Proposal: Lowered Minimum Share Capital in Swedish Private Limited Companies

In October 2007 the Swedish Government initiated an investigation concerning the minimum share capital in private Swedish limited companies as a part of a general drive to simplify the rules applicable to smaller companies and to strengthen their competitive powers.

A report has now been presented as “Aktiekapital i privata aktiebolag, SOU 2008:49”

Today the minimum share capital of a private Swedish limited company is SEK 100,000. The main proposal in the report is to lower this amount to SEK 50,000. This level would enable increasing numbers of minor entrepreneurs to carry on their business activities in limited companies but at the same time ensure that a certain amount of money is needed to start and to operate a limited company.

As an alternative it is proposed that only a quarter of the share capital need to be paid in immediately with the remaining amount being paid later. If this proposal is introduced in the Swedish Companies Act together with the decrease of the minimum capital to SEK 50,000 , it would mean that only SEK 12,500 would be needed in order to start a Swedish private limited company. At present exchange rates this corresponds to about US$ 2,100 or € 1,350.

Swedish public limited companies will still need to have a share capital of not less than SEK 500,000.

A Short Information on Compulsory Share Redemption according to Swedish Companies Act

Redemption Conditions

If one shareholder holds more than nine-tenths of the shares in a Swedish company, he is entitled to buy-out the remaining shares of the other shareholders of the company. This also applies in a situation where one shareholder together with one or more of its subsidiaries holds more than nine-tenths of the shares. However, it does not apply when two non-related shareholders together hold more than nine-tenths of the shares.

Any person or legal entity whose shares may be bought out by a majority holder is also entitled to compel the majority shareholder to purchase his shares.

Purchase Price

If a demand for a buy-out was preceded by a public offer to acquire all of the shares of the company not held by the offeror and such offer was accepted by holders of more than nine-tenths of the shares to which the offer was related, the purchase price shall correspond to the consideration offered, “unless special cause otherwise dictates”.

Otherwise, the purchase price shall correspond to the price expected at a normal sale.

Initiation of Arbitration Procedure to decide the Purchase Price

If the parties are unable to agree on the purchase price, the majority holder is obliged to refer the matter to arbitration. One of the arbitrators is appointed by the majority shareholder, the other by the minority shareholders and the third (the chairman) is jointly appointed by the first two arbitrators.

The Swedish Arbitration Act will apply to the arbitration procedure.

Trustee acting on behalf of Minority Shareholders

The minority shareholders are given a two week time period to appoint their joint arbitrator. It is very unlikely that the minority shareholders succeed or even try to succeed in doing this, and the board of the company will instead formally ask the Stockholm District Court to appoint a trustee, who then will appoint the arbitrator on behalf of the minority holders and who shall protect the interests of the minority shareholders during the compulsory redemption process.

Arbitration

After an exchange of briefs between the parties and the hearing of arguments of the parties, the arbitrators will decide the purchase price to be paid by the majority shareholder for the shares to be redeemed. The payment of the purchase price will include interest and will be made in cash.

During the redemption procedure the Stockholm District Court and the arbitrators have to make certain decisions, some of which may be appealed. The redemption procedure is normally brought to a stand still during these appeal periods. This, together with the time necessary for the exchange of often lengthy briefs between the parties, results in a protracted redemption procedure period.

Advance Vesting of Title

Under normal circumstances, the majority shareholder may be vested in advance of the minority shares, provided the parties agree that a right of buy-out/compensation exists or this is otherwise obvious and further provided that the majority shareholder provides security for the purchase price (including interest) to be paid to the minority shareholders.

The Swedish Companies Act 2005 in English translation

As far as I know there is still no translation into English of the Swedish Companies Act 2005 available on the net free of charge.

It is available in an electronic version to subscribers of Swedish Commercial Legislation, which is a part of the Norstedts Juridik Zeteo services.

It is also available in printed form as follows:

as part of the Swedish Commercial Legislation loose leaf publication
Norstedts Juridik & Translegal Sweden, 2007
ISBN 978-91-39-01319-8

as a separate book The Swedish Companies Act 2005 in translation
Aktiebolagslagen (2005:551) i engelsk översättning.
Norstedts Juridik & Translegal Language Services, 2006
Offprint from Swedish Commercial Legislation, Suppl. 20 April 2006
ISBN 91-39-01170-4

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