Sweden Minority Shareholder Rights IBA Corporate and M&A Law Committee 2016

Sweden Minority Shareholder Rights IBA Corporate and M&A Law Committee 2016 Contact Andreas Wirén Kristian Hermanrud Advokatfirman Delphi andreas.wiren@delphi.se kristian.hermanrud@delphi.se

Contents Page SOURCES OF PROTECTION AND ENFORCEMENT 1 PROTECTION AGAINST DILUTION 1 RIGHTS TO APPOINT DIRECTORS 2 PROTECTION AGAINST TAKEOVER BIDS FOR THE COMPANY 2 ACTIONS AND SEEK REMEDIES ON BEHALF OF THE COMPANY 3 RIGHTS TO PARTICIPATE IN DECISION-MAKING 3 RIGHTS WHEN A COMPANY IS EXPERIENCING FINANCIAL DIFFICULTIES 4 RIGHTS ENFORCEABLE AGAINST OTHER SHAREHOLDERS 5 SUMMARY OF RIGHTS 5

SOURCES OF PROTECTION AND ENFORCEMENT Please provide an overview of the sources of protection for minority shareholders in your jurisdiction. Who enforces these rights? The laws of Sweden give protection to minority shareholders in a number of different ways. Many of the rights and protections are found in the Companies Act 2005 (Sw. Aktiebolagslag (SFS: 2005:551)) (the Act ), which is the primary source of law for companies in Sweden. The statutory protections may, with certain limitations, be modified by companies articles of association and/or shareholders agreements, so the Act should always be considered alongside these documents. Chapter 4 Section 1 of the Act sets out the fundamental principle that all shareholders must be treated equally (Sw. Likhetsprincipen). Furthermore, Chapter 7 Section 47 and Chapter 8 Section 41 state that neither a board nor a shareholders meeting may resolve or undertake acts that grant improper benefits to a shareholder or a third party to the detriment of the company or any other shareholder. In Sweden, a limited liability company can be either private or public. Only public companies may be listed on a regulated market (as defined in EU legislation) or on a multilateral trading facility ( MTF ) (as defined in EU legislation). A company listed on a regulated market will hereafter be referred to as a listed company. In some cases, listed companies are subject to even stricter requirements than private and public companies as they must comply with the statements and rulings relating to good practice on the stock market issued by the Swedish Securities Council (Sw. Aktiemarknadsnämnden). Furthermore, listed companies must comply with the Swedish Corporate Governance Code (Sw. Svensk kod för bolagsstyrning) issued by the Swedish Corporate Governance Board (Sw. Kollegiet för svensk bolagstyrning). The Swedish Securities Council is responsible for overseeing companies listed on Nasdaq Stockholm and the Nordic Growth Market, and regularly issues opinions and rulings on what is considered to be good practice on these two stock markets. However, the Swedish Securities Council can also make statements regarding good practice on the market for companies listed on a MTF. Many of the statutes under the Act have also been subject to judicial proceedings and interpretation, and the relevant statute s applicability and/or scope are determined by the Supreme Court in the last instance. Hence there is a common law element to corporate law in Sweden, and case law forms a significant part of the legal framework. PROTECTION AGAINST DILUTION Are there any mechanisms in your jurisdiction to protect against dilution of shareholdings? For example, are existing shareholders granted any rights on the issue of new shares in a company? Shareholders are afforded several different kinds of anti-dilution protections. One such protection is set out in Chapters 11 and 13-16 of the Act, which provides that issues of shares, warrants and convertible debentures may only be effected by a shareholders resolution. Whilst this is not technically a protection specifically for minority shareholders (as authorisation may be given to the board of directors by a majority shareholder vote), it nonetheless brings the potential for dilution of shareholdings to the attention of existing shareholders. In the absence of contrary provisions in a company s articles of association, shareholders also have a right of priority when shares are issued (Chapter 4 Sections 2-3 and Chapters 13-16 of the Act), which enables current shareholders to participate and subscribe for shares in a new issue. These pre-emption rights operate in proportion to shareholders existing shareholdings in a company, giving minority shareholders the opportunity to purchase sufficient new shares to maintain their relative shareholdings in the company. However, it is possible to deviate from shareholders preferential rights by a directed issue to a shareholder or a third party. In such cases the resolution must be supported by shareholders representing at Page 1

