Legal guide for company directors and CEOs in Sweden

Because environmental, social and governance (ESG) is such an increasing focal point of good corporate governance, we address ESG duties and responsibilities first. For more general duties and responsibilities of directors and CEOs, please scroll down the page or use the navigator to jump to the relevant section. 

Traditionally, the role of directors and CEOs in Swedish company law has been focused on maximising shareholder value. As a result, ESG issues have in the past not been given much weight and ESG is generally not enforced by law for private companies. Public companies listed on a regulated market are however obliged to annually report on their corporate governance and, in some cases, also on sustainability. Major companies are obliged to report on sustainability in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities (the “EU-PIE”, 537/2014). Furthermore, with the implementation of the EU Corporate Sustainability Reporting Directive (the "CSRD", 2022/2464), the reporting obligations will increase.

Notwithstanding the above, Sweden has a long tradition of trade unions and strong labour rights. Employee welfare is therefore always a part of any Swedish company’s regular operations within Sweden. Furthermore, the directors and CEOs are also responsible for the governance and compliance of the company.

A company's board of directors is often regarded as the ultimate representative of the employer and the company itself. As a result, directors have an indirect responsibility to comply with various regulations that apply in regards to employees and that could be categorised as ESG. For instance: 

1. The Anti-Discrimination Act addressing discrimination in workplaces based on gender, transgender identity or expression, ethnicity, religion or other religious belief, disability, sexual orientation, or age.
2. The Work Environment Act preventing ill health and accidents in workplaces, as well as ensuring the overall achievement of a positive and healthy work environment.
3. The Swedish Environmental Code laying down general rules for the operation’s effect on the environment.

Furthermore, there is a general consensus that ESG issues will become more important in Swedish company law, largely as a result of a greater movement within the EU. The extent to which such responsibilities will fall on directors is yet to be seen.

The implementation of the CSRD marks a profound transformation for the duties of directors and CEOs in Sweden, steering towards an expanded commitment to ESG concerns. Illustratively, the board of directors will, as of 1 July 2024, have to prepare and publish a sustainability report, which must, among others things, contain a description of the board's duties in relation to sustainability issues and its competence to fulfil those duties. The CSRD will impose a much more extensive reporting obligation than what has been the case under the EU-PIE.

Directors and CEOs may also face further ESG related obligations as a consequence of the  Corporate Sustainability Due Diligence Directive (the “CSDDD”). Certain larger companies would for example have an obligation to identify what actions the company is taking to protect both human rights and the environment.

Certain large companies have an obligation under the EU-PIE to make available a sustainability report which contains disclosures about the company´s business model and how its model considers sustainability aspects. These companies will be obliged to report in accordance with the CSRD already in 2025. It is the board of directors that is responsible for the sustainability report.

In regards to diversity, certain listed public companies must account for the diversity policy they have in place regarding the appointment of directors as well as how the policy has been applied and the results from the related actions. 

In Sweden, the governance model consists of a single board system, rather than a dualistic governance model (i.e. where there is a board for management and a board for supervisors).

A public company must always consist of at least three directors. Private companies may have fewer directors. However, if a private company only has one or two directors, it is required to have at least one alternate director. The alternate director will assume the role of a director if the director – for whatever reason – is unable to perform his or her duties. If a company has two or more directors, it is required to appoint a chairman of the board.

Swedish company law does not distinguish between executive and non-executive directors, nor contains any provisions in regards to a supervisory board. Hence, the general rule is that all directors fulfil their duties under the same set of rules. Auditors do, however, have a supervisory role as they examine how the board of directors manages the company from a financial perspective. Their assessment is expressed in a statement which is appended to the company's annual report together with a recommendation to the annual general meeting whether to grant the board discharge from liability or not.

Furthermore, trade unions have the right to elect employee representatives to the board of directors in companies with an average of at least 25 employees during the previous financial year. The fundamental principle is that employee representatives shall be treated on par with regular directors of the board, although there are exceptions (for example, employee representatives are usually not entitled to remuneration for their representation in the board of directors).

The board of directors may authorise a director (including employee representatives), CEO or a third person to represent the company and sign on behalf of the company (special company signatory). There may be various reasons for authorising special signatories, such as to increase flexibility, to delegate certain tasks to an external expert and to prevent decisions being taken by someone with a conflict of interest. The CEO is always authorised to sign on behalf of the company in matters relating to the ongoing management of the business.

In order to be eligible for appointment as a director, the person in question shall:

• be at least 18 years of age,
• be a natural person,
• not be bankrupt,
• not have a legal guardian, and
• not be subject to a prohibition on trading.

