article / 22 Jun 2020

Board Liability under Swedish Law

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The board is a Swedish limited company’s highest formal body (besides shareholders’ meetings) and has the right to delegate aspects of management to others. Delegation is most commonly made to the managing director. Swedish law distinguishes between formal and informal directors, in that only formal or statuary directors are members of the board. On the other hand, there is no distinction between inside and outside directors in the Swedish language, and the concept of “director” semantically covers the board of directors, the managing director, and other officers belonging to the management.

The board of directors is appointed by the shareholders. The board in a private company should be comprised of at least one member, while there should be at least three members in the board of a public company. The actual number of members depends on the articles of association.

There is only one managing director, appointed by the board and not the shareholders. The managing director is usually a board member, but he also can formally be external. A private company is not required by law to appoint a managing director, while a public company is required to have a managing director at all times. The duties of the managing director are set out in the Swedish Companies Act. (1)

The managing director has to attend to the day-to-day management of the company pursuant to the board’s guidelines and instructions. He also has the authority to represent the company and sign its name in relation to these duties. He should take any measures necessary to ensure the lawful maintenance of company accounts and the sound management of funds. He also may have certain tasks specifically delegated to him by the board which he is required to follow. As a result, the appointment of a managing director results in the board having a more supervisory role rather than a day-to-day management role.

The managing director and other management officers are primarily tasked with the successful operation of the business. They are responsible for the company’s products and services and for managing employees and customers, paying taxes, and meeting societal goals such as environmental protection. Thus, management officers are not primarily focused on the rights and expectations of shareholders. The responsibility for protecting the rights of shareholders falls primarily on the board of directors. While a managing director may be removed from office at any time by the board, a board director may only be removed by the shareholders.


Authority and Duties of Board of Directors and Managing Director

Duties of Board of Directors
In General

The board’s authority and liability derives from the mandate given by the company and its shareholders. The board has all powers necessary to implement the corporate objectives of the company, apart from those powers expressly reserved by law for the general meeting of shareholders or by the articles of association.

The duties of the board are found in the Companies Act, the articles of association, and the board’s own rules or guidelines. In addition, the board members have a general duty of care to the company and its business. The specific responsibilities of the board are the following:

  • Organization of the company and the management of its affairs;
  • Regular assessment of the company’s financial position;
  • Ensuring that the company’s organization is structured in such a manner that accounting, management of funds, and the company’s finances in general are satisfactorily monitored; and
  • Acting with care where duties are delegated to other individuals outside the board, and regularly monitoring these individuals to ensure that the delegation can be maintained.

Under the Companies Act, the board of directors represents the company and signs in its name. Documents that should be signed by the board have to be signed by at least half of the total number of its members, while documents considered as day-to-day-management need only the signature of the managing director.

Duty to Participate in Board Meetings

The board of directors should actively work towards the objectives of the business, i.e., return profit for the shareholders. With the duty to be active comes the duty for board members to participate in as many board meetings as possible.

There is no requirement in the Companies Act on how often board meetings should be held. It simply requires the chairman of the board of directors to ensure that meetings are held when necessary. The frequency of the meetings will depend on the kind of business that the company carries out. The managing director is entitled to be present and speak at meetings of the board unless otherwise decided by the board.

Failure of a board member to attend a board meeting does not release him from liability. In a case considered by the Supreme Court in 1974, it was held that a member of the board cannot claim as a defense that being on the board is only a formality. Nor can the fact that a board member did not understand the meaning or purpose of being a board member ever release him from liability.

Supervising Duty

Unlike other jurisdictions, there are no supervisory boards in Sweden. Instead, the board of directors is responsible for supervisory functions and may delegate parts of management to others, particularly certain decision-making powers, except its duty to supervise.

The ability to delegate certain matters includes the duty to carefully choose the kind of duties to be delegated and the kind of persons to whom matters will be delegated. The board of directors cannot delegate tasks to such an extent that it loses its function and position in charge of management. The following tasks cannot be delegated:

  • The responsibility to continuously evaluate the economic situation of the company;
  • The responsibility to give written instructions for financial reporting to the board of directors;
  • The responsibility to give written instructions regarding working procedures between the board and the managing director;
  • Electing the managing director; and
  • Responsibilities linked to capital requirements.

There is no mandatory requirement but often recommended that the board would adopt written instructions regarding routines on the organization of the work of the board and the managing director.

Duty of Loyalty and Duty to Exercise Care

A member of the board has a duty of loyalty to the company, such that he is not allowed to deal with any issues that could potentially constitute a conflict of interest. For instance, this duty prevents a board member from handling agreements between him and the company or agreements between the company and another company in which he has a potential interest in, unless all board members consent.