least ⅔ of both the votes cast and the shares represented at the shareholders meeting. The distinction between votes cast and shares represented is important, since Swedish companies can have different classes of shares carrying different numbers of votes per share. The maximum difference possible is 10:1, meaning that class A shares can carry 10 votes per share while class B shares carry 1 vote per share. In relation to directed issues, listed companies must consider the Swedish Security Council s statements and rulings on what is considered to be good practice on the stock market (and guidance can often be obtained from previous rulings). Although the above rights and protections apply to all shareholders, they nonetheless operate to protect minority shareholders by requiring their input where their shareholdings are at risk of being diluted. RIGHTS TO APPOINT DIRECTORS Do minority shareholders have any special rights to appoint directors to safeguard their interests? Are other protections available to minority shareholders in this context (such as general duties of directors)? A Swedish company s governing body is its board of directors, which is elected at a shareholders' meeting. The board of directors typically appoints non-board member directors such as the CEO and CFO. Unless a company s articles of association or a shareholders agreement grant minority shareholders the right to appoint directors, they will have no specific rights of director appointment. Directors are subject to general duties under the Act, which should help to ensure that any directors appointed by majority shareholders do not act in a way that favors their appointers at the expense of minority shareholders. For example, directors must promote the success of the company as a whole and must avoid situations where a given course of action may result in them having a conflict of interest. In situations where a director is conflicted (such as when agreements between the director and the company are to be resolved), the conflicted director is prohibited from taking part in the board resolution through which the issue is resolved. PROTECTION AGAINST TAKEOVER BIDS FOR THE COMPANY Do minority shareholders have any protection in your jurisdiction where the company is the subject of a takeover bid? Where a takeover offer is made for a Swedish company listed on Nasdaq Stockholm or the Nordic Growth Market the offeror and target company will be subject to the Takeover Act (Sw. Lag (SFS: 2006:541) om offentliga uppköpserbjudanden på aktiemarknaden) and the Takeover Code issued by the Swedish Corporate Governance Board. The Takeover Act s statutory basis is the European Directive on Takeover Bids (2004/25/EC) and it is administered by the Swedish Corporate Governance Board. There is also special takeover regulation for companies listed on a MTF. At a basic level, the Takeover Code Chapter II Sections 10 and 11 provides that all shareholders of a target company must be treated equally during a takeover bid, and if an offeror acquires control, the remaining shareholders must be protected. This helps to ensure that preferential treatment is not afforded to certain shareholders and encourages information about the bid to be shared equally. The rules regarding mandatory offers (Sw. budplikt) in Chapter 3 Section 1 and 2 of the Takeover Act provide additional protection for minority shareholders. Where any party (acting either alone or with others as defined in Chapter 3 Section 5 of the Takeover Act) acquires 30 % or more of the voting rights in a listed company, they must make an offer to purchase the remaining shares of the company. This gives not only the minority shareholders, but up to 69.99 % of the shareholders, an opportunity to exit their equity position. Page 2

