Equity Finance 2024 Comparisons

The typical financing arrangement in Norwegian early-stage startups and venture capital leans heavily on equity financing, particularly in the form common or preferred shares in exchange for capital, typically from angel investors, family offices, friends & family and early-stage venture capital firms.

In addition, hybrid instruments, such as convertible loans, are widely used. Raising capital from investors is very common, but some companies will also choose “bootstrapping”, meaning they build themselves up using revenue and minimal external capital.

In very early-stage financing, investments are often structured using SLIP (Startup Lead Investment Paper), a concept developed by StartupLab. SLIP allows investors to put capital into a company while securing the right to subscribe to shares at a minimum cost at some point in the future. This approach has the advantage of being less time-consuming than traditional priced rounds, and will also postpone the valuation of the company.

The Norwegian government also offers a wide range of programmes to incentivise equity financing in growth companies, including the following:

• Innovation Norway offers various startup grants, including low-interest loans and direct financial support, and can provide funding at different stages;
• The Research Council of Norway provides a tax deduction scheme (SkatteFUNN), which reduces the costs related to research and development; and
• Export Finance Norway provides governmental loans and guarantees for investments in Norway that contribute to exports or to other transactions that generate value within Norway.

In Norway, growth or private equity financing typically involves more structured and complex arrangements compared to early-stage or venture capital financing, reflecting the maturity of the companies involved and the larger capital requirements.

Private equity firms generally seek to acquire either a controlling interest or a significant minority stake, unlike early-stage investments, where smaller equity positions are more common. Private equity firms focus on value creation through operational improvements and strategic guidance, and often have a more active involvement in the governance of the company, in comparison to investors in early-stage companies.

Further, private equity transactions often involve the use of debt through leveraged buyouts, which amplify returns when companies have stable cash flows. They also have clearly defined exit strategies, whereas early-stage investments are more about supporting potential with higher risk and longer-term returns.

In Norway, the stock markets are operated by the Oslo Stock Exchange (OSE), where there are three platforms for trading listed shares: Euronext Oslo Børs; Euronext Expand; and Euronext Growth Oslo. Oslo Børs and Expand are regulated markets, and Euronext Growth is a multilateral trading facility.

The process for listing a company varies depending on the platform, with different admission requirements, documentation obligations, and timelines for each. The formal listing process with the OSE takes approximately 40 trading days for Oslo Børs and Expand, and approximately 15 trading days for Euronext Growth. Initial Public Offering (IPO) preparations have an additional lead time and vary for issuers, and the typical listing timeline generally ranges from four to six months.

The admission requirements for Oslo Børs and Euronext Growth are as follows.

• Market value: to be listed on Oslo Børs, a company must have a minimum market value of NOK300 million. For Euronext Growth, there is no specific requirement for market value, but the issuer must carry out an offering of a minimum of EUR2.5 million within 12 months prior to admission for trading.
• Operational and financial history: to be listed on Oslo Børs, the issuer must have a minimum of three years of operational history, with financial statements covering the period. For admission on Euronext Growth, the issuer must have two years of audited financial history or financial history covering the time that the issuer has been in existence.
• Reporting language: to be listed on Oslo Børs, the financial statements for the last year with comparable numbers for the previous year should be prepared in accordance with IFRS. For admission to Euronext Growth, the financial statements can be prepared in accordance with accepted GAAP.
• Liquidity: to be listed on Oslo Børs, the issuer must have sufficient liquidity to cover intended business for the 12 months following the listing. An issuer may be admitted to Euronext Growth without proof of this, provided it has an acceptable plan to obtain sufficient liquidity for the next 12 months.
• Board and management: for admission to Oslo Børs, a minimum of two board members must be independent. In addition, both for Euronext Growth and Oslo Børs, board members must not be deemed “unfit” to govern a publicly traded company. There are also requirements for representation of both genders in Norwegian companies. Lastly, the board and management must have sufficient competence and capacity with regards to the continuing obligations of a listed entity.
• Audit committee: the company must have an audit committee in order to be listed on Oslo Børs, although this is not required for Euronext Growth.
• Shares: the shares must be freely transferable. On Oslo Børs, the company should have minimum of 500 shareholders, and on Euronext Growth a minimum of 30 shareholders. Further, a free float of a minimum of 25% is required on the Oslo Børs, with a minimum of 15% on Euronext Growth.
• Share price: the shares must have a minimum expected price of NOK10 for admission to Oslo Børs, and minimum NOK1 expected for admission to Euronext Growth.
• Due diligence: the company must engage independent advisors to complete financial and legal due diligence in connection with the admission process.
• Prospectus: a listing prospectus is required for admission on Oslo Børs and must be approved by the Financial Supervisory Authority of Norway (FSA). On Euronext Growth, there is no requirement for a prospectus; instead, the issuer must, in consolidation with a Euronext Growth Advisor, prepare an information document which covers comparable requirements as a prospectus but is lighter and subject to a faster approval process.

