SWEDEN Law and Practice Contributed by: Corinne Ekman, Mikael Nagy and Joacim Kanstedt, Gernandt & Danielsson Advokatbyrå KB
the employee at the time of exercise, and the employer is not subject to social security con - tributions, provided that certain conditions are met. A later increase in value is typically taxed as capital income as described above. Cash-based awards and return from phantom schemes are generally taxed as employment income when paid. 5.4 Implementation The implementation of an investment round and the setup of an employee incentive pro - gramme (ESOP) are closely related in terms of process and dilution. The relationship between investment rounds and employee incentive pro - grammes is strategic, requiring considerations in relation to the size, structure, and timing to mitigate dilution while effectively retaining talent. Establishing an ESOP pool leads to dilution for existing shareholders, which must be factored into the overall equity structure and valuation dis - cussions during the investment round. Investors may seek to adjust the ESOP pool size based on negotiated terms, influencing equity distri - bution among shareholders. Hence, the size of the ESOP pool is usually discussed and agreed upon early in the process, whereas the actual implementation is usually carried out separately from the investment round to avoid complicating the closing process of the investment.
tate exits. Certain provisions of the sharehold - ers’ agreement are backed up by corresponding transfer restrictions in the articles of associa - tion, by the inclusion of a post-sale purchase rights clause, in order to prevent share transfers that violate the shareholders’ agreement. As an example, you will usually find the following pro - visions. • Exit initiation: Investors typically possess spe - cific rights related to formal exit proceedings. These rights often include the ability to initiate an exit through an IPO or a trade sale (usually connected to a specific time having passed since the investment), in order to ensure that the investors can manage their divestment and avoid lock-in effects by ensuring an effective way to liquidate their position. When initiating such exit, investors have the author - ity to appoint an adviser, such as an invest - ment bank, to facilitate the exit process. • Right of first refusal: The right of first refusal provision enables the existing shareholders to acquire shares with a priority right prior to such shares being transferred to a third-party acquirer, at the same price and terms offered by the prospective purchaser. It is common for the right of first refusal to apply on a pro rata basis amongst existing investors, and it usually also includes a secondary right for shareholders to acquire shares in the event that any of the existing shareholders decide not to exercise their primary right of first refusal. • Tag-along rights: In the event of a sale of shares to a third-party acquirer and provided that not all such shares are acquired by exist - ing shareholders pursuant to the right of first refusal, shareholders will typically have a right to tag-along on such sale under the same terms and conditions on a pro rata basis. The tag-along right may apply from the first share,
6. Exits 6.1 Investor Exit Rights
In the context of Swedish corporate govern - ance, a shareholders’ agreement often includes a variety of exit-related provisions to safeguard the investors’ interests. These provisions usually aim to regulate the transfer of shares and facili -
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