Minority shareholders may also exit their equity position through the sell-out procedure under Chapter 22 Section 1 of the Act. Where an offeror acquires more than 90 % of the shares in a company, the holder(s) of any of the remaining shares may require the acquirer to purchase the remaining shares on the same terms as the offer. Conversely, minority shareholders not wishing to exit the company in this situation may be squeezed out by the offeror, who has a right to acquire their shares (as Chapter 22 Section 1 of the Act gives the offeror a right to buy the remaining minority shareholders shares once the 90% threshold has been breached). As with the sell-out procedure, minority shareholders must be paid the same consideration as was offered in the original offer unless special circumstances require another valuation procedure (Chapter 22 Section 2 of the Act). Both the sell out and the squeeze out procedure apply to private and public companies. If the parties cannot agree on the share price it will be equivalent to what the share price would have been if the shares had been sold under normal circumstances (Chapter 22 Section 2 of the Act). Ultimately, the price may be settled through arbitration. Any person (not only shareholders) may request a copy of any company s share register (Chapter 5 Section 10 of the Act). The Financial Instruments Trading Act (Sw. Lag (SFS 1991:980) om handel med finansiella instrument) provides that shareholders must notify the company and the Financial Supervisory Agency (Sw. Finansinspektionen) when their shareholding or number of votes exceeds, or falls below, 5 % (and every 5 % thereafter up to two thirds). Where a shareholder has acquired two thirds of the shares or number of votes in a company, it does not have to notify the Financial Supervisory Agency about changes in ownership or votes until it has acquired 90 % of the shares. For every threshold reached shareholders must make the information available to the public as soon as possible. ACTIONS AND SEEK REMEDIES ON BEHALF OF THE COMPANY Are shareholders in your jurisdiction able to bring actions and seek remedies on behalf of the company? For example, is there any mechanism for a judicial or other official representative to oversee or intervene in the management of the company? Although minority shareholder protections are often referred to as rights specifically for the benefit of minority shareholders, they may also benefit from rights enforced on behalf of the company. Chapters 7 and 10 of the Act allow any shareholder, even those that only own one (1) share to: initiate matters to be resolved during a shareholders meeting, access to company information such as accounting and merger plans, attend and vote at shareholders meetings, ask questions during shareholders meetings, require a special reviewer (Sw. särskild granskare) to be appointed, and contest shareholder meeting resolutions. In addition, in accordance with Chapter 9 of the Act, a shareholder may require a minority auditor to be appointed. A minority comprising the owners of at least one-tenth of all of the shares in a company may bring an action for damages on behalf of the company, e.g. if a board member or CEO, in performing his or her duties, has intentionally or negligently caused the company damages. It should be noted that these shareholders rights only apply to the shareholders of companies incorporated under the Act, so shareholders of foreign companies cannot bring a claim under the Act (unless a shareholders' agreement provides such a right). RIGHTS TO PARTICIPATE IN DECISION-MAKING To what extent do minority shareholders have rights to participate in the decision-making of companies in your jurisdiction? Shareholders can participate in the operation of a company by expressing their opinions and voting on matters at shareholders meetings. Under the procedure set out in Chapter 7 Section 13 of the Act, share- Page 3

holders representing at least 10 % of the total number of shares in a company may require the directors to call an extraordinary shareholders meeting. If the directors fail to do so within the prescribed time limits, shareholders have the right to require the Swedish Company Registration Office (Sw. Bolagsverket) to convene the meeting. This procedure is, among other things, meant to ensure that directors (potentially acting on the instructions of majority shareholders) are not able to prevent minority shareholders from tabling a resolution by refusing to call a shareholders meeting. There is no remedy available for minority shareholders where the non-attendance of majority shareholders would result in a meeting not achieving any applicable quorum requirement, for example, for altering the articles of association. However, the shareholders represented at the meeting may, for example, elect a new board of directors, if this matter was provided for in the summons to the meeting. All shareholders must be sent a summons prior to all shareholders meetings and the notice must include details of the time and location of the meeting as well as a proposed agenda stating the matters to be resolved. The proposed resolutions in the summons must contain such information as is necessary to resolve the matter at the meeting. During the meeting the board and managing director must, upon request by a shareholder, provide facts that have a bearing on the resolutions or the company's financial position, provided such information can be shared without resulting in material damage to the company (Chapter 7 Section 32 of the Act). Notice of annual shareholders meetings must be given at least four weeks and no later than six weeks before the meeting is due to be held. Notice for an extraordinary shareholders meeting must be given at least two weeks and no later than six weeks before the meeting. For listed companies, the notice period for an extraordinary shareholders meeting is at least three weeks and no later than six weeks. For private companies, it is possible to stipulate a shorter notice period in the company s articles of association provided notice is required to be given at least two weeks before the annual meeting is due (Chapter 7 Section 18 the Act). With the exception of public companies, shorter notice periods, or none at all, can be approved by unanimous shareholder approval for any one meeting (a per capsulam meeting). If the provisions regarding summons to a shareholders' meeting are neglected, every purported decision made at the shareholders' meeting could, subject to a court ruling, be declared void (Sw. nullitet). Minority shareholders also have the right to have a say in some of the most important decisions in the life of a company by virtue of the special resolution procedure. Certain company decisions may only be made with the approval of at least two thirds of the shareholders represented at a meeting as well as two thirds of the votes cast (see e.g. Chapter 7 Section 42 of the Act). Resolutions that would (if passed) alter shareholders rights to dividends, transfer shares, or alter the legal relationship between shares, may require approval by all shareholders present at the meeting and at least 90 % of the total number of shares in the company. This gives minority shareholders the ability to block decisions that could be harmful to their interests. Other decisions that must be approved by a special resolution include changing a company s articles of association, re-registering a private company as public, and reducing a company s share capital. RIGHTS WHEN A COMPANY IS EXPERIENCING FINANCIAL DIFFICUL- TIES Do minority shareholders have any particular rights or protections when a company is experiencing financial difficulties? For example, are they able to demand that the company be wound up? The board of directors of all companies in Sweden have a statutory mandate to summon a shareholders meeting for liquidation purposes if the board has concluded that less than 50 % of the company's share capital remains. At a shareholders meeting for liquidation purposes, the minority shareholders may exercise their rights, which include suggesting that the company be liquidated. In certain cases, minority shareholders holding at least one tenth of the shares may concurrent to Chapter 25 Section 21 of the Act, file a petition with the court to have the company liquidated or their shares redeemed in the event of abuse or unlawful acts by a majority shareholder. Page 4