The typical process in an equity listing on the OSE consists of the following steps.

• Initial preparations: the first step is to assess the appropriate platform and determine whether the company fulfils the listing requirements and will typically be assisted by its Norwegian external legal advisor and/or financial advisor. The initial preparations may also be time consuming, depending on the fulfilment of the listing requirements. Once the company is confident that the listing requirements can or will be fulfilled, and once the market conditions are as required, the company will start the formal process towards the OSE.
• Documentation: once the OSE has received the first round of documentation, it will assess the fulfilment of the listing requirements criteria and communicate as necessary with the company. The documentation will ultimately form the basis for the decision by the OSE.
• Due diligence: following clarification as to market and process, the company will engage independent due diligence advisors; the result of the due diligence is to be presented to the OSE.
• Prospectus: as the prospectus must be approved by the FSA for admission on Oslo Børs, this process can take several weeks. For admission on Euronext Growth, the process is faster, as the information document only needs to be reviewed by the OSE.
• OSE board meeting: once the listing requirements are fulfilled, the OSE board decides whether the company will be listed, based on the administration’s recommendation.
• Marketing: the company and its advisors present the listing to potential investors, often through a “roadshow” to promote the shares and generate interest.
• Pricing: on the agreed listing day, the company’s shares begin to trade publicly, which marks the transition from a private to a public company. Pricing is typically based on an initial public offering (IPO) or, in the case of a Euronext Growth listing, a private placement.
• Continuing obligations: as a listed company, there are several continuing obligations, including disclosure of information to the market and its investors, such as financial reports, corporate events, and changes in the company’s shareholder structure. Important disclosure requirements, such as for material events, applies from filing an application for listing.

The public equity markets in Norway, particularly Oslo Børs and Euronext Growth, play a significant role in the country’s economy, offering companies access to capital and providing investors with opportunities across a diverse range of sectors.

The OSE marketplaces provide companies with a unique position in the energy, shipping and seafood sectors.

Oslo Børs lists companies from a variety of sectors and jurisdictions, although energy, shipping and seafood are predominant. Companies such as Equinor (formerly Statoil), a global energy giant, and Mowi (formerly Marine Harvest), a leader in aquaculture, have utilised OSE to access the capital markets.

Euronext Growth offers a less stringent regulatory environment compared to Oslo Børs, making it attractive for early-stage companies seeking to raise capital without the full requirements and obligations of a regulated market listing.

Companies seek to go public for various reasons, depending on the circumstances and the company’s purpose. Various key motivations and barriers are as follows.

• Key motivations:
1. access to capital from a broader market of investors;
2. it is easier to raise money in a public offering than in a similar offering for unlisted companies;
3. increased liquidity in shares;
4. creation of exit opportunities;
5. increased credibility due to adherence to formal reporting standards;
6. visibility, as greater interest and accessibility for the company is created; and
7. potential improvement in capital structure.
• Barriers:

1. time-consuming processes;
2. legal and financial reporting requirements under the Securities Trading Act, the Market Abuse Regulation and OSE rules;
3. possible dilution of ownership and decision-making power;
4. IPO costs, with fees to the FSA, OSE as well as fees to the advisors (legal, brokerage, and accounting); and
5. increased focus on financial performance rather than innovation, research and product development.

Equity restructuring in the Norwegian capital markets involves a range of solutions that vary based on the company’s operations, its phase of development and its financial situation. To improve its financial situation, a company will either seek to reduce debt, increase the value of its assets, or both. This can be achieved through debt restructuring, asset sales, increased earnings, or by injecting fresh capital, typically through a capital raise. The equity market in Norway is flexible, offering various techniques to adjust for financial difficulties.

The most common equity restructuring techniques in Norway include the following.

• Private placement: this gives fast access to capital, and is the most common solution to adjust for financial difficulties. Although it can result in the dilution of existing shareholders, it is an effective and flexible method for raising capital.
• Rights issue: this provides access to fresh capital without significantly diluting existing shareholders. However, a rights issue will typically mean a discount to the share price, and will be more time-consuming and costly than private placements, particularly because of the prospectus requirement.
• Mergers and acquisitions: these can lead to significant changes in a company’s equity structure, but they are complex and costly.
• Debt-to-equity swaps: these strengthen a company’s equity and reduce its overall debt burden, and the company will not immediately increase its cash holdings. They are also dilutive to existing shareholders.
• Convertible loans: these allow companies to raise capital by issuing debt that can be converted into equity at a later date. They provide immediate funding, and may be easier to obtain than equity.

The Reconstruction Act (Rekonstruksjonsloven) is Norway’s equivalent to US Chapter 11 and is an effective tool for resolving a company’s financial difficulties, although is not as commonly used. It allows viable companies to negotiate with creditors and avoid bankruptcy. Rekonstruksjonsloven offers companies protection from bankruptcy during a restructuring process, and allows the majority of creditors to approve a binding restructuring plan, unlike out-of-court restructurings, which require unanimous consent from all creditors.