At least half of the directors and alternate directors shall be residents within the European Economic Area (the “EEA”). If there is only one director and one alternate director, both shall be a resident within the EEA. However, it is possible to file for an exemption from the residency requirement with the Swedish Companies Registration Office (the “SCRO”). The SCRO will determine if the board may function properly from abroad and approved exemptions will be valid for a limited period of time. If the company has no authorised representative who is a resident of Sweden, the board of directors shall appoint a person who is resident in Sweden to act as an agent for service of process on behalf of the company.

In addition to Swedish corporate law, the capital markets in Sweden have a system of self-regulation that public companies listed on a regulated market has to comply with. The Swedish Code of Corporate Governance (the "SCG") stipulates that the board of directors in such companies shall have an appropriate composition with regard to the company's operations, stage of development and other circumstances, and shall be characterised by diversity and range in terms of the skills, experience and background of the members elected by the general meeting. The SCG also specifically states that an equal gender balance shall be sought. Since the SCG is mandated by market self-regulation, a company is not obliged by law to comply with these rules, but will, if the company is listed on a regulated market, be subject to civil law sanctions in case of breach.

The directors and alternate directors shall be appointed by the shareholders at the annual general meeting (or at an extraordinary general meeting if needed). The person(s) who receives the majority of the votes is elected as a director (i.e. simple majority).

The articles of association may deviate from the above by prescribing that one or more of the directors shall be appointed in another manner. For instance, a third party may be given the right to appoint directors. For municipal limited liability companies, this may be appropriate or necessary, for political reasons. However, the right to appoint directors may not be delegated to the board of directors or to a member of the board of directors. Any employee representatives on the board of directors will be appointed by the trade union(s) in accordance with specific rules. Furthermore, at least half of the directors of a public company must be appointed by the general meeting.

The CEO (also known as the managing director) - which a public company is required to appoint but a private company is not - is usually appointed by the board of directors (by a simple majority resolution). The company shall enter into an employment agreement with the CEO, who is considered an employee of the company, but is exempt from some of the otherwise mandatory employee rights such employment protection set out in the Employment Protection Act.

Unless re-elected at the annual general meeting, a director's appointment terminates at the end of his or her annual term of office. The term of office runs for a period from the election by the ordinary or extraordinary general meeting until the next ordinary general meeting, unless the articles of association stipulate a longer period of time. The consecutive term of office for which a director is elected may not exceed four years (however, this does not prohibit a director from serving on the board for more than four years, as long as they are re-elected by the general meeting).

A director may be removed prematurely (i.e. before the end of their term of office) at an extraordinary general meeting by a simple majority. Such meeting shall be convened if (e.g.) shareholders representing not less than 10 per cent of all shares in the company demands this in writing. Additionally, a director may be subject to early termination due to voluntarily resignation by the director itself (which a director is entitled to do at any time).

If a director is declared bankrupt, placed under the supervision of a legal guardian or becomes subject to a prohibition on trading, he or she cannot continue as a director and will be removed.

CEOs can generally resign from their position (employment) at any time. The board of directors may also remove the CEO from his or her position. It should be noted that the terms of employment for a CEO are set out in a special CEO employment agreement which is to be distinguished from general employment agreements.

In principle, the board of directors has the right to make resolutions relating to any matter regarding the operation of the company. However, the board of directors must be quorate, which is the case if more than half of the total number of directors are present (and not subject to any conflict of interest) at the board meeting, or the higher number prescribed by the articles of association. Furthermore, the resolution shall generally be adopted by a simple majority of the directors present, unless the articles of association stipulate a specific voting majority (in which case it prevails).

Regarding the right to represent the company against third parties, all companies shall register the right to sign on behalf of the company with the SCRO. The right to sign on behalf of the company is evidenced by the certificate of registration. The board of directors always has the right to collectively sign on behalf of the company. However, due to practical reasons, most companies either appoint and register a specific representative or generally register with the SCRO that two directors of the board shall be able to collectively sign on behalf of the company.

The CEO also has a statutory right to act as the company's representative and sign on behalf of the company in matters relating to the day-to-day business of the company, however, this may be subject to guidelines and instructions issued by the board of directors. Any such guidelines or instructions will not be enforceable against a third party who has acted in good faith.

The board of directors has considerable flexibility in deciding how it operates. The chairman of the board of directors shall ensure that meetings are held when necessary. Meetings of the board of directors shall always be convened when this is requested by a director (including the CEO). The number of board meetings each year vary widely between companies depending on the company’s size, management, ownership, sector etc. It is however a minimum requirement to have at least one board meeting every year to resolve upon the annual accounts to be presented to the annual general meeting.

