The Share Ledger – Everything you need to know

A brief history of the limited company form, shares, and share certificates.

The word share is derived from the Latin actio (action) and the Dutch actie, meaning a share in a company. Legally, a company is a collaboration governed by laws and agreements (the Companies Act and the articles of association) between natural and/or legal persons for a common purpose (often economic gain).

The oldest forms of shareholder companies date back to Roman times. In the late Middle Ages, partnerships were also established in northern Italy, France, and Germany. In the 18th century, limited companies were founded on a growing scale across Europe. Many of these companies have preserved share certificates, helping ensure their existence is not forgotten. In Britain, during the Industrial Revolution, many limited companies were founded focusing on railways, banks, mining, textiles, and communications.

In Sweden, we know the names of several early Swedish companies. The oldest is Stora Kopparbergs Bergslag (now STORA), which had joint ownership already in 1288! In the 17th century, several trading companies were established, also characterized by joint ownership:

From the early 18th century, we can speak of limited companies in a more modern sense. Wedewog and Qvarnbacka Iron and Steel Company from 1723 are among the earliest examples of limited companies formed during this time.

In the first half of the 19th century, several limited companies were authorized, whose articles of association included limited liability. These companies were often founded for public utility purposes such as bridge-building and the operation of canals and harbors. However, their legal status was unclear, and on October 6, 1848, the first Swedish Companies Act was enacted, strongly influenced by French legislation. In the second half of the 19th century, the number of companies increased explosively alongside Swedish industrialization. The public nature of the share ledger is an example of a provision that has been included in the Companies Act since 1895.

Shares

A share can be defined as:
​"A share is a portion of a limited company corresponding to a capital contribution from the owner, where all capital contributions together constitute the company's fixed share capital. A share entitles the holder both to a portion of the company’s assets and profits, after creditors are satisfied, and to influence the company’s strategic direction – also known as voting rights."

Thus, there are as many portions in a company as there are shares, and different companies can issue different numbers of shares. The smallest portion one can own is one (1) share, and all shareholders are co-owners of the company. The more shares an owner holds, the greater their stake.

Shareholders entered into the company’s share ledger by the record date are entitled to attend the Annual General Meeting (AGM) or any other shareholder meeting and vote their shares. Shareholders' ability to influence a company’s strategic direction is primarily exercised at the shareholder meeting. It’s important to understand the difference between voting at a shareholder meeting and voting in a "regular democracy" where "one person = one vote." At a shareholder meeting, each shareholder votes in proportion to the number of voting rights attached to their shares. In companies where all shares are of the same class and have equal dividend and voting rights (so-called common shares), typically one share = one vote. The more shares an owner has, the greater their influence.

Share Certificates

A share certificate serves as physical proof that the bearer owns the share. The share certificate is thus a physical security instrument, much like a very large banknote, and should be treated with the same level of care.

Older Share Certificates

The oldest known surviving share certificate was issued by Amsterdam Bank during the 17th century, while the oldest known preserved Swedish share certificate was issued on December 31, 1728, based on "lots" each worth 100 daler silver coins in the company Ahlingsåhs Manufactur Werk.

Did you know there are six different types of limited companies in Sweden?

It’s easy to think that a limited company is just a limited company – but actually, the Companies Act (ABL) states that all Swedish limited companies must be divided into two times three (i.e., six) complementary categories, depending on how the share ledger, shares, dividends, etc., are managed, and depending on the size of the share capital combined with specific formulations in the articles of association.

Coupon Company or Reconciliation Company

All Swedish limited companies are classified into one of two categories based on how the share ledger, shares, and dividends are handled.

Private or Public Companies

Swedish limited companies must also be divided into either private or public companies.

Public companies can offer shares to the general public (>200 people). They occupy a distinct position in Swedish business life, enabling broader ownership opportunities. Understanding the features, formation process, and characteristics of a limited company helps entrepreneurs and investors make informed decisions.

SE-Companies

There is also a corporate form called the European Company (Societas Europaea or SE company). SE companies must have minimum share capital of €120,000. SE companies have a special organizational number series beginning with 5171. Registering an SE company based in Sweden has been possible since October 8, 2005. SE companies must maintain a share ledger in the same way as other public companies, either as a coupon company or through a central securities depository (reconciliation company).