Other techniques to adjust for financial difficulties include down-rounds, share buybacks, and equity carve-outs, although these are not as common.

Norwegian companies are governed by the General Meeting, the Board of directors, and the CEO. Norwegian laws provide a framework for corporate governance, including the roles and responsibilities of the General Meeting, Board of directors and the CEO. The roles and responsibilities of the corporate bodies are often outlined in more detailed instructions and manuals. The law limits what can be set out in the Articles of Association, and they tend to be concise, but they can set out regulations on company governance. In private companies, the shareholders will typically enter into shareholders agreements with regards to their rights in a company and governance. For listed companies, shareholders’ agreements are not common.

The governance structure is typically as follows.

• General Meeting: the shareholders exercise supreme authority in the company through the General Meeting, where they have the right to participate, speak and vote, with each share providing one vote. The shareholders have the power to make decisions on significant matters, including amendments to the company’s Articles of Association, election and removal of board members, approval of annual accounts, distribution of dividends, and decisions on mergers or dissolutions of the company. Certain transactions and other matters of specific importance will also require approval by the general meeting.
• Board of Directors: the company is required to have a board, and the board is responsible for the overall management of the company.
• The CEO: the CEO is appointed by the board and is responsible for the daily management of the company, and reports directly to the board.
• Audit Committee: a separate committee elected by and among the members of the board of directors, holding competence within accounting and auditing, is required for companies listed on the Oslo Børs.
• Nomination Committee: listed companies are advised to have a nomination committee that represents shareholder interests in the company, and the Articles of Association provide for such. The committee’s main responsibility is to oversee the composition of the board of directors and make proposals in this respect to the general meeting.

Shareholders have the right to receive certain documents, such as the annual accounts, annual report, and auditors report, at least three weeks (companies listed on the regulated market) or two weeks (companies listed on Euronext Growth) before the General Meeting, as well as the notice of the meetings, including an agenda specifying the issues to be addressed. During the General Meeting, the shareholders can request that the board members and the CEO provide information relevant for the assessment of the annual accounts, the company’s financial position, or matters presented for decision. The shareholders have the right to take legal action if the company violates any statutory provisions or the Articles of Association.

Most decisions by the General Meeting require a majority of the votes cast, although certain resolutions require the approval of at least two-thirds of the votes cast and the share capital represented at the General Meeting, and some even require unanimity. Stricter thresholds for passing resolutions may be included in the Articles of Association.

Specific rights of shareholders also include the following:

• shareholders owning at least 5% of the share capital have the right to request an Extraordinary General Meeting to address specific issues of their interest;
• shareholders owning more than 90% of the shares can acquire the remaining minority holding and can, vice versa, require a shareholder holding 90% to acquire its shares;
• the takeover regulations of a mandatory offering ensure that minority shareholders are offered an exit at the same price paid for shares in the event of a change in control; and
• the law includes provisions to protect minority shareholders, such as requiring a supermajority for certain decisions.

The management has a duty to disclose information. As a publicly listed company, no shareholder will have preferential access to information, and there must be equal treatment in information sharing.

Specifically, all shareholders have the right to request that board members and the CEO provide available information at the general meeting regarding matters that may affect the assessment of several matters, such as:

• approval of the annual financial statements and annual report;
• issues presented to the shareholders for decision;
• the company’s financial situation.

As a publicly listed company, no shareholder will have preferential access to information without a legal and justified basis for such access, and there must be equal treatment in information sharing.

Companies listed on the regulated markets of the OSE are subject to the Norwegian Code of Practice for Corporate Governance (the “Code”). The Code is not legally binding, but follows the “comply or explain” principle, where companies must either comply with the recommendations or explain why they have chosen not to do so. Compliance with the Code is annually disclosed in the financial statements under the report on corporate governance.

The main objective of the Code is to ensure that companies adhere to good corporate governance practices, which include principles related to transparency, accountability, and the protection of shareholder rights and equal treatment of shareholders.

Investors may provide both equity and debt to the same company depending on the company’s situation, investor goals, desired influence, and risk tolerance.

Factors that must be considered by investors in this respect, both from a commercial and legal perspective, include the following.

• Risk and return: equity investments offer higher potential returns but involve greater risk, while debt investments typically provide more predictable returns and lower risk.
• Return on investment: debt typically provides fixed returns, whereas equity offers returns through dividends and potential capital gains.
• Control: equity investors acquire ownership stakes and control rights, whereas debt investors are primarily concerned with repayment and interest income. Investors must assess how their contributions will impact their level of influence over the company, and whether they wish to influence the company’s strategic direction.
• Insolvency: in an insolvency situation, although it is unlikely that any funds remain for equity investors from an insolvency process (see 5.2 Seniority of Investors in Distributions), debt takes priority over equity, meaning that debt investors are better positioned to recover their investments than equity shareholders.
• Reclassification of debt: a key legal consideration is the risk that debt might be reclassified as equity. In Norway, there are regulations that can lead to debt obligations from shareholders being considered equity, particularly if the debt is not sufficiently differentiated from the latter.

