Swedish Companies Act (Part 2)

The Swedish Companies Act | HI Law Firm

Chapter 8  Company management

A share limited company shall have a board of directors with one or more members. The limit is set regardless of whether the public limited company is public or private. The board of directors of a private limited company may consist of one or two members if at least one alternate is appointed, see Chapter 8, section 3, ABL.

There is nothing to prevent a private limited company from having a board of three or more members. In that case, there is no need for an alternate board member in the company.

The main functions of the Board are to be responsible for the company’s organization and the management of the company’s affairs. The Board shall also continuously assess the company’s or, where applicable, the Group’s financial situation.

The Board shall also ensure that the company’s organization is designed so that the accounting, the asset management and the company’s financial conditions are otherwise controlled in a satisfactory manner, see further in section 8, sections 4 – 5, § ABL.

You can read more about how the Board is appointed and the residence requirement, obstacles to being a Board member and term of office, early departure, Chairman of the Board, meetings, in Chapter 8, sections 8–21, ABL.

There are majority requirements in the Board’s decision making. This means that if a special majority of votes is not provided for in the Articles of Association, decisions on more than half of the votes present at the meeting shall be considered in more detail in Chapter 8, section 22 of ABL.

Furthermore, a board may appoint a CEO. For information regarding the CEO’s duties and powers, see chapter 8, sections 27 – 34, sections ABL.

Chapter 9 – Revision

A share limited company must have at least one auditor. The auditor’s main tasks are to review the company’s annual financial reports and accounts, as well as the administration of the Board of Directors and the Managing Director, see Chapter 9, sections 1 – 6, sections ABL. It is the responsibility of both the Board of Directors and the Managing Director to provide information to the extent that the auditor deems necessary. An auditor is appointed by the Annual General Meeting and must satisfy the grounds of unauthorized that neither be bankrupt nor have a trustee in accordance with Chapter 11, Section 4 of the Parental Code. Only authorized auditors are thus approved. The divergence rules and the qualifications for auditors are further regulated in Chapter 9, section 17 of ABL. On the other hand, the auditor must fulfill his duty of disclosure vis-à-vis the AGM, see Chapter 9, sections 45–46 of the ABL.

Chapter 10 – General and special review

The current chapter stipulates when a lay examiner may be appointed. The lay auditor shall review whether the company’s operations are managed in an appropriate and economically satisfactory manner and whether the company’s internal control is adequate. The review must be as thorough and comprehensive as good practice requires in this type of review, Chapter 10, Section 3 ABL.

Chapter 11 – Increase of share capital, issuance of new shares, raising of certain money loans

The various forms of increase in share capital are set out in this chapter. The company’s share capital can be increased in the following different ways; 

(1) By adding share capital to the share issue. Provisions for this can be found in Chapter 12 ABL., 

(2) New shares are subscribed for payment in accordance with a decision to issue new shares. You can read more about this in Chapter 13 ABL. 

(3) New shares are subscribed for payment using the warrants issued by the company. Provisions for this can be found in Chapter 14 ABL. 

(4) New shares are distributed in exchange for convertibles issued by the company. Provisions for this can be found in Chapter 15 ABL.

Chapter 12 – Fund Issue

This chapter explains in more detail what forms a fund issue can be implemented. A fund issue can partly be done by 

(1) transferring amounts from the revaluation fund, the reserve fund, the development expenditure fund or unrestricted equity according to the most recently adopted balance sheet, or 

(2) the value of the fixed asset is written up, see Chapter 12, Chapters 1-2. More on how to decide on a bonus issue can be found in Chapter 12, sections 3-5 of the ABL.

Chapter 13 – New share issue

It is in the case of a new share issue that the shareholders have preferential rights to the new shares in relation to the shares they own. The preferential right, however, does not apply if the shares are paid for in kind; The preferential right shall be regulated in a different way, followed by:

  1. Such regulations in the articles of association referred to in Chapter 4, Section 3 ABL. 
  2. conditions that have been announced in a previous issue of warrants or in a previous issue of convertibles; or 
  3. provisions of the issue resolution. Shares held by the company itself or its subsidiaries do not give any right of preference, Chapter 13, Section 1 ABL. 

Further details on the rules on how a new share issue is decided can be found in the mentioned chapter, sections 3 – 6 §§ ABL. The new shares must then be subscribed to in accordance with the provisions of section 13. When a subscription pursuant to section 13 has been completed, the Board of Directors shall decide on allotment to the shareholders. Thereafter, the allotted shares shall be entered in the share register.

Chapter 14 – Issue of warrants with subsequent subscription of new shares

When issuing warrants, the shareholders have preferential rights to the warrants in relation to the shares they own. The rules are identical to what applies for the subscription of a new share issue in accordance with Chapter 13 ABL. A difference between the new share issue and the issue of warrants is that options can be issued without consideration. The main rule of equal rights also applies in that case.

Chapter 15 – Issuance of convertibles with subsequent conversion to new shares

The current chapter regulates the shareholder’s preferential right to convertibles. The section corresponds to Chapter 13, Section 1 ABL, on preferential rights to new shares.

Chapter 16 – Certain targeted emissions etc.

The provisions of the said chapter become applicable when public limited companies and subsidiaries decide on 

(1) New share issue, shares or issue of warrants or convertibles, 

(2) Transfer of shares, warrants or convertibles issued by a company within the same group, or, 

(3) Loans referred to in Chapter 11 Section 11 ABL. If a decision taken by the Board is in violation of the provisions of Chapter 16, Section 6 of the ABL, the decision is invalid regardless of the recipient’s good faith. The decision will also be invalid even if it is not blamed.

Chapter 16 a – Certain related party transactions

The chapter applies when a public share limited company whose shares are admitted to trading on a regulated market or a corresponding market outside the European Economic Area must decide on a material transaction with a related party. The chapter is also applied when a material transaction between a wholly owned Swedish subsidiary of such a limited company and a related party to the parent company is to be decided. The definition of a material transaction is found in § 2 and of related parties in § 3. The exceptions to this are stipulated in sections 4 – 6, see prop.2018 / 19: 56 p. 131.

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