Company Category and Share Ledger

The table below summarizes the six different types of limited companies and shows which ones can use NVR and which ones must use Euroclear to maintain their share ledger.

About 99.5% of all Swedish limited companies are coupon companies and can use NVR for their share ledger, options programs, and other derivatives.

Note! Just because a company becomes public or a SE company, this does NOT mean that the company must simultaneously adopt a so-called "shareholder registry provision" in its articles of association. It is perfectly possible to be a public coupon company!

It is also worth noting that many companies with a shareholder registry provision are parent companies in a group with many subsidiaries and affiliated companies. Typically, these subsidiaries and affiliated companies are not shareholder registry companies, but coupon companies, meaning the parent company can use the shareholder registry provision to meet the legal requirements for its group. Another way in which shareholder registry companies can use the provision is for employee stock option programs or other options or derivatives, as it is common for these securities not to be listed with Euroclear.

Who manages a limited company?

The management of a limited company is divided into several different governing bodies according to the law. Each body has its responsibilities as defined in the Swedish Companies Act (ABL). The general rule is that the controlling influence over a company lies with the shareholders, even though provisions for employee representation on the board can to some extent influence and/or limit the shareholders' decision-making rights.

The governing bodies are:

The general meeting is the owners' forum for matters such as electing the board of directors and auditors. Voting rights at the general meeting are held only by shareholders who are registered in the share register before the meeting. The information in the share register forms the basis for both the shareholders' ability to exercise their management rights and the assessment of ownership relationships in the company. A shareholder may vote for the full number of shares they own or represent, unless otherwise stipulated in the articles of association.

An ordinary general meeting must be held annually, no later than six months after the end of the fiscal year. For actions that during the fiscal year require a decision by the owners, such as changing the company category or the share capital size, the board may call for an extraordinary general meeting.

At an ordinary general meeting, the owners have the right:

The board, elected by the general meeting (the owners), represents the company and signs its name, which concretely means that the board is responsible for the company's organization and the management of its affairs. The board must primarily act in the company's interest, but also consider the interests of others, such as creditors and individual shareholders, to the extent stated in the Swedish Companies Act (mandatory rules) and the articles of association (discretionary rules). In the event of a conflict between the company's and others' interests, the board member must safeguard the company's interests.

A board's duties can be divided into four main areas:

Within the board, one member must be the chairman. The board elects the chairman internally unless otherwise stated in the articles of association or decided by the general meeting. The effectiveness of the board's work largely depends on the efforts of the chairman. A good chairman takes on a much more important role than just leading board meetings. The chairman should always be well-informed about the company's situation and be a conversation partner for the CEO. The chairman, together with the other members, must ensure that the requirements in the Swedish Companies Act for board work are met, such as ensuring that the share register is maintained, preserved, and kept available. As mentioned earlier, the share register forms the basis for shareholders' ability to exercise their management rights. If the board intentionally or unintentionally neglects its responsibility to maintain, preserve, and keep the share register available, this results in criminal liability, with fines or imprisonment for up to one year. In addition, the board may be liable for damages.

The sanctions provisions should be seen in light of the fact that in many cases, it is of vital importance for a shareholder to be registered in the share register. One consequence of a company lacking a share register is that the company is paralyzed in cases such as a dispute over the ownership of shares in the company, as the company would then lack shareholders with voting rights.

The CEO, who is appointed by the board, has the right to represent the company and sign its name within their administrative area. The CEO is responsible for the day-to-day management of the company according to the guidelines and instructions provided by the board. The CEO cannot, without the board's mandate, enter into binding agreements on behalf of the company regarding matters such as the purchase and sale of substantial fixed assets, taking on (larger) long-term credits, and similar. The CEO reports to the board.

Finally, the management of a limited company is overseen by the company's auditor. Auditors, appointed by the general meeting (the owners), are tasked with reviewing and commenting on the board's management of the company. The maintenance, preservation, and accessibility of the share register are thus included in the auditor's review of the company's management. If the board has neglected its duties, this may lead to remarks (an unqualified audit report).