While providing both equity and debt to the same company can offer benefits, such as risk diversification and potential control, the legal and commercial implications require careful consideration.

Equity finance refers to methods by which companies raise capital through issuing shares and investors acquire ownership of a company. Equity financing is a common way for companies to finance growth and development without increasing debt.

Norway has a vibrant and well-developed equity market that enables companies to grow and innovate, particularly in venture capital, growth equity and private equity, with an active environment for IPOs.

Some of the key sub-segments include the following.

• Venture capital: Norway has an active and growing venture capital environment, particularly focused on start-ups in sectors such as technology, renewable energy and health.
• Growth equity: several funds and investors are active in growth equity in Norway.
• Private equity: the private equity market in Norway is well developed, with both Norwegian and international players involved in acquisitions of more mature companies. This market has seen significant transactions, particularly in sectors such as energy, infra structure, industry and technology.
• Hybrid financing: it is common in Norway to see the use of financing that combines both debt and equity. Some of the most common hybrid instruments are: (i) agreements that provide a preferential right to dividends with an indefinite term, usually without conversion rights; (ii) bonds funds, which are unsecured interest-bearing financial instruments; and (iii) convertible bonds, which are initially standard debt securities but give the holder the right to convert their loan into equity in the company.
• IPOs: the market for IPOs is well established in Norway, with both Oslo Børs and Euronext Growth serving as primary platforms for companies looking to go public. The IPO process in Norway is highly regulated, ensuring transparency and investor protection. In recent years, there has been a growing trend for companies, particularly in the green and renewable energy sectors, opting for IPOs to access capital for expansion and innovation.

Typically, both institutional investors and retail investors provide equity financing to companies listed on the markets of OSE. Traditionally, institutional and professional investors have dominated the investment scene, leading the way on accelerated book-building structures for raising equity via private placement, which was always the go-to method for equity offerings. During recent years, retail investors have taken up more space, however, and there has been a trend towards more broad offerings to ensure equal treatment, by way of repair offerings, although trends also point to more rights offerings in the future.

Observations made on recent changes:

• there is an increased and substantial international participation due to the presence of significant industries such as oil and gas, maritime and technology;
• ESG criteria have become increasingly important, influencing investment decisions; and
• venture capital funding for technology start-ups has risen.

Quantitative or qualitative restrictions on who can provide equity financing are as follows.

• There are no specific maximum limits on shareholding percentages for most companies in Norway.
• If a shareholder’s voting rights in an issuer listed on the regulated market, through ownership or control of shares, reach, exceed or fall below 5%, 10%, 20%, 25%, one-third (1/3), 50%, two-thirds (2/3), or 90%, the shareholder is required to disclose its holding to the market.
• A mandatory tender offer would be triggered where a shareholder or consolidated group becomes the owner of shares representing more than one-third (1/3), 40% or 50% of the voting rights of a company listed on a regulated market. The owner must then either reduce its holding within four weeks or make an unconditional general offer to purchase the remaining shares of the company.
• Everyone who trades stocks in Norway must establish an electronic securities account with Euronext Securities Oslo (formerly, VPS-Verdipapirsentralen) through a bank to hold its shares. Nominees may be used for non-Norwegian shareholders.
• If a company owns 90% or more of the shares in a subsidiary, either alone or through subsidiaries, and holds a corresponding proportion of the voting rights at the General Meeting, the board of directors of the parent company may decide that the parent company shall acquire the remaining shares in the subsidiary in a squeeze-out. Each of the other shareholders in the subsidiary has the right to demand that the parent company takes over their shares.
• A foreign investor that invests in a Norwegian company may be subject to an FDI filing obligation in accordance with the Norwegian Act on National Security (Sikkerhetsloven).

In Norway, there are some notable differences between companies, for instance the size of the company, its operating history, the shareholder composition and the company’s industry. These factors influence the decision on whether to raise debt or equity, and the structure or technique used.

The choice between debt and equity can reflect the company’s development stage and capital needs. Established companies might opt for debt to leverage their existing assets and maintain ownership control, while early-stage and growth companies may issue equity to access a larger amount of capital without the immediate pressure of debt repayment.

Mature and established companies with a strong financial track record and stable cash flow may prefer debt financing. These companies typically have the operational stability required to secure debt. On the other hand, early-stage and growth companies are more inclined to raise equity, often through venture capital or IPOs. Such companies often lack a long enough financial history and sufficiently stable revenue to appeal to traditional lenders.

The industry in which a company operates can significantly influence its financing strategy. Industries with high capital requirements and longer development cycles, such the energy and health sectors, might see more equity financing due to the need for substantial upfront investment and extended periods before profitability.

The level of activity in different segments can also change depending on broader economic conditions and specific industry factors. When the economy is stable or growing, established companies may prefer to engage more actively in the debt markets, and take advantage of favourable borrowing conditions to secure loans for expansion or refinancing, given their lower risk profile. In contrast, during periods of high growth, or when emerging sectors are expanding, companies in these industries may be more active in equity markets.

