount: 500,000 NOK - Interest rate: 3.0% (standard interest rate) - Repayment period: 10 years - Annual interest cost: NOK 15,000 - Tax treatment: The interest is deductible for the shareholder

Example 2: Interest rate too low

Same loan, but with 1.0% interest: - Interest benefit: (3.0% - 1.0%) × 500,000 = NOK 10,000 annually - Tax consequence: NOK 10,000 is considered a taxable benefit for the shareholder - Dividend tax: May trigger 31.68% dividend tax = 3,168 NOK

Risks and Pitfalls

Common Mistakes

• Missing documentation: Loan without written agreement
• Too low an interest rate: Using an interest rate below the benchmark interest rate
• Lack of follow-up: Not collecting interest or installments
• Incorrect accounting: Not recording the loan correctly in the accounts

Consequences of Error

• The Tax Administration may reclassify the loan as a dividend
• Additional tax and interest may apply.
• The shareholder may receive an unexpected tax bill
• The company may lose interest deductions

Alternatives to Shareholder Loans

Instead of shareholder loans, one could consider:

Dividend

• Direct payment of profits to shareholders
• Dividend tax: 31.68% for personal shareholders
• Easier administration than loans

Salary or Bonus

• Employer benefits if the shareholder works in the company
• Employer's contribution and tax on wages
• Pensionable income

Collateral

• The company provides security for the shareholder's bank loan
• Less complex than direct lending
• Continued tax consequences of too favorable terms

Accounting for Shareholder Loans

Correct accounting is crucial:

In the Company's Accounts

 Balanse:
 - Fordringer på aksjonærer (omløpsmidler)
 - Påløpte renteinntekter

 Resultatregnskap:
 - Renteinntekter (finansinntekter)

Note information

Shareholder loans must be specified in the notes with: - Loan amount per shareholder - Interest rate and terms - Due date - Any collateral

Control and Follow-up

Ongoing Follow-up

• Monthly interest calculation and invoicing
• Follow-up of payments and any defaults
• Updating loan agreements in case of changes

Annual Review

• Checking the standard interest rate and adjusting it if necessary
• Assessment of impairment requirements in the event of default
• Updating of note information in the annual accounts

Legal Aspects

Provisions of the Companies Act

The Companies Act has special rules for shareholder loans: - Board approval may be required for larger loans - The general meeting's consent for significant amounts - Incapacity to process own loans

Creditor protection

• The company's creditors must be protected from erosion
• Weakening of solvency can be problematic
• Repayment ability must be assessed

Practical Advice

For the Company

1. Establish clear guidelines for shareholder loans
2. Use standardized loan agreements prepared by a lawyer
3. Implement routines for follow-up and interest calculation
4. Ensure correct accounting from day one
5. Stay up to date with the benchmark interest rate

For the Shareholder

1. Understand the tax consequences before taking out a loan
2. Consider options such as dividends or salary
3. Ensure a written agreement with clear terms
4. Pay interest and installments according to the agreement
5. Consult an accountant if unsure.

Related Concepts

To fully understand shareholder loans, you should also familiarize yourself with:

• Joint-stock company (AS) - The form of company that can provide loans
• Shares - The ownership shares that give the right to borrow
• Share capital - The company's basic capital
• Shareholder loan to AS - The opposite: loan from shareholder to company
• The Norwegian Companies Act - The law that regulates shareholder loans
• Accounting - Accounting for loans and interest

Shareholder loans can be a useful financing tool, but require careful planning and follow-up to avoid tax problems and ensure correct treatment under Norwegian law.