The Swedish Companies Act – A Brief Overview of the Most Important Rules

The Swedish Companies Act (ABL) contains rules that apply specifically to limited companies. ABL is also the most important law for a limited company. The purpose of ABL is to provide the company with the best possible conditions to generate profit for its owners, naturally within the boundaries of Swedish civil and criminal law. ABL regulates how companies can be established, structured, operated, and dissolved. It covers the owners' responsibilities, how assets and shares can be handled, and the relationship between majority and minority shareholders. The first Swedish Companies Act was adopted on October 6, 1848.

Mandatory and Dispositive Rules

ABL has a number of mandatory rules. These mandatory rules aim to protect the company, shareholders, and other stakeholders such as customers, suppliers, creditors, and authorities.

ABL also includes so-called dispositive rules. These dispositive rules allow shareholders to collectively decide which rules will govern the company’s management. The dispositive rules, which cannot replace mandatory rules in ABL or other laws, are included in the company’s articles of association.

Liability for Founders, Board Members, and CEOs

Both mandatory and dispositive rules in the Swedish Companies Act can result in liability for founders, board members, and the CEO. If these representatives fulfill their duties and cause harm to the company intentionally or through negligence, they must jointly compensate for the damage. The same applies if damage is caused to a shareholder or another party due to a violation of ABL, applicable annual accounts law, or the articles of association.

Penalties and Fines

Penalties and fines may be imposed for violating certain mandatory rules in ABL. A fine or imprisonment may be imposed on those who break the rules concerning the distribution of shares, maintenance of the share ledger, asymmetric information to board members, and so-called prohibited loans.

A private limited company or a shareholder in such a company may not advertise shares, subscription rights, bonds, or subscription options issued by the company. A private limited company or a shareholder in such a company may also not attempt to distribute securities issued by the company to more than 200 people. However, this does not apply if the offer is exclusively directed to a group that has pre-registered interest in such offers, and the number of offered shares does not exceed 200. Further exceptions apply to offers concerning transfers to no more than ten buyers. The prohibition does not apply to limited companies with special dividend restrictions. (See ABL 1, Chapter 7)

Shares, subscription rights, bonds, or subscription options may not, as long as the company is private, be traded on a regulated market, a corresponding market outside the European Economic Area, or any other organized marketplace. (See ABL 1, Chapter 8)

Deliberately or negligently failing to maintain the share ledger or keep it available. (See ABL 5, Chapter)

Deliberately or negligently failing to call a board meeting if a board member or the CEO requests it. This also applies if a board member cannot attend a meeting, and there is an alternate who should step in for them, but is not given the opportunity. The board also may not make decisions on matters unless, as far as possible, all board members have had the chance to participate in the matter’s consideration and have received satisfactory documentation to decide on the issue. (See ABL 8, Chapter 18, second sentence, 20, Chapter first paragraph, or 21, Chapter second paragraph)

Deliberately or through gross negligence granting loans or providing security for loans to shareholders, the CEO, board members, or close relatives of these. A limited company may also not provide advances, loans, or security for loans intended to enable the debtor or a person closely related to them to acquire shares in the company or in a parent company within the same group. Additionally, failing to prepare a special list of such loans and securities provided under exceptions from prohibited loans. (See ABL 21, Chapter 1, 3, 5, or 10)

The company’s websites, Swedish Companies Act, and 3 Mandatory Rules

Chapter 30, Section 3 of the Swedish Companies Act states that the Swedish Companies Registration Office (Bolagsverket) can order the CEO or a board member to fulfill the obligation to provide certain information on the company’s websites, as indicated in ABL, Chapter 28, Section 5. If the order is not complied with, the Swedish Companies Registration Office can impose a fine. All of a company’s websites must therefore clearly provide:

The identity marking in numerical form, i.e., the Swedish organizational number, must be provided for, among others, limited companies, European companies, and European cooperatives with a registered office in Sweden, as well as foreign company branches in Sweden. The organizational number consists of ten digits, of which the last is the control digit.

Shareholder Payment Liability

In a limited company, shareholders, in principle, do not have personal payment liability for the company’s obligations. In most cases, a shareholder can only lose the total amount paid for their shares. However, there are provisions for personal payment liability for shareholders in connection with the company’s obligation to liquidate due to capital insufficiency or if the shareholder, intentionally or through gross negligence, causes harm to the company, a shareholder, or another party by contributing to the violation of ABL, applicable annual accounts law, or the articles of association.