Overall, the choice between debt and equity in Norway is driven by a combination of economic conditions, company-specific factors, and the evolving preferences of both companies and investors.

Activity in the Norwegian Equity Market

In the last two years, activity in the equity market has been decreasing from the record years of 2020 and 2021, and funding has been challenging. However, the first half of 2024 saw an increase in listing activity in Norway and the expected outlook for fundraising looks promising, driven by the key factors of economic recovery from recent macro disruptions and signals of a decline in inflation.

Despite a dip in equity fundraising operations, bond-market activity rose in Norway in 2023, becoming a strong trend into 2024, and is expected to remain high in the coming months. With investors seeking rewards within alternatives to both listed equity instruments and the historically attractive Norwegian real estate market, the bond market is busy.

Transactions were slow in 2023, the year heavily influenced by geopolitical and macroeconomic factors. However, the first half of 2024 showed positive trends, with a rise in deal volumes, especially within M&A. Overall uncertainty in the market will likely continue to dominate equity financing activities, and may be further fuelled by geopolitical instability and the continuing rise in inflation. However, it seems that both buyers and sellers are increasingly adapting to current market conditions.

Key trends in equity financing in the first half of 2024, included the following.

• IPOs were on the low side of historical numbers; however, there was an increase in Q1, with seven new listings, compared to 7 listings in total in 2023.
• As of 31 July 2024, a total of NOK14.6 billion was raised in the Norwegian stock markets, compared to a total of NOK42.8 billion in total for 2023.
• There was an increasing appetite towards the US, with issuers either adding a US listing to their existing Norwegian listing or moving their Norwegian listing to the US.
• The equity finance market and the number of transactions was affected by global economic challenges, such as geopolitical uncertainty, rising interest rates and high inflation.
• Popular sectors include technology, media & telecommunications, manufacturing and industrials, and energy and natural resources.
• Private equity with deal willingness caused by large dry-powder holdings and a large stock of companies ready to exit (in Q1, private equity accounted for 27% of all transactions).

Outlook for Q2 2024 and for 2025

An economic recovery is expected as recent macroeconomic disruptions begin to stabilise. Inflation should show signs of decreasing, which could lead to improved economic conditions and more favourable market environments.

Despite a dip in equity fundraising activity, Norway’s bond-market activity increased in 2023. This trend continued into 2024, and is expected to remain strong in the coming months.

Norway has observed clear trends in both privately allocated equity and public-raised equity.

Privately allocated equity has gained popularity, particularly with the rise of private equity funds investing in both established companies and startups. There has also been a notable increase in private equity investments in Norway, with financial sponsors increasingly participating in the market. Private equity firms are concentrating on value creation and optimisation, with a growing trend towards buy-and-build strategies aimed at generating synergies and cross-selling opportunities.

Publicly-raised equity, particularly in the venture capital space, has seen significant growth over the past five years, with Norway entering the top-ten European countries for venture capital investments in 2023. Publicly raised equity has also become more appealing due to lower valuations and more demanding investors, making the pricing in the Norwegian market attractive for foreign investors. There has also been a shift towards retail market expansion, private credit, and secondary deals, indicating a willingness among private equity firms to make strategic moves to maximise profitability.

The OSE has seen several IPOs with companies looking to the capital markets to finance growth and expansion.

Private equity firms have been increasingly involved in growth equity. The entry of private equity funds has intensified competition among investors for a limited number of established and upscaling companies.

Norway has a well-developed deal-sourcing scene, providing significant opportunities for both investors and companies seeking capital and typically involving a combination of direct outreach, network connections, and intermediaries. Investment banks, law firms, and accounting firms play a vital role in connecting potential investors with companies seeking capital.

A well-establish and large advisor and investor environment offers investors and companies several benefits, as follows:

• access to deal flow: investors can benefit from a wider range of investment opportunities, as advisors often have exclusive access to deals that may not be publicly available;
• expertise and due diligence: experienced advisors can provide valuable insights into market trends, industry dynamics, and potential risks, as well as conduct thorough due diligence;
• network building: advisors can introduce investors to potential customers, expanding their network and facilitating business growth; and
• regulatory compliance: navigating the complex regulatory landscape in Norway can be challenging; advisors with knowledge of local regulations can help ensure compliance and mitigate legal risks.

In Norway, there are several exit strategies for investors seeking to realise the value of their investments. The typical exit path often depends on the company’s size, industry, and growth stage, with IPOs and trade sales being most common for larger, mature companies, while secondary sales and buybacks are more frequent among smaller or privately-held companies.

Some of the common exit paths and considerations include the following.

