SWEDEN Law and Practice Contributed by: Niclas Rockborn, Pär Johansson, Daniel Sveen, Arijan Kan and Erik Schwartz, Gernandt & Danielsson Advokatbyrå
Management and employee shareholders typically obtain anti-dilution protection, which is customarily subject to carve-outs such as issues to reinvesting managers, finance providers and other third parties. It is uncommon for management shareholders to be entitled to director appointment rights; however, in founder-owned businesses it is more common, and even more so if the founder shareholders retain a large stake in the target. Management and employee shareholders typically do not have any right to influence the exit of the major - ity owner. They are typically expected to enter into transaction documentation on the same terms as the private equity fund (ie, on the terms negotiated by the private equity fund). Management and employee shareholders do, however, typically enjoy certain pro - tective limitations, such as a time limit for the dura - tion of a lock-up in an IPO, and the duration of non- compete and non-solicitation covenants towards the buyer in a trade sale. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights Private equity funds in Sweden have traditionally almost exclusively made control investments. As out - lined in 8.1 Equity Incentivisation and Ownership , it happens that the private equity fund only acquires a weak majority when buying founder-led targets, and as outlined in 5.4 Multiple Investors , minority invest- ments are increasing. Voting differences entailing that the private equity buyer holds shares with stronger voting powers than management and employee shareholders are com - monly used to ensure control. Under Swedish law, shares without voting rights are not permitted. By holding a majority stake or the majority of votes in the target, the private equity buyer controls the deci - sions taken at shareholder level and, consequently, at board level by controlling the appointment of the board and the chief executive officer. In Sweden, pri - vate equity governance typically gives the chief exec - utive officer control of the daily operations of the busi -
ness of the target, while certain matters are reserved for the board and/or require shareholder approval under law and/or agreement. Where the investment structure entails multiple share - holders, a shareholders’ agreement will almost always be entered into, and usually include veto catalogues in favour of the private equity buyer. It is also usual to implement governance documents setting out structures for decision-making, including pre-determined matters which have to be raised at board or shareholder level. The most common gov - ernance documents implemented are rules of proce - dures for the board, instructions to the chief executive officer and instructions for financial reporting. In recent years, ESG oversight has also become an integral part of portfolio company governance, par - ticularly for private equity funds that are subject to the EU Sustainable Finance Disclosure Regulation (SFDR). These funds often require portfolio companies to provide regular sustainability-related disclosures, including data on principal adverse impacts and alignment with ESG KPIs, to enable the fund to meet its reporting obligations under SFDR Articles 8 or 9. ESG metrics are typically integrated into the financial reporting instructions or formalised through separate sustainability reporting protocols. 9.2 Shareholder Liability The fundamental principle under Swedish company law is that the shareholder’s liability for the actions of the limited liability company is limited to the equity paid into the company. There are exceptional circum - stances under which the corporate veil can be pierced and there can be shareholder liability, but these cir - cumstances are limited to situations when the share - holder has intentionally exploited and misused the lim - ited liability granted to the company as a legal person.
10. Exits 10.1 Types of Exit
The typical holding period for investments made by private equity funds is approximately three to five years.
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