There is therefore every reason for shareholders, board members, and the CEO to be well informed about what ABL and the articles of association expect of them.

Chapters of the Companies Act

Below is a table of contents of the Swedish Companies Act’s chapters:

Share Ledger

The share ledger must be established as soon as the founding certificate has been signed by all founders, i.e., BEFORE the registration application is even submitted to the Swedish Companies Registration Office. The share ledger is an independent and fundamental document that must exist in all Swedish limited companies. The share ledger should not be confused with other documents that may contain similar information, such as the founding certificate, subscription lists, shareholder overview, cap table, or voting register. The voting register is a document that must be created in connection with the general meeting, based on the information in the share ledger, and is a list of present shareholders, proxies, and assistants.

What often causes confusion is that people hear the word "ledger" in "share ledger" and mistakenly think that this refers to a noun. However, the key point is "maintain-keep-available" together with many "must requirements." This means that a share ledger is a verb... something you do, rather than a physical object.

The Share Ledger Shall Be Maintained and Contain the Following Information

According to the Swedish Companies Act (ABL), the share ledger must contain the following information:

The board of directors or someone appointed by the board is responsible for making changes to the share ledger. In practice, it is common for the board to delegate the responsibility for making changes to the share ledger to someone else, such as the CEO, financial officer, or another internal or external person suitable for the task. The company is responsible for ensuring that the personal data handled in maintaining the share ledger complies with data protection laws.

Retention

According to ABL, the share ledger must be kept for as long as the company exists, and for at least ten years after the company is liquidated or otherwise ceases to exist. If the share ledger is maintained in a readable form, it must be kept in its original form. If the company switches to maintaining the share ledger using automated processing, the old share ledger must be retained for at least ten years after the information on all of the company’s shares is transferred to the new share ledger. The responsibility for maintaining the share ledger includes retaining all information since the company’s formation. If the share ledger is kept electronically, information that has been deleted from the ledger must be preserved for at least ten years. This information may be kept in readable form or in another format that can be read, listened to, or otherwise perceived only with technical means.

Accessibility

If the share ledger is maintained through automated processing, the company must provide anyone who requests it with the opportunity to view a current printout of the share ledger. If the share ledger is maintained in a readable form, the entire share ledger must be displayed. The share ledger must therefore be easily accessible at the location where the company has its registered office. The public availability of the share ledger stems originally from legal practice, but the principle was first codified in Swedish law in the 1895 version of ABL.

Failure to maintain, preserve, or make the share ledger accessible can result in a fine or imprisonment for up to one year.

The Purpose of the Share Ledger

The information in the share ledger primarily serves the following purposes:

Shareholders' Governance Rights

The share ledger is the basis for shareholders' ability to exercise their governance rights, as only those shareholders who are listed in the share ledger have the right to participate in the general meeting. Since all decisions of vital importance for the company—such as decisions on acquisitions, mergers, changes in company category, or share capital size—are made by the shareholders at the general meeting, it is crucial that the share ledger is accurate. Additionally, if a new shareholder is not correctly registered in the share ledger, the previous owner may continue to exercise their governance rights, which contradicts the desire for active shareholders in the management of the company. There are also other significant reasons for a shareholder to be listed in the share ledger, such as receiving annual reports, quarterly reports, invitations to meetings, and other communications from the company.

Assessment of Ownership Structure

The share ledger also functions as a tool for the company’s stakeholders—shareholders, employees, auditors, the company’s bank, authorities, etc.—to determine who the shareholders are. A share ledger that does not accurately reflect the ownership structure, or does not exist at all, will create problems for the company, its board members, and its shareholders.

For an accurate assessment of the financial risk associated with ownership in a limited company, it is important for both current and potential shareholders to know who holds decisive influence over the company.

A potential buyer of the company may be uncertain about whether they can acquire all the shares and may choose not to proceed with the purchase. This could cause shareholders to lose the opportunity for a profitable deal. The buyer may also demand a reduction in the purchase price as compensation for taking on the legal risks associated with an inaccurate share ledger. The result is that all shareholders lose money because the company was not managed in accordance with ABL.

Uncertainty about the ownership structure can make it difficult for minority shareholders to assert their statutory rights.

The general meeting may fail to make decisions on vital issues requiring a qualified majority, which can result in both higher costs and missed profits.