The duty of loyalty also entails a duty of confidentiality and a prohibition on carrying out competing business activities. The duty to exercise care entails an obligation to always ensure that the business is carried out to make a profit. Any act – or failure to act – which was not motivated by this purpose is thus forbidden. However, a reasonable amount of discretion is needed for risk-taking, which is inherent in running a business.

Duties of Managing Director

The managing director is responsible for the day-to-day management of the company. The scope of this authority depends on the nature of the business and the kind of guidelines and instructions provided by the board of directors. The managing director is always authorized to represent and sign for the company in day-to-day matters.

He may take extraordinary measures or measures of great importance if a decision by the board cannot be awaited without risk of significant harm to the operations of the company. In such cases, the board has to be immediately notified of the measures taken. The managing director also has to take measures to ensure that accounts are maintained in accordance with the law, and that the management of funds is conducted in a proper manner.

Contracts of Executive Directors

Individual employment contracts for the managing director and other top managers should include detailed provisions regarding relevant liabilities, as they are not covered by the Employment Protection Act of 1982 or any employment legislation.

For instance, it is important to regulate restrictions during a notice period, possible set-off against salary if the top manager is released from his duties during the notice period, confidentiality undertakings, and restrictive covenants such as non-competition and non-solicitation undertakings.

Board Directors’ Remuneration

The general meeting decides on the fees and other remuneration for board assignments for each member of the board of directors, apart from the remuneration for the managing director when he is appointed as a member of the board, which would be regulated in a service contract.

Determination of remuneration for the managing director is usually a matter for the board. The board of a public company is required to annually establish guidelines regarding fees and remuneration for directors in a managing position.

Access to Corporate Information

Shareholder Access to Information

The Companies Act regulates the duty of the board of directors and the managing director to provide information to the shareholders. Upon a request by any shareholder and where the board believes that it can be done without significant harm to the company, the board and the managing director should provide information in respect of any circumstances which may affect the assessment of a matter on the agenda, or any circumstance which may affect the assessment of the company’s financial position.

Where the requested information is not available at the general meeting, it has to be made available to the shareholders in writing at the company’s offices within two weeks and should be sent to any shareholder who requests it.
The only possibility for a shareholder to obtain information if the board refuses to answer a question is to ask the court to order the company to release such information. The shareholders’ right to information is broader in closely-held companies. In companies with a maximum of 10 shareholders, each shareholder has the right at any time to inspect books, accounts, and other company papers to the extent necessary to form an opinion on the company or to enable him to discuss a matter at the general meeting. However, this is not the case if the information would involve an obvious risk of serious harm to the company in some way.

Board of Director Access to Information

The board depends on the managing director to loyally distribute all necessary corporate information. However, a board director may not request information from the managing director at any time. The concern for the company takes priority.

Thus, the managing director could correctly refuse to give a board director access to information in exceptional cases, such as where the board director has a managing position in a competing company. In such cases, the question of whether the board director should have access to the corporate information has to be determined by the board in plenary session.

Public Access to Information

The public also may be granted access to corporate information through the rules of registration. The Companies Registration Office maintains a register of companies and examines applications to determine whether certain corporate resolutions are legally acceptable and proper for registration.

It also provides insight into a wide range of corporate resolutions to shareholders and the public. The Companies Registration Office has a duty to immediately publish matters that have been registered in the Companies Register. Such matters are deemed public knowledge upon publication.

Fraudulent Transactions and Questionable Payments

The Companies Act contains a series of rules intended to ensure that corporate wealth is created when the company is formed, as well as ensuring that the wealth, if possible, does not disappear during the company’s existence.

If the company could freely dispose of its assets or incur new debts, then its creditors would run the risk of not getting paid. The law thus restricts a company’s right to voluntarily reduce its assets or increase its debts (“rules on protection of capital”).

Monitoring of Management

The election of suitable board members is the shareholders’ most effective instrument for controlling the development of the company. If shareholders are not satisfied with how the company is currently being governed, they can simply convene a shareholders’ meeting and terminate the appointment of the board member by appointing a new one.

There are no specific requirements for the competence of board members, but they are responsible for being competent enough to carry out their mandate. Insufficient personal qualifications cannot release someone from liability. Although the board often consists of both specialists and non-specialists, board members will have some kind of competence in practice.

The acts of the board members and the managing director are monitored through the statutory provision on personal liability, which comes into play in cases of mismanagement. This serves as an incentive for board members and the managing director to carry out their mandate diligently.


In General

Other than in criminal activities, personal liability will most often arise in the mismanagement of a mandate. In most jurisdictions, the general requisite for personal liability is negligence.

