Brokerage firm prevailed in a case concerning internal partnerships

Three brokerage firms had established internal partnerships with key employees. An internal partnership is not a separate legal entity, and the business continues to operate under the brokerage firm’s name. The key employees do not appear externally as partners but assume limited liability for losses and are entitled to a share of the profits. The organisational model was motivated by a desire for the key employees to bear economic risk, for their employment agreements to fall outside the scope of the Working Environment Act, and for tax costs to be reduced. The structure had been cleared with the Tax Administration. The issue in the case was whether it was also compatible with the Securities Trading Act and the Alternative Investment Fund Managers Act.

The Supreme Court found that the use of internal partnerships is lawful. The structure does not conflict with the requirement that licences may only be granted to limited liability companies. Establishing an internal partnership does not entail a change in the brokerage firms’ corporate form. Nor can the internal partnerships be regarded as carrying on regulated activities without authorisation, as they do not act externally or engage in business on their own account. It is still the brokerage firms that provide investment services, conduct investment activities and manage funds. There was therefore no legal basis for ordering them to alter their organisational structure. The State’s appeal was dismissed.

The judgment clarifies the legal effects of the internal partnership form and its relationship to financial regulatory legislation.

Read the Supreme Court judgment (Norwegian only) (PDF)

Area of law: Securities trading and fund management

Key paragraphs: 44, 54, 62–63

Justices: Webster, Bull, Steinsvik, Stenvik, Vang