SWEDEN Law and Practice Contributed by: Corinne Ekman, Mikael Nagy and Joacim Kanstedt, Gernandt & Danielsson Advokatbyrå KB
• Shareholders’ agreement: Binding agreement between the shareholders and sometimes, even if uncommon in Swedish governed agreements, the company, governing the relationship between them. Key provisions include: (a) governance and investor protection rights, including board nomination rights, reserved matters and information rights; (b) participation rights, such as pre-emptive rights for new financing rounds (usu - ally with exceptions for incentive pro - grammes, distress issues and M&A activi - ties undertaken by the company); (c) transfer restrictions, including right of first refusal, drag-along, and tag-along rights (with exemptions for “permitted trans- fers” ) (d) founder vesting and lock-in arrangements (not standard); (e) anti-dilution and down-round protection (not standard); (f) liquidation preferences; (g) exit provisions; and (h) non-compete and non-solicitation provi - sions. • Articles of association: The company’s consti - tutional document, which is rather standard - ised and sets out, inter alia, the share capital, number of shares and any share classes with related rights – eg, liquidation and distribu - tion preferences and voting rights (maximum 1:10) and restrictions on the transfer of shares (which are limited to consent clause, right-of- first-refusal and post-sale purchase right). In addition to the above, certain corporate docu - ments are also required, such as minutes from the shareholders’ meeting (or board meeting) resolving on the new issue of shares.
There are no frequently used templates in the Swedish VC market (such as – eg, the NVCA or the BVCA template documentation). However, the market practice is harmonised and negotia - tions are usually efficiently conducted between reasonable parties (provided that all parties and counsels are accustomed to Swedish venture capital investments). 3.5 Investor Safeguards In Sweden, the most common investor safeguard mechanisms that VC investors typically are able to secure vis-à-vis other investors/founders and employees are the following. • Pre-emption rights and subscription rights: All shareholders typically have a pre-emption right to subscribe in new financing rounds in proportion to their existing shareholdings in order to preserve their ownership level. Common exceptions include share issu - ances under agreed incentive programmes, during financially distressed situations and in conjunction with M&A undertaken by the company. • Liquidation preference/exit preference: Inves - tors typically hold preference shares, which entitles them to a liquidation preference ensuring that the VC investors at least get their investment amount back (either with or without a multiple) before any ordinary shares receive any exit or liquidation proceeds. It varies as to whether the VC investor also has the right to participate pro rata in any remain - ing proceeds along with the ordinary share - holders (a so-called participating liquidation preference). The standard practice in Swe - den is to issue non-participating preference shares with a 1x liquidation preference. In distressed situations, VC investors are some - times able to get a higher liquidation multiple
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