Under the Companies Act, there is personal liability when a board member or a managing director, in the performance of his duties, intentionally or negligently causes damage to the company. Thus, the test is whether the damage is caused by a willful or negligent action.

Liability for damages may lead to compensating the company and a shareholder or other person as a consequence of a violation of the Companies Act, applicable annual reports legislation, or the articles of association. In Sweden, as in many jurisdictions, there is a distinction between internal liability against the company and external liability to third parties, such as shareholders and creditors.

Directors’ liability in Sweden is individual. Collective or mutual liability is not legally possible, although several board members or the whole board may become liable. Thus, each board director’s liability is personal, although the board acts as a single entity. An individual board member who wishes to avoid liability for a certain board decision is thus required to formally object to the decision and request to introduce an objection in the minutes of the board meeting.

Deputy board members (alternate directors) can only be held liable for measures taken when present on the board when the ordinary member is absent. A limited-liability company normally attracts no personal liability, and is thus used as a vehicle to attract risk capital.

Liability to Company

The following are the prerequisites for a board member or a managing director to become liable to the company:

  • There should be a harm that can be measured in economic terms;
  • The board or the managing director should have acted negligently or negligently failed to act when required; and
  • The negligent action should be the proximate cause of the damage, and the causality should have been foreseeable in some way when the action was taken. This is a complex tort law issue and it is often a challenge to prove proximate cause.

Liability to Shareholders or Third Parties

In terms of liability, third parties could include individual shareholders, commercial customers, suppliers, creditors, or employees. Liability to a shareholder or a third party can only arise if a fourth prerequisite is met, i.e., the negligent action or inaction of the board or the managing director amounts to a violation of the Companies Act, the articles of association, or the annual reports legislation. Thus, liability to shareholders or a third party is more limited than liability to the company.

Liability to shareholders may arise from annual reports and wrongful information in prospectuses. For instance, an individual may have been enticed to subscribe for shares in an issue where the board has given incorrect information about the company’s financial position.

Another example is when a creditor suffers harm when granting the company credit because the company has given incorrect information about its financial position. A board director could be held liable for third-party damages for providing incorrect information, as prescribed by European Union Regulation 809/2004/EC regarding information contained in prospectuses.


To be held liable for damages, a board member should have broken a criterion or norm of care that should have been followed. The criterion of care derives from the provisions of the Companies Act and the articles of association, but other circumstances contribute. In the end, determining whether an action or inaction amounts to negligence is based on an objective assessment of how a reasonable board member would have acted in the given situation.

Hiring an external individual as an expert advisor to the board in a particular issue could be relevant in a court’s assessment of whether the norm of care has been followed, and whether the board members have been negligent or not. However, there is no automatic relief in such a case. The board also should ensure that the hired person is competent.

Under the Companies Act, it is possible to mitigate damages. The court has the discretion to adjust the liability for damages to what is reasonable by considering the nature of the act, the extent of the damage, and the circumstances in general.

Liability for Prohibited Loans

A company may not lend money to any person who is a member of the board or a managing director of the company or another company within the same group, a certain circle of related persons (”the forbidden circle”), or to anyone who intends to use the loan to acquire shares in the company. The recipients of a prohibited advance or a loan are required to repay what they have received.

A director also may be held liable for reckless lending pursuant to the Companies Act, but proven liability in such cases is rare. The legislature has thus decided to criminalize violations of the prohibition of loans to relatives, such that fines or imprisonment not exceeding one year may be imposed on any person who intentionally violates the prohibitions or does so through gross negligence.

Liability for Breach of Rules on Capital Deficiency and Value Transfers

In line with the principles of capital maintenance to avoid capital deficiency and unnecessary losses for the company’s creditors, the board of directors should immediately prepare and request the company’s auditors to draw up a balance sheet for liquidation purposes (liquidation balance sheet) when there is reason to believe that the equity of the company is less than 50 per cent of the registered share capital.

Otherwise, individual liability arises for the members of the board from the point of time that such a balance sheet should have been prepared. If the managing director is aware that the board is in default, and he does not request for the preparation of such balance sheet, he will be held severally liable with the board and the company.

If a board member or the managing director has participated in a decision found to be in conflict with financial assistance or value transfer rules in the Companies Act, he can be held individually liable for the “improper” transfer. The transfer – such as a dividend to shareholders, underpriced transactions, or providing security for third parties – could be considered as “improper” if the company does not have full cover of the restricted equity when distributing dividends or disposing of its assets.