• IPOs – selling shares to the public through the OSE. Favourable market conditions are crucial for a successful IPO, though the process can be time-consuming and subject to a regulatory requirements and high costs.
• Strategic acquisitions (trade sale/M&A) – selling the company to a strategic buyer, such as a competitor or larger corporation, often within the same industry. This typically offers a significant financial return, though it does mean giving up ownership.
• Dividends – receiving returns by distributing parts of the company’s profits as dividends. However, this reduces funds that could otherwise be reinvested in the company’s growth and development.
• Merger – current owners and investors realising the value of their investment and transitioning out of ownership. This requires careful consideration of strategic fit, proper valuation of the companies, and regulatory requirements.
• Secondary sales – existing shareholders selling their shares rather than the company issuing new shares. Secondary sales are often used by smaller or privately-held companies where the original investors seek liquidity without the company going public or being sold entirely.
• Buybacks – the company repurchasing its own shares from shareholders, effectively reducing the number of outstanding shares. Buybacks are typically used by companies with excess cash reserves and are common among smaller or privately held companies as a way to return value to shareholders without seeking external buyers.

In Norway, both debt and equity are essential sources of capital for companies, and the preference for one over the other typically depends on several factors, including the company’s stage of development, industry, financial condition, and the prevailing economic environment. As mentioned in 2.2 Equity Finance Providers and Potential Restrictions on Them, both debt and equity are important in Norway, the segments are typically cyclical, and the decision will depend on numerous factors, for instance the financial position of the company.

Key decision drivers are, for instance, as follows:

• the company’s financial health: companies with stable cash flows and lower risk profiles are more likely to opt for debt, whereas companies with volatile earnings or in high-growth phases may prefer equity;
• market conditions: during periods of economic uncertainty or higher interest rates, companies might favour equity to avoid the risk associated with debt;
• ownership control: companies that prioritise maintaining control may prefer debt over equity to avoid dilution; and
• investor preferences: investors looking for lower risk might favour debt, particularly in the form of bonds or loans; those seeking higher returns with a higher risk appetite might lean towards equity investments, particularly in high-growth sectors.

Raising equity finance for a company in Norway will vary in duration depending on the techniques and structures used, as well as the company’s size, history, its industry, and the prevailing market conditions.

The typical timelines for the most common equity financing techniques are as follows.

• Private placement: this is an effective and flexible process that can be completed in a few days, although it depends on the quality of the company and the amount of capital being raised. Challenges include difficulties agreeing on the company’s valuation, especially for early-stage companies, finding investors willing to invest, and dilution of existing shareholders’ shares. Lead times on due-diligence efforts and market windows with access to capital are most often the factors that can add to the timeline. Equal-treatment rules may trigger the need to complete a subsequent repair offering toward non-participating shareholders and prepare a prospectus, adding to overall efforts significantly.
• Rights issue: this requires regulatory approval and is more complex than private placement, generally taking up to two months to complete. The advantages are equal treatment of shareholders, with existing shareholders invited to participate in a manner that allows them to maintain their original shareholding percentage. Challenges include the preparation of a prospectus, which can be costly and time-consuming.
• IPO: this is a complex process involving regulatory approvals and the preparation of documents. The timeline will vary depending on market conditions and investor demand, but is generally from two months to six months. Challenges include extensive regulatory compliance, correct timing, and high costs.
• Venture capital funding: this typically takes between three and six months, depending on the complexity of the deal, the company’s maturity, and the speed of negotiations. Challenges include negotiating terms in respect of control, board representation and additional rights. In addition, this type of financing requires due diligence and preparation of legal documents, and can therefore be time-consuming.

There are no general restrictions in Norway on foreign investors seeking to invest in a company’s equity. The Norwegian market is open to both domestic and international investors, making it an attractive destination for foreign capital. In fact, approximately 38% of the shares on Oslo Børs are held by foreign investors. However, in certain sectors, there are specific ownership thresholds. Investments in financial institutions, such as banks and insurance companies, are subject to various regulations. For instance, the FSA may impose restrictions on foreign ownership levels to maintain control over the financial system. The aviation sector also has restrictions on foreign ownership to safeguard national security and to ensure compliance with international regulations.

While these sector-specific regulations may create additional steps for foreign investors, they do not generally act as major barriers. Investors typically navigate these requirements through regulatory approvals. Engaging with local legal and financial experts is important to ensure compliance with Norwegian regulations.

In Norway, there are generally no direct restrictions on companies paying dividends to their investors or repatriating capital outside the country. However, there are specific regulations and considerations that companies must adhere to, which can affect how dividends and capital repatriation are managed.

The following applies in the case of dividend payments:

• companies must comply with Norwegian legislation, which requires that dividend payments can only be made from distributable reserves;
• the board of directors proposes the dividend payment, which must be approved by the shareholders at the General Meeting. The payment must be made in accordance with the company’s Articles of Association and relevant regulations; and
• payments of dividends are subject to withholding tax; however, most tax treaties entered into by Norway limit withholding tax (see 4. Tax).

The following applies in the case of capital repatriation:

• generally, there are no capital controls, although the companies must comply with reporting requirements and regulations concerning foreign investments; and
• there are no exchange controls that restrict the movement of capital across borders.

