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.

English Translation of the New Swedish Companies Act

I have checked when a translation into English of the text of the new Swedish Companies Act may be available.

The Swedish Ministry of Justice is not going to do an official translation.

However, the Swedish book publishing firm of Norstedts (in Swedish only I'm afraid) will produce an English translation, which probably will by ready sometime this spring. It will be published as part of their publication Swedish Commercial Legislation (ISBN 91-38-55182-9) but also as a separate book.

Time of Registering Shares

Old Swedish Companies Act
According to Chapter 3 Section 13 of the old Swedish Companies Act the following used to apply:

If the share register of a company was maintained by electronic data processing, a print-out of the share register setting forth the circumstances ten days prior to a shareholders’ meeting should be made available to the shareholders at the meeting. From a practical point of view you then had to be registered in the share register at least ten days before the shareholders' meeting.

New Swedish Companies Act
According to the new Swedish Companies Act, Chapter 7 Section 28, the earlier ten day period has been changed to a five day period instead. In addition, the articles of association of the company may prescribe an even shorter period of time.

New Swedish Companies Act – Important changes – Part IV

Changes of the Board of Directors

All changes in respect of directors, deputy directors, authorized signatories and managing director will only take effect upon the receipt by Bolagsverket of a notice of change. Please note that it is the date of receipt and not the time of registration that is decisive. According to the old law the relevant time was the time of the shareholders’ meeting or board meeting where the change was decided.

The effect of this change is that a newly elected board not can hold a board meeting until a notice of the change has been sent of to Bolagsverket. When the shareholders have elected the new directors at the shareholders’ meeting, a notice of the change should be faxed or mailed and then the board meeting can be held.


Articles of Association

Amendments may have to be made in the articles of association to bring them in line with the new act.

No par value of the shares should be included. In stead the number of shares or, as an alternative, the minimum and maximum number of shares should be set out. The minimum and maximum number of shares should correspond to the minimum and maximum amount of share capital.

This change does not have to be effected until another amendments is made in the articles of association. All other amendments should be made at the first general shareholders’ meeting in 2006. If a company fails to make prescribed changes at the first general shareholders’ meeting in 2006 the relevant provision will be void.

Under the old act the only provision for “pre-emptive rights” allowed in the articles of association was a provision stating that a buyer of shares in the company was obliged to offer the shares to the other shareholders. The new act opens up the possibility to prescribe that, before selling his shares, a shareholder must either obtain the consent of the company or offer the shares to the other shareholders.

New Swedish Companies Act – Important changes – Part III

“Value transfer”

• The legislator has introduced a new concept “Värdeöverföring” to cover all transfers of assets from the company to a shareholder or other person. (I have not found any official translation but will be using the expression “Value Transfer” for this concept.)

• Value transfers may only be carried out in amounts allowing full coverage of the restricted shareholder’s equity directly after the transfer.

• In addition, there is a general rule of cautiousness stating that a value transfer may only be executed if it is “reasonable” considering

• the demands put on the amount of the shareholder’s equity by the type, extent and risks of the company’s business activities and


• the need of consolidation, liquidity and general position.

• When the company’s board of directors proposes profit distribution, the board is obliged to give a written motivation to the effect that the proposal is “reasonable”.

• Additional distribution of profit may be decided at an extra ordinary shareholder’s meeting.

• The previous rule concerning profit distribution in groups of companies has been removed but the rule of cautiousness shall be considered at group level in the parent company.

Prohibition on Loans to Shareholders

• These rules are kept in principle but one important change has been made. It will be possible to sell a subsidiary on credit because only loans for purchases of shares in the company itself or in superior companies of the same group.

to be continued

New Swedish Companies Act – Important changes

Issues of Shares

• The rules on publishing of resolutions regarding issues of shares, options and convertibles have been deleted.

• Earlier the amount to be paid for a new share must not be lower than the par value of the share. As shares will no longer have a par value, the subscription amount will be compared with the part of the company which the share will represent.

• New rules in respect of options and convertibles will give more flexible possibilities for increases of capital.

Restricted and Non-Restricted Shareholder’s Equity

• Amounts allocated to the share premium reserve from January 1, 2006 will be considered as non-restricted shareholder’s equity.

• The rules on mandatory allocation of funds to the statutory reserves have been removed.

• Amounts in the share premium reserve as of January 1, 2006 shall be transferred to

To be continued

New Swedish Companies Act – Important changes

As mentioned in an earlier post at Swedish Law Blog the new Swedish Companies Act (link to Swedish version only) will enter into force on January 1, 2006. The act has been rewritten and consists of 31 chapters compared to the 19 chapters of the old act. Major changes have been made concerning i. a. shares, issuance of new shares, the statutory reserves, lending to shareholders, the new concept “value transfer”, changes of the board of directors and the contents of the Articles of Association (bolagsordning).

In this and a couple of following blog posts I will cover the most important changes relevant to an established Swedish limited company without the aim of giving a thorough and detailed report on all the changes.


1. Shares
• A share in a Swedish limited company will no longer have a par value. It will instead only represent a certain part of the company. This part of the company is calculated by dividing the total share capital with the number of shares.

• New share certificates shall include the social security number (person- or organisationsnummer) of the shareholder.

to be continued