Hidden shareholdings and misleading share ledgers are common in cases of serious financial crime.

If the board intentionally or negligently neglects its responsibility to maintain, preserve, and make the share ledger accessible, they may face criminal liability, and the board may also be held liable for damages. The sanctions for this must be viewed in light of the fact that it is crucial for a shareholder to be listed in the share ledger.

Problems with Maintaining a Share Ledger in Excel and Word

Using Excel or Word to maintain a share ledger is not compatible with good governance when we know that errors systematically occur.

Problem Area 1: The Share Ledger Must Be Maintained

Many Excel or Word templates on the market do not meet the form requirements for share ledgers under the Swedish Companies Act (ABL).

The general knowledge level about share ledger administration is typically so low that most people fail to maintain a share ledger using Excel or Word templates. They simply don’t know how to correctly record a change.

Excel or Word are not process tools. There is a high risk of old information being deleted, and individual share numbers being double-booked.

Excel or Word templates make for an inefficient and irrational workflow.

It’s difficult for the board of directors and auditors to fulfill their oversight responsibility.

It’s difficult to assign the task to an external party.

A poor practice, along with studies, shows that the use of Excel or Word templates leads to 9 out of 10 companies making systematic errors and violating the law.

Problem Area 2: The Share Ledger Must Be Retained

A file with incorrect content means that, according to ABL, the share ledger is not properly retained.

It’s impossible to know that only one version exists. Excel or Word files can easily multiply into many copies (on computers, via email, etc.). This leads to a problem in knowing which version is the true share ledger.

There is a risk of the ledger being lost in case of a computer crash.

Problem Area 3: The Share Ledger Must Be Made Available

A file with incorrect content means that, according to ABL, the share ledger cannot be made available.

It is common for the only printout of an Excel or Word template to be lost.

The Importance of the Share Ledger in a Market Economy

In a market economy, the conditions for economic success are typically unevenly distributed between industries and companies. Shareholders who want to capitalize on the economic benefits of successful entrepreneurship must direct their investments to the industries and companies with the best prospects.

They must also monitor their investments by staying informed about how their company is developing. At general meetings and in dialogue with the company’s chairman, they have the opportunity to try to influence the direction of the company’s operations. In this way, owners actively contribute to ensuring that resources in both individual companies and the economy as a whole are utilized as effectively as possible. Shareholders who take responsibility for the development of companies and the economy are therefore a very important and necessary part of a functioning market economy.

Shareholders’ Ability to Influence a Company’s Strategic Direction

Shareholders’ ability to influence a company’s strategic direction primarily takes place during the general meeting. Shareholders who are registered in the company’s share ledger on the day of the general meeting have the right to attend and vote on their shares. If, on the other hand, there is no correct share ledger, the general meeting cannot be held in a formal sense. This means that the annual report cannot be approved, a board of directors cannot be elected, and decisions regarding new strategic investments cannot be made. The consequence of this is that the company must be compulsorily liquidated. Therefore, it can be said, without exaggeration, that correctly maintained share ledgers are a necessary condition for a functioning market economy.

The Societal Importance of Swedish Business Being Based on the Existence of a Single Document

The societal importance of Swedish business relying on the existence of a single document is something that the judge is well aware of. The board’s responsibility to maintain, preserve, and make the share ledger available is criminalized and can result in up to one year of imprisonment. Additionally, board members can be held liable for damages if their failure to maintain the share ledger in accordance with the mandatory rules of the Swedish Companies Act causes harm to others.

Buying and Selling Unlisted Shares

Unlisted shares are shares in companies that are not listed on a public exchange. These shares are often bought and sold privately, and the process of buying and selling them can be more complex than buying and selling listed shares.

You cannot buy and sell shares directly via your ownership account in NVR, as the ownership account is a reflection of the shareholder's holdings according to the share ledger.

How Do You Know How Many Shares Exist in an Unlisted Company?

In an unlisted company, the number of shares is usually defined in the company’s articles of association. This document describes the number of shares approved for issuance and any restrictions or conditions for the sale of these shares. Shareholders may also have agreements between themselves that affect the number of shares available for sale. To determine the number of shares in an unlisted company, shareholders can review the company’s articles of association, annual reports, and other relevant documents. They may also need to consult the company’s management or legal representatives for accurate information.

