New Companies Act

A new Companies Act entered into force on 1 January 2006. The new Companies Act marks the end of a process of company law reform that has been in progress for several years. Below is a brief summary of some of the changes in the new Act.

Company formation

The rules on procedures for forming a company have been adapted to the way in which companies in fact were formed in the past. This means that all measures involved in forming a company can be carried out in a single process, known as simultaneous formation. Those wishing to form a company draw up a memorandum containing articles of association. One or more of the founders then subscribe for all the shares in the memorandum of association and pay for them. After this the memorandum of association is finalised and signed. Finally, the founders submit details of the company to the Swedish Companies Registration Office for registration.

Shares

As before, all limited companies must have share capital. The minimum amount is the same as before, i.e. SEK 100 000 for private limited companies and SEK 500 000 for public limited companies. Each share represents an equally large proportion of the share capital (quota value of the share). Shares may not be issued for a sum below the quota value. The rules in the previous Act stating that the shares must have a nominal value have not been included in the new Act. If shares are issued for a sum exceeding the quota value, the premium must be set aside in a special fund (the share premium reserve). One new feature is that the share premium reserve constitutes non-restricted equity in the company. This means that funds allocated to the fund can be distributed to shareholders in the same way as profits, for example.

Company organisation

Compared with the previous Act, no substantial changes have been made to the rules concerning company organisation in the new Companies Act. However, the new Act contains a new procedure for voting by proxy and new provisions on electronic issuing and signing of certain documents. Another new feature is that the earliest that changes in the composition of the board of directors and decisions to appoint or dismiss the managing director will take effect is the date on which the Swedish Companies Registration Office receives notification of registration.

The new Act also contains changes concerning the term of office of the auditor.

Increase in share capital, etc.

In the new Act, rules concerning increase in share capital have been restructured and given a different legal design, as compared with the previous Act. Still, in substance the rules are similar to what applied before. Some new features will be introduced regarding share warrants and convertibles. Under the new Act it is permissible to issue "naked warrants", i.e. share warrants even without a link to a promissory note. It is also permissible to issue convertibles that give the owner of the convertible an obligation - instead of a right - to convert the convertible right into shares.

With regard to corporate borrowing, one important innovation is that under the new Act, principal-linked participating debentures are permitted. A principal-linked participating debenture is a loan where the amount the company is required to repay depends on the dividend paid to shareholders or on the company´s profit/loss or financial position. Such loans have previously been prohibited.

Value transfers

Rules concerning the way and extent to which assets can be transferred from the company to shareholders or other parties have been assembled in the new Act under the term "value transfers". Value transfers are prohibited for sums so large as to leave the restricted equity without full coverage after the transfer. When the scope for a value transfer is decided, an examination must also be made of whether the planned value transfer is justifiable bearing in mind the amount of equity required by the type and size of the business and the risks involved.

As before, decisions regarding distribution of profits are taken by the general meeting. The Act clarifies that such decisions can be taken at an extraordinary general meeting as well as at the ordinary general meeting. In such cases, the distribution of profits must not exceed the value of the company´s remaining unrestricted equity according to the most recent annual report (extra dividend).

Buy-out of minority shareholders

The new Act also contains more extensive regulations on the compulsory buy-out of shares than what was previously found in the Companies Act. Anyone who holds over 90 per cent of the share capital in a limited company is entitled to buy-out remaining shares. Only the proportion of share capital is taken into account, not the proportion of votes held. Buy-out rights are not limited to Swedish companies alone; Swedish and foreign legal persons and individuals are also entitled to these rights. People whose shares may be subject to a compulsory buy-out are themselves also entitled to demand that the majority shareholder purchase their shares.

The Act´s entry into force

The new Companies Act entered into force on 1 January 2006.
The regulations in the articles of association on the nominal value of shares do not need to be removed until the company decides on other amendments to the articles of association for the first time after 1 January 2006.