What is a Shareholder Loan to AS?
A shareholder loan to a limited liability company is a loan that a shareholder gives to their own limited liability company . This is a common way to add capital to the company, especially in the start-up phase or when the company needs extra liquidity.
What is a Shareholder Loan to AS?
A shareholder loan to a limited liability company occurs when a shareholder lends money to their company instead of increasing the share capital . This can be:
- Short-term financing: To meet temporary liquidity needs
- Startup capital: When the company needs money before it can generate revenue
- Expansion financing: For investments and growth
- Alternative to capital increase: When you do not want to dilute your ownership shares
The loan must be documented in writing and follow market terms to avoid tax problems.
Advantages of shareholder loans to AS
For the Shareholder (Lender)
- Flexibility: Easier to get the money back than with a capital increase
- Interest income: Can receive market interest on the loan
- Security: May require security for the loan
- Control: Retains the same ownership stake in the company
For the Company (Borrower)
- Fast access to capital: No complicated capital raising processes
- Lower costs: Avoids costs of issuing new shares
- Preserves ownership structure: No dilution of existing shareholders
- Tax advantage: Interest expenses are deductible
Tax Consequences
For the Shareholder (Lender)
- Interest income: Interest received is considered taxable capital income.
- Loss on receivables: Any losses may be deductible
- Documentation: Must be able to document the loan and interest income
For the Company (Borrower)
- Interest expense: Interest paid is deductible in the company
- Market rate: Must pay market rate to avoid problems
- Accounting: The loan must be recorded correctly in the accounts.
Market Interest Rate and Terms
For the loan to be tax-acceptable, it must have market terms :
Interest rate
- Standard interest rate: The Tax Administration sets a standard interest rate as a guideline.
- Market interest rate: The interest rate must correspond to what the company would pay to an external lender
- Risk adjustment: Higher risk may justify higher interest rates
Loan conditions
- Repayment plan: Clear repayment agreements
- Security: Any security must be documented.
- Termination: Terms for termination of the loan
Documentation requirements
All shareholder loans to AS must be documented in writing :
Loan agreement
- Loan amount: How much is lent to the company
- Interest rate: Market interest rate to be paid
- Repayment plan: How and when the loan will be repaid
- Security: Any security provided by the company
- Default provisions: Consequences of non-payment
Accounting
The loan must be recorded correctly in both the shareholder's and the company's accounts:
In the Company's Accounts: - Balance sheet: The loan is recorded as a liability to the shareholder - Income statement: Interest expenses are recorded as financial expenses - Notes: Shareholder loans must be specified in the notes
In the Shareholder's Account: - Balance sheet: The loan is recorded as a receivable from the company - Income statement: Interest income is recorded as financial income.
Practical Examples
Example 1: Startup financing
A start-up company needs 200,000 NOK for equipment: - Loan amount: NOK 200,000 from shareholder - Interest rate: 4.0% (market rate for startup companies) - Repayment period: 5 years - Annual interest cost for company: 8,000 NOK - Tax benefit for company: 8,000 NOK × 22% = 1,760 NOK
Example 2: Liquidity challenge
Established company needs temporary financing: - Loan amount: 500,000 NOK - Interest rate: 3.5% (lower risk) - Repayment period: 2 years - Monthly installments: approx. 21,500 NOK - Flexibility: Can be repaid faster with improved liquidity
Alternatives to Shareholder Loans
Capital increase
- Permanent capital: The money becomes permanent equity
- Dilution: Can affect ownership if others do not participate
- Complexity: Requires general meeting resolution and registration
Paid-in capital
- Intermediate solution: Can later be converted into share capital
- Flexibility: Easier to get back than share capital
- Taxation: Special rules for contributed capital
External financing
- Bank loan: Traditional financing from a bank
- Higher requirements: Stricter requirements for security and documentation
- Independence: Not dependent on the shareholders' private finances
Risks and Pitfalls
Common Mistakes
- Missing documentation: Loan without written agreement
- Non-market conditions: Too low or high interest rates
- Incorrect accounting: Not recording the loan correctly
- Mixing with private finances: Do not distinguish between private and company
Consequences of Error
- The Tax Administration may reclassify the loan as a capital contribution.
- Loss of interest deduction for the company
- Tax problems for the shareholder
- Legal challenges due to lack of documentation
Legal Aspects
Provisions of the Companies Act
The Companies Act regulates the relationship between shareholders and the company: - Creditor protection: Shareholder loans must not weaken the position of creditors - Equality: All shareholders must be treated equally - Board responsibility: The board must assess the company's ability to service the loan
Bankruptcy Act
In the event of bankruptcy, shareholder loans have special status: - Responsible loan capital: Can be subordinated to other creditors - Refund right: Limited right to refund in the event of bankruptcy - Documentation: Correct documentation is important to preserve rights
Practical Advice
For the Shareholder
- Assess risk: Understand that the loan can be lost in the event of bankruptcy
- Require market terms: Both interest rate and collateral
- Document everything: Written agreement and follow-up
- Follow up on payments: Ensure that interest and installments are paid
- Consult experts: Get legal and accounting advice
For the Company
- Consider alternatives: Compare with other forms of financing
- Ensure sustainability: Don't take on more than the company can handle
- Correct accounting: Record the loan correctly from day one
- Compliance with agreements: Pay interest and installments on time
- Communication: Keep the shareholder informed about the company's situation
Accounting in Detail
Establishment of the Loan
Selskapets Regnskap:
Debet: Bank/Kasse (økning i eiendeler)
Kredit: Gjeld til aksjonær (økning i gjeld)
Aksjonærens Regnskap:
Debet: Fordring på selskap (økning i eiendeler)
Kredit: Bank/Kasse (reduksjon i eiendeler)
Interest Calculation and Payment
Selskapets Regnskap:
Debet: Rentekostnad (kostnad)
Kredit: Gjeld til aksjonær (økt gjeld) eller Bank (betaling)
Aksjonærens Regnskap:
Debet: Bank/Kasse eller Fordring (økning)
Kredit: Renteinntekt (inntekt)
Follow-up and Control
Ongoing Follow-up
- Interest calculation: Monthly or quarterly calculation
- Payment follow-up: Checking that agreements are being complied with
- Liquidity assessment: Assessment of the company's ability to pay
- Market interest rate adjustment: Annual assessment of interest rate
Annual Review
- Agreement review: Assessment of whether the agreement is still appropriate
- Risk evaluation: Assessment of the company's creditworthiness
- Tax review: Checking tax treatment
- Accounting audit: Checking correct accounting
Related Concepts
To fully understand shareholder loans to AS, you should also familiarize yourself with:
- Limited Liability Company (LLC) - The company form that receives the loan
- Shares - The ownership shares that give the right to borrow from the company
- Share capital - Alternative to loans for capital injection
- Shareholder loan from AS - The opposite: loan from company to shareholder
- The Norwegian Companies Act - The law that regulates the relationship between shareholders and the company.
- Accounting - Accounting for loans and interest
Shareholder loans to AS can be an effective form of financing, but require careful planning, correct documentation and follow-up to ensure both tax and legally correct treatment.