Sweden

Investment law in Sweden

The purpose of this article is to give insight into some areas of Swedish law that may be interesting for a foreign investor

Sweden has over the last decade become more and more influenced by international practices. Not only has the development in Europe of more harmonised legislation had an impact, but also many US practices in financing and acquisitions have quickly been adopted in Sweden. However, Swedish law and practice has still a few more or less unique features which an investor should be aware of when contemplating a transaction involving Swedish entities and when appointing a representative.

Acquisition of shares in a listed swedish company

The acquisition of shares in a company can be undertaken without any particularly burdensome formalities, although the terms of the contract as always must be carefully considered (see also below about due diligence) and entry in the share ledger must be secured. In order to acquire shares in a listed company certain rules for a public takeover must be complied with. Such Takeover Rules have been issued by the Swedish Industry and Commerce Stock Exchange Committee (NBK). NBK is a self-regulatory body and the rules have in the past been binding as an effect of being referred to in the listing contract. However, under a proposed new law entities not listed on a Swedish marketplace must agree to be bound by the Takeover Rules. The Swedish Securities Council (Aktiemarknadsnämnden — AMN) is another important private body which issue opinions on good market practice in general and the interpretation of the Takeover Rules in particular.

The board of directors of the target company may recommend the shareholders to accept an offer, but it is up to each shareholder to accept or reject the offer. Once 90% of the shares in the company have been acquired, the acquirer may initiate a squeeze-out procedure to acquire the remaining shares. A shareholder reaching a 30% holding in a listed company is also obliged to offer to acquire all remaining shares in the company. There are restrictions on implementing defences to takeover bids, and also rules on the minimum offer price relating to the price for acquisition of shares in the company prior to, under or after the takeover offer.

In addition, it is always important to consider the need for a prospectus. The rules related to prospectuses have recently been harmonised by way of an EU regulation which is directly binding upon the member states. Currently, some uncertainties regarding practical implications of the new rules require close co-oporation with the Swedish Financial Supervisory Authority (Finansinspektionen).

Different voting rights

A Swedish limited liability company can issue shares with different voting rights. The difference between categories of shares with respect to voting rights may not increase 1:10, ie the company can issue one series of shares with one vote per share and another series with 10 votes per share. Previously however, it was possible to issue shares with differences up to 1:1,000 and many of the major Swedish industrial companies still have such larger difference in voting rights, which makes it very hard, if not impossible, to acquire control over the relevant company. The possibility of having shares with different voting shares may be an important feature in structuring an investment in a Swedish company.

Due diligence

In Sweden, the use of due diligence in connection with investments and acquisitions is customary and heavily influenced by US procedures. Thus, in this respect a foreign investor should normally be satisfied that he could obtain a report that meets his expectations. Nevertheless, before initiating a transaction process and the commencement of a due diligence procedure, it is important to understand the legal implications of due diligence under Swedish law. Not understanding the relationship between due diligence, the law and the warranties and representations in the transaction agreement may put a party in a potentially unfavourable position.

Potential liability

Having completed a successful investment or acquisition, the acquiring entity usually place its own directors on the board. The directors of the company are liable for their actions as directors (as will be shown below), whereas the shareholders’ personal liability is very limited since there is virtually no recognised theory of “piercing the corporate veil” affecting the shareholders in Sweden.

Carl-Olof Bouveng

A Swedish company (Sw. aktiebolag) is either “private” or “public” and only the latter may obtain financing from a larger group of investors. It is important to recognise this difference in categories since it may give rise to criminal liability for the directors (and possible the shareholders) of a private company should it seek financing from outside the very limited group permitted by law. The vast majority of all limited liability companies in Sweden are private. However, it is fairly easy to change category should it be desirable to seek financing from a broader public.

A Swedish AB must have a registered minimum share capital of no less than SEK 100,000 (about USD 13,000) for a private company and SEK 500,000 (about USD 64,000) for a public company. Distributions of the share capital and other restricted equity of the company to shareholders and group companies are strictly regulated and limited under law. These limitations associated with the registered share capital are based on the theory that a company’s creditors should have a minimum protection for their claims.

In this respect, it is important to be familiar with the rules prohibiting a company from financing a potential acquirer of the company’s own shares or the shares of another company superior in the same group (by way of granting a loan or giving a guarantee). Any violation of this “financial assistance prohibition” may result in criminal liability for the directors. It may be noted that there exists accepted and commonly used structures to avoid these prohibitions, but each situation requires careful consideration.

Moreover, the emphasis that is put on the importance of protecting the share capital is reflected in a set of formal rules that come into play when the board suspects that the equity of the company has been reduced to such an extent that half of the registered share capital has been consumed. In such a situation, the board has an obligation to establish a liquidation balance sheet and convene an extraordinary shareholders’ meeting to decide whether to liquidate the company or not. Should the board not adhere to these formal procedures and the company is run with equity lower than half of the registered share capital, the directors may face personal liability for all upcoming obligations of the company. Thus, a director who is not monitoring and following the development of the company’s equity may suffer personal financial loss.

A director of a Swedish company is not only required to carefully protect the share capital of the company, he is also personally liable for the correct payment of all company taxes that are due. This liability does not cease just because a director resigns from his position. He will still be liable for all taxes that should have been paid during his term. This liability for company taxes often comes as a surprise for the directors, and it has turned out to be very difficult to avoid liability even though directors have been acting diligently during their terms in all other respects. In addition, D&O insurance in Sweden does not usually cover personal tax liability.

Finally, it should be mentioned that the board of directors is required to keep and maintain the company’s share ledger. This may, especially in closely held private companies, seem like a minor company formality. However, not keeping a proper share ledger in any company may induce criminal liability for the directors.

 

Contact details:
Advokatfirman Lindahl Visiting address: Sergels Torg 12 P ostal address: Box 14240, SE-104 40 Stockholm, Sweden - Tel: + 46 8 6705800 - Fax: + 46 8 6677380 - E-mail: stockholms.reception@lindahl.se - Contact: Carl-Olof Bouveng Direct dial: +46 8 6705890 E-mail: carl-olof.bouveng@lindahl.se

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