Effective planning and consultation with financial and legal advisors can help navigate the requirements set out in the Norwegian legislation and mitigate potential issues.

Norway is subject to anti-money laundering (AML) and know-your-customer (KYC) regulations concerning equity financing. The purpose of these regulations is to prevent money laundering, terrorist financing, and other financial crimes. The applicable regulations and their impact on transactions include the following.

Anti-Money Laundering Act (Hvitvaskingsloven)

Hvitvaskingsloven establishes the legal framework for combatting money laundering and terrorist financing in Norway, and requires financial institutions and certain other businesses to implement robust AML procedures. Hvitvaskingsloven mandates due-diligence measures, including customer identification, verification, and monitoring of transactions.

FSA

The FSA supervises and enforces compliance with AML and KYC regulations and provides guidance and oversight to ensure that financial institutions and other regulated entities adhere to the legal requirements.

KYC Regulations

Entities involved in equity financing must verify the identity of their customers and beneficial owners. This includes obtaining and verifying personal information and documentation. In addition, companies must continuously monitor transactions and business relationships for suspicious activity, and report any concerns to the authorities.

Impact on Transactions

• Due diligence: before proceeding with equity financing, companies must conduct thorough due diligence to verify the identity of investors and ensure that they are not involved in money laundering or terrorist financing. Investors are required to provide documentation to prove their identity and source of funds.
• Transaction monitoring: equity transactions are subject to ongoing monitoring to detect and prevent suspicious activities, and companies are required to have systems in place to track and analyse transactions for unusual patterns.

AML and KYC compliance can lead to delays in transactions due to the time required for verification and due diligence processes. Implementing and maintaining AML and KYC procedures can also create further costs for companies, including legal and administrative expenses.

Norwegian law and jurisdiction are generally chosen for equity financing transactions in Norway. For international equity financing transactions supported by international broker firms, English law is not uncommon. The Norwegian legal system is considered reliable and fair, and this applies for foreign investors also. Norwegian law is typically applied because the Norwegian rules on securities trading and other Norwegian rules will apply to the financing. Typically, the managers, company or other key players involved will also be Norwegian.

In addition, it is possible to agree on arbitration or mediation, and the legal system in Norway generally aims to reach an amicable settlement before a case goes to court.

Equity finance investors in Norway should be aware of certain noteworthy trends and developments before committing to investments.

Some key considerations include the following.

• Exchange rates are an important factor when evaluating investments in Norway, as the Norwegian krone can be volatile, especially against major currencies such as the US dollar and the euro. This volatility can affect the value of and returns on investment, but can also provide investment opportunities.
• There is an increasing emphasis on ESG factors in Norway due to regulations that require companies to disclose ESG-related information, particularly those listed on the OSE. Investors are paying more attention to companies’ sustainability practices and their impact on society and the environment. This trend is driven by both regulatory requirements and growing investor demand for responsible investment.
• Investors should be aware of the broader economic conditions in Norway, including interest rates, inflation, and economic growth trends. These factors can impact the investment climate and the performance of equity investments. Certain sectors, such as renewable energy and maritime technology, are experiencing significant growth and development. Understanding sector-specific trends can help investors identify promising opportunities.
• It is important to stay updated on changes in regulations that affect equity financing, such as updates to corporate governance rules, tax regulations, and reporting requirements. Compliance with these regulations is crucial for both investors and companies.
• There is a rising focus on venture capital and growth equity investments in Norway, particularly in early-stage and high-growth companies. Understanding the landscape of venture capital and growth equity can help investors identify high-potential opportunities.

Withholding Tax

As a general rule, dividend distributions to shareholders residing abroad are subject to a 25% withholding tax. However, most tax treaties entered into by Norway limit withholding tax to 15%. A Norwegian company is responsible for withholding tax prior to dividend distribution.

Specific withholding-tax rules also apply to certain interest and royalty payments made to related companies residing in low tax jurisdictions. Unless limited by any applicable tax treaty, the withholding tax on such interest and royalty payments is 15%.

Capital Gains Tax (Norwegian Corporate Shareholders)

Capital gains received by Norwegian corporate shareholders from a company that is tax resident in Norway or within the EEA (provided certain substance requirements are met within the EEA) are generally tax exempt. Furthermore, capital gains received by Norwegian corporate shareholders from companies located outside the EEA are tax exempt, provided they have held at least 10% ownership of the foreign entity for the last two years. Capital gains received from a low-taxation jurisdiction are not tax exempt.

Capital Gains Tax (Shareholders Tax-Resident Abroad)

No tax is incurred on capital gains received by shareholders residing abroad from a company that is tax resident in Norway.

Investors are generally granted tax relief on all costs related to investments that result in taxable income. This tax relief is typically provided either through direct deductions or by reducing the calculated capital gain from the investment upon realisation. Norway also has a rights-based tax-deduction scheme (SkatteFUNN) for Norwegian companies where companies can apply for a public grant for 19% of the costs of a research and development project. The grant is provided either as a tax deduction or as a direct payment to companies that are not in a tax position. The scheme is administered by the Research Council of Norway, in collaboration with the Norwegian Tax Authorities.