Can Anyone Buy Shares in an Unlisted Company?

In Sweden, the general rule is that anyone can buy shares in an unlisted company, provided they meet any applicable legal requirements. However, buying unlisted shares can be more complicated than buying listed shares. In many cases, investors will need to establish a relationship with the company or its shareholders and negotiate a purchase agreement.

How is the Price of an Unlisted Share Determined?

The price of an unlisted share is determined by the market forces of supply and demand. Generally, the price of an unlisted share will be based on a number of factors, including the company’s financial performance, growth prospects, and market conditions. A common method for determining the price of an unlisted share is to use a valuation method, such as discounted cash flow analysis or comparable company analysis. These methods use financial data, forecasts, and other information to estimate the value of the company and its shares.

What is the Difference Between Newly Issued Shares and Existing Shares?

Newly issued shares are shares issued by the company for the first time. These shares may be issued to raise capital for the company or to dilute the ownership of existing shareholders. Existing shares, on the other hand, are shares that have already been issued and are owned by shareholders. When purchasing newly issued shares, investors may need to consider the terms of the share issuance, such as the price of the shares and any restrictions on their sale or transfer. When purchasing existing shares, investors must negotiate a purchase agreement with the seller.

Where Do You Sell Unlisted Shares?

Unlisted shares are typically sold privately through negotiations between the buyer and seller. There are also companies that are licensed by the Swedish Financial Supervisory Authority and specialize in facilitating the sale of unlisted shares.

It is also possible to sell unlisted shares through the company in which you own shares, helping to match supply and demand. This is common in unlisted companies that want to be shareholder-friendly. Both of these approaches are likely more efficient than shareholders or potential shareholders finding a counterparty and negotiating a private transfer on their own. It’s also important to remember that the Swedish Companies Act restricts the ability of private limited companies or their shareholders to advertise shares, subscription rights, debt instruments, or options issued by the company. Violating these rules is punishable by fines or penalties.

Summary:

Buying and selling unlisted shares in Sweden can be more complex than buying and selling listed shares. Investors should carefully review the company’s articles of association and other relevant documents to determine the number of shares and any restrictions or conditions for their sale. They should also establish a relationship with the company or its shareholders and negotiate a purchase agreement. Valuation methods can be used to determine the price of an unlisted share, and there are online platforms available to facilitate the sale of unlisted shares.

A Company May Have Several Different Types of Shares

When it comes to investing in a Swedish company, there are many factors to consider. One of the most important factors is what types of shares the company has issued. Some companies in Sweden issue several classes of shares, which can be confusing for investors.

What are Share Classes or Share Types?

By owning shares in a company, you own the rights to the cash flow and voting rights. Voting rights indicate the company’s control power, and the cash flow rights primarily determine the value of owning the shares. In companies where all shares are of the same class and have the same cash flow and voting rights, they are called ordinary shares. Companies with two share classes usually have two different types of shares with the same cash flow rights but different voting rights: commonly referred to as Class A and Class B shares. Class A shares typically have more voting rights per share than Class B shares, meaning that those holding Class A shares have more control over the company’s decisions compared to those holding an equal number of Class B shares. If a class of shares has preferential rights to cash flow, these shares are often called preference shares.

There are companies with more advanced setups with even more classes of shares: Class A shares, Class B shares, Class C shares, Preference 1, Preference 2, etc. This refers to a company’s ability to issue different classes of shares with different rights attached to them, such as various cash flow rights and voting rights, possibly in combination with class-specific conditions in the Articles of Association.

What is the History of Dual-Class Shares in Sweden?

The practice of issuing dual-class shares has a long history in Sweden. The country’s largest companies, such as Volvo and Ericsson, have used dual share classes for decades. Dual-class shares were originally created to protect a company’s founders from hostile takeovers and to give them more control over the direction of the company. However, they have become increasingly controversial in recent years, with some investors arguing that they give insiders too much power and undermine shareholder democracy.

Can an Unlisted Company Have Multiple Share Classes?

Yes, unlisted companies in Sweden can also issue several classes of shares. However, unlike listed companies, unlisted companies are not subject to the same disclosure requirements and shareholder protections. This can make it more difficult for external investors to assess the company’s financial health and governance practices.

Why Do Companies Have Multiple Share Classes?

