SWEDEN Law and Practice Contributed by: Johannes Wårdman and Erik Frykenholt, CMS Wistrand
regulated in the company’s articles of association. The parties to the JV may therefore dictate the appoint - ment process depending on the desired structure of the board. Early removal of directors may be initiated by the corporate body or individual who appointed the director, with the only legal requirement being a notice to the board of the removal. Furthermore, Swedish law requires at least half of the ordinary board members, and at least half of the deputy board members, to be residents within the European Economic Area (EEA). However, the SCRO may allow for exemptions to this rule if special circumstances apply. Each director of the board has equal voting rights, and resolutions are made by simple majority, unless the articles of association provide otherwise. In case of a tied vote, the chairperson has a casting vote. The appointment of directors by the general meeting is also made by simple majority. However, it is common to include in the shareholders’ agreement a right for a JV partner to appoint a certain number of directors and a corresponding obligation for the other share - holders to appoint such directors. Further, it is pos - sible to issue classes of shares with weighted votes, up to ten votes per share, to ensure a greater influence over the board composition and other matters at the general meeting. 7.2 Duties and Functions of JV Boards and Directors The board of directors is the managing and repre - sentative body of the limited liability company, and is responsible for multiple aspects of the business. This includes, but is not limited to, the continuous assess - ment of the company’s financial position, ensuring proper control of the bookkeeping, and management of funds and other financial affairs. The day-to-day business of the board may be delegated to the man - aging director appointed by the board. The board may also appoint an authorised signatory, who may be a single director, a managing director or a third party, to represent the JV against third parties. The board reports to the members of the JV through the publish - ing of annual reports and the general meeting. Specific obligations of the board of directors that it is not allowed to delegate may arise in a situation where the company’s equity amounts to less than half of
its share capital (critical capital deficit). The board is required to draw up a control balance sheet and, if the deficit is confirmed, convene an extraordinary general meeting to decide whether the company should enter into liquidation or not. Individual directors who ignore such duties may be personally liable for any company debts arising after the time period during which the control balance sheet should have been drawn up has passed. Notwithstanding any concurrent duties that a direc - tor may have to the JV participant, the duties toward the JV entity must be carried out with the JV entity’s best interests in mind. Weighing competing duties that a director might have against a JV participant may therefore be a complicated issue, and the director will need to be cautious about participating in matters which may give rise to a potential conflict of interest. Individual directors may be held liable for damages caused to the JV entity or shareholders due to inten - tional or negligent conduct while fulfilling their duties. The liability of the directors does not extend to ensur - ing profitability or making the right business deci - sions. Personal liability arises only in situations where a director has substantially breached its loyalty com - mitments to the JV entity and/or the shareholders. For further information regarding the duties of direc - tors in Sweden, please click here . 7.3 Conflicts of Interest The Companies Act stipulates that a director may not take part in certain matters where there is a risk of a conflict of interest. Such matters include agreements between the company and the director, agreements between the company and a third party in which the director has a material interest or an agreement between the company and a legal entity controlled by the director. It is, however, common for individuals to take seats on both the JV company board and the JV participant board. Hence, conflicts of interest may arise and must be resolved on a case-by-case basis.
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