In both limited companies and public limited companies, incentive schemes for the board, management, and other employees are common.

Such arrangements often include an option—a right, but not an obligation—to acquire shares in the company.

The purpose of such incentive schemes is to enable the relevant groups of people to purchase shares in the company at a reasonable price, thereby giving them the opportunity to reap a handsome profit if the share price rises.

For the company, this is a tool for ensuring that attractive key personnel remain with the company over time.

In order for option holders to have a certain degree of certainty that future share allocations can actually be carried out, such option programs are often combined with the general meeting granting the board of directors authorization to issue a certain number of new shares.

The disadvantage of such board mandates is that they have a maximum term of two years, cf. Section 10-14, third paragraph, of the Norwegian Public Limited Liability Companies Act (asl.).

This is impractical, as incentive programs often have a duration of 3–5 years.

A better alternative is to utilize the option provided by Sections 11-12 and 11-13 of the Norwegian Public Limited Liability Companies Act to issue independent subscription rights.

A subscription right entitles the holder to demand the issue of one or more new shares in the company.

Terms and conditions for the allocation of subscription rights

The specific terms and conditions for being allocated subscription rights and subsequently shares are usually regulated in a separate agreement between the company and the employee(s), which typically regulates the deadline and subscription price for subscribing to subscription rights, and the deadline and subscription price for using the subscription rights to subscribe for shares.

As long as the rules of the Companies Act regarding the issuance of subscription rights are followed, there is complete freedom of contract between the parties when it comes to determining the conditions for the allocation of subscription rights.

This enables the company to create financial instruments that contain tailor-made solutions adapted to their specific needs.

Requirements for consideration at the general meeting

The issuance of separate subscription rights requires a resolution by the company's general meeting, with at least a two-thirds majority.

The reason for this is that any changes to the company's share capital require amendments to the articles of association, and amendments to the articles of association require a two-thirds majority at the general meeting.

Section 11-12, third paragraph, provides a detailed list of the information that the general meeting's resolution must specify, including the number of subscription rights to be issued, who will be eligible to subscribe for the subscription rights, the deadline for subscription, and the consideration to be paid for the subscription rights.

Before the general meeting can consider the matter, the company's board of directors must have prepared a proposal for the general meeting's decision on the issue of subscription rights.

The proposal must be justified, and ASL § 11-12 lists a number of other elements that must be included in the proposal.

If it is proposed that the general meeting's decision to deviate from the shareholders' right to subscribe for the new shares, this must be specifically stated and justified.

If the rights holders at any time choose to exercise their subscription rights to demand the issue of new shares in the company, the capital increase this entails must be reported to the Register of Business Enterprises without delay.

Warning against homemade variants

From time to time, one sees examples of "home-made" solutions where the company itself has drawn up subscription rights for employees, for example, without complying with the rules of the Companies Act.

Such subscription rights are invalid under company law and therefore worthless to those who have been allocated the subscription rights.

In the worst case, they may also trigger liability for damages for the persons who prepared them.

In other words, it is crucial that the rules of the Companies Act are followed.