Sweden is a hotbed of rapidly growing business startups. Some say that the Scandinavian country has become the European equivalent to Silicon Valley. So it's no surprise to learn, next to Silicon Valley, Sweden has the second largest concentration of billion-dollar startups per capita in the world. A very impressive statistic when you consider that Sweden is a country made up of just ten million people.
Despite the strong business appeal of setting up shop in Sweden and the ease with which an entity can be established there, the country actually ranks as the 13th most complex jurisdiction to do business, according to TMF Group's Global Business Complexity Index (GBCI) 2022 report.
This is, in part due to some unique rules associated with running a business in Sweden, which can often be a source of much confusion. One of the most important rules is meeting the minimal equity requirement, as dictated by the Swedish Limited Company Act (Aktiebolagslag (2005:551), or the "ABL" for short).
The ABL has defined several requirements in greater detail, in terms of what procedures to take to restore equity, and the timeframe and relevant actions for the board to take to determine the company's future. These rules can be overwhelming, so we've put together some guidelines which should help simplify much of the confusion:
Minimum amount of equity
According to Chapter 25 of the ABL, companies are not allowed to consume more than half of their registered share capital by the end of the financial year. This means, if a minimum share capital of SEK25,000 has been deposited upon incorporation, the company's equity, or its net assets value, must be at least SEK12,500 by the end of the year.
Board's responsibility – monitoring financial position
The company's board has a responsibility to observe the financial position of the company throughout the year. If, at any time during the year, the board identifies that the equity does not meet the above requirement or has reason to suspect that half of the share capital will be used under normal operations, the board must immediately create a special balance sheet ("kontrollbalansräkning") as defined by ABL 25:14.
If the special balance sheet shows that the equity is intact, the board will not have a duty to act. However, if it shows that the equity is consumed, then a general meeting shall be convened by the board. During that meeting, the board should decide whether the company shall enter liquidation. Otherwise, the board will come up with a plan to restructure the company and restore the equity deficit during a maximum time of eight months. After that period of time has elapsed, the board should order the company to produce a new special balance sheet and summon another general meeting. If the new share capital is still not recovered, the company must be liquidated.
Restoring equity deficit
There are various ways of restoring an equity deficit. This includes shareholder contributions, issuing new shares, or reducing share capital. The most popular measure is shareholder contribution, which can be further split into conditional contribution and unconditional contribution. Contribution can be further segregated, in principle, into monetary contribution or converting the intercompany liabilities owned by the shareholders to equity.
Converting intercompany liabilities rather than injecting cash does entail an additional complicating factor, related to a note that was published in January 2022 by the Swedish Tax Agency. The Agency noted that Swedish entities had to revaluate an intercompany balance before converting it to a shareholder contribution. If the market value of the intercompany balance is lower than the book value, the difference will most likely will taxable. In the past, most of our clients have stated a preference for conversion rather than monetary contribution, but we expect things to change after this note.
As you can see from the guidelines above, these rules can be overwhelming.
If you require support or assistance, TMF Sweden's Global Entity Management and Accounting & Tax teams are more than happy to provide guidance throughout this process.
TMF Sweden has a strong international management team of specialists in accounting, legal, tax, payroll and HR. Established in 2006, our Stockholm office services international clients who wish to set up or expand their business operations in Sweden. We service a diverse portfolio of industries including retail, private equity, property, tax structures and aircraft leasing.
For more information or to make an enquiry, talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.