RIGHTS ENFORCEABLE AGAINST OTHER SHAREHOLDERS Do minority shareholders have any rights or protections which are enforceable against other shareholders, for example, where the majority of shareholders act in contravention of the company s articles of association? Yes, any shareholder may be liable to other shareholders for harm inflicted on the company, another shareholder, or third parties in certain cases (Chapter 25 Section 19 and Chapter 29 Section 3 of the Act). SUMMARY OF RIGHTS Below is a table providing a brief summary of the rights of minority shareholders in Sweden, organised according to the percentage threshold at which the various protections become available. Shareholding (%) Description Reference in the Act (Chapter: Section) 33.33 % plus one share Amendments to the articles of association of a company requires the consent of two thirds of the votes cast and two thirds of the shares represented at the shareholders meeting. A shareholder holding one third plus one (1) share may thus block any such resolution. Similarly, a shareholder holding less than one third of the shares may be able to block resolutions if more than one third of the shares are not represented at the meeting and the shareholder thus holds more than one third of the votes at the shareholders meeting. Resolutions to deviate from shareholders preferential rights to subscribe for shares and other instruments always require the approval of two thirds of the votes cast and shares represented at a shareholders meeting. 7:42 13:2, 14:2 and 15:2 10 % Require an extraordinary shareholders meeting be held (and make proposals for resolutions at said meeting). Approve the appointment of a special reviewer. Approve the appointment of a minority auditor (Sw. minoritetsrevisor). Require the tabling of certain matters concerning the profit and loss statement at an annual shareholders meeting and that the meeting be concluded at a later date (max 8 weeks). Refuse to absolve the board of liability at an annual meeting and prohibit settlement with, for 7:13 10:22 9:9 7:14 29:7-9 Page 5

Shareholding (%) Description Reference in the Act (Chapter: Section) example, a board member. Require certain dividend payments from the company's profit. File a claim with the courts that the company should be liquidated due to abuse by another shareholder. In public companies, certain resolutions regarding issuing shares or taking up loans require approval by nine tenths of the votes cast and shares represented at the shareholders meeting (thus a minority of 10 % may be able to block such a resolution if other shareholders are not present at the shareholders meeting at which the 10 % owner holds more than nine tenths of the votes. 5 % Require that merger plans be subject to shareholder approval at a shareholders meeting in certain cases. 18:11 25:21 16:1, 7 and 8 23:15 One (1) share Require that an annual meeting be held and make proposals for matters to be resolved at a shareholders meeting. A right to information (annual reports) and all proposals to be resolved at shareholders meetings. Attend shareholders meetings and bring counsel to meetings. Speak at shareholders meetings and ask questions during meetings. Propose the appointment of a minority auditor. Propose review by a special reviewer. Challenge resolutions made at a shareholders meeting in court. In certain cases, have their share(s) redeemed if a shareholder has abused its position. Demand their shares be redeemed if another shareholder holds at least 90% of the shares in the company. 7:10, 7:16 and 7:17 7:24 and 25 7:2 and 7:5 7:32 9:9 10:21 7:50 7:52 29:4 22:1 Page 6