The board of directors of a public company must however annually adopt written rules of procedure for its work. The rules of procedure shall specify how the work, where applicable, is to be allocated among members of the board of directors, how often the board of directors shall convene, and the extent to which alternate directors are to participate in the board of directors’ work and be summoned to its meetings.

Appointment as a director of the board and accepting that position does itself create a contractual relationship between the company and the director. It is however common for companies to enter into separate agreements with directors to further regulate matters such as renumeration, certain duties, conflicts of interest and so forth.

As mentioned above, the CEO, is normally employed by the company under an employment agreement.

The matter of conflicts of interest is regulated in the Swedish Companies Act (2005:551) (the “Companies Act”). The Companies Act stipulates that a director cannot take part in certain matters. Firstly, a director cannot participate in a matter regarding an agreement between itself and the company. Secondly, the director cannot participate in matter regarding an agreement between the company and a third party in which it has a material interest that can be in conflict with the interest of the company. Thirdly, a director cannot participate in a matter regarding an agreement between the company and a legal entity that such director can represent alone or together with someone else.

However, these rules do not apply if the director, directly or indirectly through a legal entity, owns all the shares in the company. The third situation can also be circumvented if the other legal entity in question is within the same group of companies.

There is also a possibility to regulate the matter of conflicts of interest even further in an agreement between the company and the director.

A director is part of the board of directors which have certain duties. A board of directors that has more than two directors is obliged to appoint a chairman of the board. The chairman has an extended obligation to the lead the board of directors’ work and to make sure that the board fulfils its obligations and duties according to the Companies Act. Some of the general duties of the board of directors are:

• Organisation of the company and management of company affairs.
• Continuously assess the company’s financial situation. If the company is a parent company, the board of directors has to assess the entire company group’s financial situation. 
• Organise the company in such a way that there can be proper control of the bookkeeping, management of funds and other financial conditions.

The chairman does also have a general duty to convene all directors to board meetings when required.

The director as an individual has a general duty to care for the company as well as be loyal to the company, which can include a duty to not disclose sensitive and confidential information about the company.

The director owes their duties to the company itself rather than to the company´s shareholders.

In a situation where the board of directors have reason to believe that the company’s equity amounts to less than half of the registered share capital of the company (critical capital deficit) certain duties for the board of directors arise. The board of directors must immediately make sure that the company draws up a control balance sheet and that the company’s auditor examines such control balance sheet.  1 Please note that these provisions are under current review by the legislator and may be subject to change.  In the event that the control balance sheet indicates that the equity in fact amounts to less than half of the registered share capital of the company, the board of directors must convene an extraordinary general meeting to resolve upon whether or not the company shall enter into liquidation. The board of directors must also, under certain circumstances, apply for bankruptcy.

There are a few potential liabilities that a director can incur.

If the board of directors ignores their aforementioned duties that arise when the company have financial difficulties, the directors can be personally liable (jointly and severally) for the company’s debts. The liability is limited to the debts that arise while the board of directors omits its obligations.

Directors may be held accountable for any damage caused to the company due to their intentional or negligent conduct while fulfilling their duty as a director.

The directors of the board and the managing director may under certain circumstances be held personally liable together with the company for the company’s failure to make adequate tax-deductions or make timely payment of all taxes, social fees, etc. applicable to the company.

In case a certified copy of the annual accounts together with the auditors’ report (if auditors are appointed) have not been filed with the SCRO within fifteen months of the expiry of the last concluded financial year, the directors of the board and the managing director are jointly and severally liable for any obligations which the company incurs. It should be noted that such personal liability is in addition to the general rule that the annual accounts together with the auditors’ report (where applicable) shall be filed with the SCRO not later than seven months of the expiry of the last concluded financial year. Any delay beyond seven months will incur the company a liability to pay administrative fines to the SCRO for delayed filing of the annual accounts.

A director can be subject to criminal liability if they breach certain provisions either in the penal legislation or provisions in the Companies Act. An example is the obligation to keep and make available a share register. If a director fails to do so by acting intentionally or negligently it can result in criminal liability. 

If a director proves that the failure to fulfil the aforementioned obligations of the board of directors when in critical capital deficit was not a consequence of negligence attributable to the director he/she is not liable.

The liability can be decreased, if it is reasonable after considering circumstances such as the size of the damage to the company. An agreement that alters the obligation to pay damages to the company can only be resolved by the general meeting of shareholders, with the condition that shareholders representing more than ten per cent of all shares in the company does not vote against the agreement.

It is common in Sweden to have liability insurances in order to protect directors and CEOs from potential liability claims.