Since the end of the 1800s Sweden has forbidden limited liability companies from acquiring their own shares. This prohibition has also applied to subsidiaries, which may not acquire shares in their parent companies. Agreements breaching this prohibition are invalid. There are three exceptions from this prohibition. The original reason for the prohibition against companies buying their own shares was to protect the company's creditors. A company's acquisition of its own shares can have the same effect as a distribution to the shareholders in conjunction with a reduction in the share capital. By prohibiting the acquisition by a company of its own shares, the legislature has chosen to prevent the circumvention of provisions that were enacted for the protection of creditors.
Swedish limited liability companies are divided into public companies and private companies. Public companies are characterized by the fact that they have the possibility of raising capital from the general public.
On March 10 2000 the possibility was introduced in Sweden for public companies with listed shares to acquire and transfer their own shares, subject to certain conditions.
So, at present, listed public companies are entitled, under certain conditions, to acquire and transfer their own shares. Only public companies whose shares are listed on a securities exchange, an authorised marketplace, or some other regulated market are entitled to acquire their own shares. The acquisition by a company of its own shares may only take place on a securities exchange, an authorized marketplace or any other regulated market, or through an offer directed to the shareholders. The transfer by a company of its own shares must take place in accordance with the provisions governing new issues or on a securities exchange, an authorized marketplace or some other regulated market. In addition, the Swedish Companies Act prescribes certain other conditions with respect to the acquisition or transfer by a public company of its own shares. The acquisition by a company of its own shares can only take place in such an amount that, after the acquisition, there is cover for the company's restricted shareholders' equity, and as a supplement to this mathematical rule, there is a prudence rule. The prudence rule means that the acquisition may not take place in such an amount that, taking into consideration the company's or the group's need to strengthen the balance sheet, liquidity, or financial position in general, it violates generally accepted business practice. A further limitation is that the company's holdings of its own shares may not exceed one-tenth of all the shares in the company after the acquisition. In addition, the acquisition by a company of its own shares may only take place with respect to shares which are fully paid-up. The acquisition and transfer by a company of its own shares which takes place outside the EEA is subject to authorization by the Swedish Financial Supervisory Authority. A decision with respect to the acquisition and transfer by a company of its own shares must be taken by the shareholders' meeting or, pursuant to authorization by the shareholders' meeting, by the board of directors.
In the event a company acquires its own shares in violation of the provisions of the Swedish Companies Act, the shares must be sold within six months.
From recent public announcements containing notices convening shareholders' meetings, one can draw the conclusion that there is a great interest in the acquisition by companies of their own shares.Björn Tude