Liability in Insolvency Situations

Insolvency is defined in the Bankruptcy Act as “when the debtor could not pay his debts in a timely manner (when due) and that such inability is not merely temporary”. There are a number of criminal offenses that board members and the managing director are exposed to when a company is insolvent. The trustee, official receiver, and auditor are required to report to the police where there is reason for suspicion.

Criminal offenses against creditors include fraudulence towards a creditor, negligence towards creditors, and unfair preference of a creditor. There is fraudulence towards a creditor when a representative of an insolvent company or a company with a likelihood of becoming insolvent destroys, gives away, or disposes of property of significant value by other means.

There is negligence towards a creditor when a representative of an insolvent company or a company with a likelihood of becoming insolvent carries on and continues a business activity which consumes considerable assets with little or no benefit to the business, acts wastefully, or takes on “adventurous projects” or responsibilities. These acts also should be taken with intent or gross negligence and should considerably deteriorate the company’s financial position. Failure to file for insolvency proceedings in time could be a criminal offense.
Unfair preference of a creditor could be paying a debt that is not due, paying debts in an extraordinary manner, handing over a security that was not stipulated when the debt was established, or similar acts. These acts have to entail a substantial risk of unfairness in relation to another creditor’s right.

Liability for Breach of Tax Regulations and Failure to File Annual Report

Under the Annual Reports Act, the board members and the managing director will be jointly liable with the company for all obligations that arise for the company if a copy of the annual accounts is not filed with the Companies Registration Office within 15 months after the end of the financial year. Representatives of a Swedish company also may, under certain circumstances, be held liable if the company’s taxes are not paid when due.

Liability for Environmental Damage

The Environmental Act contains rules on liability for representatives of companies who have acted willfully or negligently in carrying out business activities, causing environmental damage. The person who causes damages to a third party is required to restore the property in its former condition.

Liability Insurance

Liability insurance generally covers costs that can arise out of directors’ mistakes and costs for legal counsel. Auditors are required by law to take out liability insurance, but there is no such requirement for board directors and managing directors.

However, it is currently common in Sweden for board members in listed companies to take out liability insurance. There also is an increase in insurance for board members in non-listed companies. Nevertheless, most board members in smaller companies in Sweden do not have liability insurance.

Discharge from Liability

The annual shareholders’ meeting is the appropriate forum for shareholders to exercise their right of influence over the company’s affairs. In an ordinary general meeting of shareholders, a discharge from liability may be granted for the board members and the managing director under the principle that the shareholders have approved the management of the company and that the company will not claim damages.

However, if the board and/or the managing director give a report that is based on incorrect or incomplete information, a claim for damages is possible even if a discharge from liability has been resolved so long as the period for doing so has not lapsed. There is a time bar of five years from the end of the financial year the action (or inaction) causing the loss took place. If the loss is caused by a criminal action, the statute of limitation is 10 years.

Code of Conduct for Listed Companies

Sweden was one of the last European countries to adopt a national code on corporate governance based on self-regulation. The Swedish Corporate Governance Code is managed and administered by the Swedish Corporate Governance Board.

The Code forms part of  Sweden’s self-regulation for Swedish companies whose shares are admitted to trading on a regulated market (either of Nasdaq Stockholm, or Nordic Growth Market NGM AB) and through the exchanges’ rules for issuers, thus binding for all the listed companies in Sweden. Further corporate governance rules are set out in the Companies Act, the Annual Accounts Act, the stock exchanges’ regulations, and statements issued by the Swedish Securities Council.

The Code defines a norm for good corporate governance at a more ambitious level than the minimums specified in the Companies Act and other statutory regulation. The key to this is “the comply or explain mechanism”. This means that companies are not obliged to comply with every rule in the Code, but are allowed the freedom to choose alternative solutions which they feel are better in their particular circumstances, providing they report every deviation, describe the alternative solution, and explain the reasons why.

In this way, the Code specifies what is often, but not necessarily always, regarded as good corporate governance practice. For individual companies, alternative solutions to those contained in the Code may well result in better corporate governance.

What is now said, however, does not mean that companies can choose to ignore mandatory provisions of legislation or stock exchanges.

According to the Code, all listed companies shall have a nomination committee. The task of the nomination committee is to propose candidates for the post of chair and other members of the board, as well as fees and other remuneration to each member of the board. In its assessment of the board’s evaluation and in its proposals for board members, the nomination committee is to give particular consideration to the requirements regarding breadth and versatility on the board, as well as the requirement to strive for gender balance.

The nomination committee should also present proposals on the election and remuneration of the statutory auditor. The nomination committee’s proposal to the shareholders’ meeting on the election of the auditor is to include the audit committee’s recommendation (or that of the board of directors if it does not have an audit committee).

(1) SFS 2005:551.

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