Article New rules make it possible for Swedish limited companies to change domicile within the EU

New rules are introduced to make it possible for Swedish limited liability companies to change their domicile to another EU or EES country by way of a cross-border conversion. At the same time, the rules for cross-border mergers and divisions will be updated. The purpose is to facilitate cross-border restructurings.

EU cross-border mergers, divisions and conversions – takeaways

• A Swedish limited companies (private and public) may change its domicile to another EU-country (cross-border conversion). The procedure requires a plan including the terms of the conversion, an shareholders’ approval and permission from the Swedish Companies Registration Office.
• A shareholder who has voted no to a cross-border merger has the right to have its shares redeemed.
• A new form of division is introduced where the consideration is paid to the company itself instead of to its shareholders (separation).
• Companies with an ongoing merger or division may need to watch out as the new rules apply also to ongoing procedures started before January 31, 2023 when the new rules start to apply.

Many of the proposed laws apply also to economic associations and financial companies. The new laws are proposed to enter into force on January 31, 2023 and are based on EU directive 2019/2121 of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions.

Cross-border conversion

A cross-border conversion entails that a Swedish limited liability company (private or public) is converted into a foreign company or, vice versa, that a foreign company is converted into a Swedish limited liability company. No new company is formed and no company is dissolved. Instead, the same company continues to exist in a converted form in another EES member state. To a large extent, the rules will correspond to those that apply to cross-border mergers and divisions, such a requirement to prepare a plan with the terms of the conversion, shareholder approval and a notice to the creditors of the company and permission to execute the plan.

As with cross-border mergers and divisions, a shareholder who has voted no to the division will be entitled to have its shares redeemed and may also claim additional compensation before a court.

Cross-border merger

Already today, Swedish limited companies may merge with a corresponding legal entity in another EES member state but the proposed legislation includes certain changes, such as for example the following:

• New requirements on the report of the board and the auditor’s statement.
• A shareholder who has voted against a cross-border merger will have the right to have its shares redeemed for a compensation. If the shareholder does not accept the compensation stated in the merger plan, the shareholder may claim additional compensation before court.
• A shareholder who has not requested to have its shares redeemed, but who objects to the share exchange ratio in the merger plan, may also claim additional compensation before a
• The Companies Registration Office may reject an application to execute a merger if the merger is set up for “abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of Union or national law” or for criminal purposes.
• The Companies Registration Office may engage an expert to determine if a cross-border merger may be executed. The company applying for the execution will be liable for the cost.

Cross-border division

A division entails that a limited company is divided into two or more limited companies. While the Companies Act already regulates domestic divisions, new provisions are introduced to enable cross-border divisions.

For both domestic and cross-border divisions, there will be three kinds of divisions:

• Complete division: Corresponds to what is usually known as a ‘demerger’.
• Partial division: Corresponds to a ‘spin-off’, meaning that the company transferring assets and liabilities continues to exist and that the compensation is paid the shareholders of that company.
• Separation: Corresponds to a partial division with the difference that the compensation is paid to the company transferring the assets rather than to its shareholders.

Thus, both a domestic and a cross-border division may be executed by way of a complete division, a partial division or a separation. In a cross-border division, a company’s assets and liabilities will – completely or partially – be transferred to one or more corresponding legal entities within the EES. To a large extent, the procedure will correspond to a cross-border merger. However, the cross-border division plan must, among other things, include a description of the division of assets and liabilities between the companies as well as information on the treatment of assets and liabilities not explicitly allocated in the plan (e.g. unknown debts).

A short note on employment law

The Act on Involvement of Employees in Cross-border Mergers is amended to cover also cross-border mergers and divisions. Among other things, the new legislation will enable the Companies Registration Office to reject an application to execute a cross-border reorganization if the purpose of the reorganization is to circumvent employee participation rights.

This information does not, and is not intended to, constitute legal advice.