What is important to think about when composing a board?

Posted by:
Monica Eriksen
on
January 24, 2022

The board is the company's top management and has the task of managing the company. All limited companies are required to have a board, but how do you choose the best composition of board members?

Many board members are not aware of their duties as board members, and thus are also not aware of the consequences that can result if the duties are not complied with.

Competence and qualifications
In order to be able to identify the needs around the qualifications and competence of the board members, it is important to assess which phase the company is in.

If you put together a board where the members lack the necessary competence, it can lead to poorer results for the company. Therefore, it will pay to put together a board that consists of people with different skills and backgrounds. With different industry expertise, financial expertise, legal expertise and technical expertise.

Smaller companies often use family and friends as the board, which can lead to limited board competence. This can add a risk, but a risk that can be improved through training.

Some industries have special rules on qualifications
Requirements for qualifications for board members are not stipulated in Aksjeloven, but be aware that there are special rules in some industries. For example, board members in real estate companies and investment firms are required to have relevant professional experience and good character.

The law on board composition
According to Aksjeloven, it is up to the company to decide how many members the board shall have, and the members are elected by the general meeting. It is also required that half of the board members must be resident in Norway or in an EEA state, cf. § 6-11.

In boards with two or more members in public limited companies, both sexes must be represented, and if the board has four or five members, each sex must be represented by at least two. If the board has more than nine members, each gender shall be represented by at least 40%, cf. section 6-11a of Allmennaksjeloven.

The board's areas of responsibility and tasks
A well-composed board will play an important role in both the operation, development and achievement of goals for the company. The board's tasks include:

  • supervise the company's activity and the day-to-day management. In other words, ensure proper organization and set clear lines of responsibility.
  • stay up to date on the company's financial position.
  • ensure that the company has prudent equity and liquidity in relation to risk and activities.
  • ensure that the company has adequate plans, budgets, financial reports, insurance policies, policies and any audits.
  • follow up the general manager's plans and reporting routines. If the company does not have a general manager, it is the board's responsibility to supervise the chairman of the board who performs the function as general manager.

The board has a duty to act
If the equity becomes unjustifiably low or falls below half the share capital, the board has a duty to act (applies to both AS and ASA). This means that the board is obliged to convene a general meeting and propose measures within the time frame in which it is still possible to save the company. If the measures are not possible, the company must be proposed to be dissolved.

In cases where the board does not comply with its duty to act, the members may be held liable for financial losses which they intentionally or negligently inflict on others in the performance of their role as board member. Read more about the general manager and the board's liability here.

Adminflow makes board work easier
With Adminflow, all board members get full control over the company's board processing and activation in a user-friendly digital boardroom. Adminflow allows you to handle everything you need before and after each board meeting, which makes the board work more efficiently, more securely and more professionally.

Feel free to contact us if you want more information about the composition of the board.

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