There are several reasons why companies may choose to issue multiple share classes. One of the most common reasons is to allow founders and insiders to retain control of the company even when it goes public or grows larger. By giving insiders more voting rights per share, companies can ensure that they have the final say on important decisions, such as mergers and acquisitions, even if external investors own the majority of the shares. Multiple share classes can also help protect the company from hostile takeovers and provide more stability and control over its long-term strategy.

Everything You Need to Know About Preference Shares

When it comes to investment opportunities, preference shares occupy a unique position as they offer specific features and benefits for both companies and investors. In this blog article, we will dive into the world of preference shares and explore their characteristics, different types of preference shares, and both the advantages and disadvantages of them.

What Are the Characteristics of Preference Shares?

Preference shares are a type of security representing ownership in a company. Here are some key features of preference shares:

Are There Different Types of Preference Shares?

Yes, there are various types of preference shares, each with unique characteristics. Common examples include:

How Do Preference Shares Differ from Common Shares?

Advantages and Disadvantages of Preference Shares

Advantages:

Disadvantages:

Final Reflections on Preference Shares

Preference shares can offer a relatively steady income, appealing to investors seeking stability. Their fixed dividend rates and liquidation preference provide a sense of security for risk-averse investors. However, potential investors should also weigh their limitations—particularly restricted growth and voting rights. It’s advisable to align any investment in preference shares with your financial objectives and to consult a financial professional before deciding.

Top 5 Tips for Investors

In summary: Multiple share classes can be a useful way for a company to raise capital while retaining control and protecting its long-term vision. They’re common among large tech companies but can also be used by smaller firms. However, they can raise corporate-governance and accountability concerns. Companies should carefully weigh the benefits and risks, and ensure transparency and fairness, before implementing multiple share classes.

Unlisted shares are those of companies not traded on a public exchange. They’re typically held by a small group of investors—often family or close associates. Even relatively large companies can remain unlisted, despite having thousands of shareholders. In Sweden, many unlisted shares sit in “coupon” companies (the most common corporate form), while a few hundred are in unlisted “registration” companies.

When Do You Need to Value Unlisted Shares?

How Do You Value Unlisted Shares?
Because there’s no market price, use one of three main methods in Sweden:

Valuing with Only Public Information
Review financial statements, industry trends, and comparable companies. You may also need to hire an independent valuator for a more precise estimate.

There is no single “true” value.
Share values vary based on market conditions, financial performance, and investor sentiment. Combining methods and considering multiple factors gives the best sense of fair value.

It’s crucial to know who performed a valuation and for what purpose. In a buy/sell situation, sellers want a high valuation; buyers want a low one. Often both sides hire an independent third party whose incentives aren’t tied to the outcome.

Other scenarios with conflicting incentives:

Dividend policy is a key part of corporate finance that shapes relations with shareholders and a company’s overall value proposition. This overview explains:

A dividend policy is a set of rules a company follows to decide how much profit to distribute as dividends, including the type, timing, and pattern of dividends. Factors influencing it include:

What is the purpose of having a dividend policy?

The primary purpose of a dividend policy is to establish a framework for distributing profits to shareholders. This policy serves several important purposes:

Example of a Dividend Policy

Diadrom Holding Aktiebolag, a Swedish company listed on First North GM Stockholm, has a publicly communicated and consistent dividend policy.

“Diadrom’s policy for ordinary dividends is to distribute 50% to 80% of the profit to shareholders, provided that an appropriate capital structure can be maintained. The goal is also to achieve a dividend with steady growth over time.”

This is a good example of a dividend policy with a balanced approach, being both shareholder-friendly while considering the company’s capital structure.

Are there different types of dividends?

Are there different types of dividend policies?

Companies adopt various dividend policies based on their unique circumstances and strategic goals. Some of the main types of dividend policies include:

Does Dividend Policy Affect a Company’s Value?

The effect of dividend policy on a company’s value is a subject of extensive discussion and varies depending on specific circumstances and perspectives. Here are some key points to consider regarding the impact of dividend policy on a company’s value:

It is important to note that the impact of dividend policy on a company’s value is context-dependent and may vary between companies and markets. Companies should consider their specific circumstances, investor base, growth prospects, and market dynamics when formulating their dividend policy to optimize shareholder value.