Norway has concluded double tax treaties with most countries that are not considered low-taxation jurisdictions. This provides a reasonably safe and “plannable” environment for investors.

In Norway, equity investors have a limited role and influence in insolvency proceedings. Their rights are significantly diminished once the process begins, and their priority in the payment hierarchy is low. This means they are highly unlikely to recover their investment unless all creditors are paid in full. In most cases, equity holders receive nothing, or only a small portion of their initial investment, once the company’s assets have been liquidated and distributed to creditors.

While they have the right to be informed about the progress of the insolvency proceedings and may attend creditors’ meetings, their ability to impact the outcome of the insolvency proceedings is minimal, with creditors and the appointed administrator primarily driving the process. The insolvency proceedings are supervised by the court, and decisions are made in accordance with Norwegian insolvency law. Equity investors can appeal certain decisions, but their influence is generally limited.

When a company goes bankrupt, shareholders lose their investment in the company. If the company does not have enough funds to fully cover its creditors, the shareholders will receive nothing. For Norwegian companies, the insolvency process is governed by The Bankruptcy Act (Konkursloven) and the Satisfaction of Claims Act (Dekningsloven).

The funds generated from the liquidation are distributed to creditors according to the priority of their claims. The order of priority in Norway is generally as follows.

1. Secured creditors: these creditors hold a security interest (eg, a mortgage) in the debtor’s assets.
2. Priority creditors: these include claims for unpaid wages, taxes, and other statutory claims.
3. Unsecured creditors: these are creditors without any specific security interest. These claims are typically paid after secured and priority creditors have been satisfied.
4. Subordinated creditors: claims that are legally subordinated to other debts, such as shareholder loans.
5. Shareholders: if any assets remain after all creditors have been paid (which is rare in insolvency cases), they are distributed among the shareholders. When there are any remaining funds after paying creditors, they are shared out proportionally, based on ownership share and (if any) specific agreements. Norwegian legislation does not provide mechanisms for enforcing future capital calls during insolvency.

In Norway, the typical insolvency process will vary in duration depending on the complexity of the case. However, most insolvency proceedings take anywhere from six months to several years to complete. The timeline is influenced by factors such as the size of the business, the complexity of its financial situation, the number of creditors, and the ease with which assets can be liquidated. Given the legal priority structure, the likelihood of shareholders receiving any recovery in insolvency proceedings is typically very low unless the company has significant unencumbered assets and low levels of debt.

Rescue of a company in financial distress in Norway takes the following forms, with the following risk and benefits.

Debt Restructuring

• Process – involves negotiating with creditors to restructure the company’s existing debt. This may include extending payment deadlines, reducing the amount owed, or converting debt into equity.
• Risks for equity holders – potential dilution of shares if debt is converted into equity, resulting in loss of control and reduced share value.
• Benefits – may prevent insolvency by easing financial burdens, though typically at the costs of diluting current equity.

Operational Restructuring

• Process – involves making changes to the company’s operations to improve efficiency and profitability, such as cost-cutting, divesting non-core assets, or changing management.
• Risks for equity holders – limited direct risk, but success is uncertain and might not fully address financial distress.
• Benefits – can improve the company’s financial health, potentially preserving or enhancing equity value (if successful).

Raising New Equity

• Process – company raises new capital by issuing additional shares to existing or new investors.
• Risks for equity holders – can lead to share dilution, reducing the value of existing shares.
• Benefits – provides liquidity to stabilise operations, potentially avoiding insolvency and preserving some value for equity holders.

Formal Insolvency Proceedings

• Process – involves formal legal proceedings like bankruptcy or debt negotiation.
• Risks for equity holders – high likelihood of losing most or all of their investment, with limited influence over the process.
• Benefits – generally minimal for equity holders as creditors take precedence.

Who’s in the driving seat?

Creditors typically hold the most sway, and particularly secured creditors, as they have the primary claim on the company’s assets. The company’s management might need creditor approval for restructuring plans. This can lead to a pressured situation for the company, in which shareholders who disagree with the management’s decision find themselves marginalised, as equity holders usually have limited influence.

The outcomes vary widely depending on the specifics of the situation, but equity holders often face the risk of substantial dilution or loss of their investment in these scenarios.

Other risk areas for equity finance providers if their company becomes insolvent include the following.

• Fraudulent transfers: investors can be sued by insolvency administrators if they have received assets or payments from the company with the intent to defraud creditors, particularly if the transfer occurred when the company was already insolvent or on the brink of insolvency. However, it is not common for investors to be sued by insolvency administrators.
• Preferential transfers: investor might be sued if they received payments or other benefits from the company that favoured them over other creditors within a certain period before the company declared bankruptcy.

These legal actions are complex, and highly dependent on the specific circumstances of each case. While it is possible for investors to be sued, it is not typical unless there are grounds for fraudulent or preferential transfers.