Company Law / Associationsrätt
The Board of Directors - an introduction
Have you been nominated as director of a company board? Or are you a shareholder presented with a suggested board compilation to vote on at the next general meeting? All countries have their peculiarities as regards what a board is and does, and what obligations and risks it entails to enter into the role as a director of the board. The role and responsibilities should not be taken lightly and could ultimately lead to personal liability for damages as well as personal payment obligations if done "wrong" or "sloppy". Here is the first part in a series of articles outlining what you should know about the boards role, functions, rights and responsbilities in relation to a Swedish LLC.
The board of directors (the “BoD”) is the second highest decision making body in a corporate structure. The highest being the general meeting of shareholders. The board is, as an outset, appointed by the shareholders at a general meeting.
It is the highest executive body in a corporate structure with the capacity to represent the corporation in relation to third parties (i.e. this is something that the general meeting of the shareholders cannot do).
It is a collegial body – where the decisions, in order for them to have a binding effect on the company, must be made collectively (and in accordance with specific quorum rules). No individual board member can, as an outset, hence make decisions on their own on the companies behalf - unless it is a one-man board or it is based on delegation by the board in full. Basically it is majority decisions that rule (with specific qourum rules stipulated by law).
However, the responsibility is individual and in Sweden you may not have a legal person as part of the board nor do you have a right to appoint a substitute for yourself. Rather, substitutes are, as an outset, appointed by the general meeting. The directors have individual obligations and individual liability for their actions (or lack of actions).
The general role and responsibility of the BoD is broad and rather general, as they are responsible for the strategic and overarching operations and management of the company. They shall accordingly ensurethat the company´s organization is fit to purpose, that it has the required communication channels, resources and facilities etc. The broad and vague responsibility should be assessed and defined on a case-by-case basis looking at the specific company at hand.
Importantly, the BoD must ongoingly assess the company´s financial situation. The board has a control responsibility and must take actions to ensure that is has adequate information in this regard and take actions in case the company faces challenges in relation to its financial situation now or in the future.
The BoD will also have specific obligations that are imposed in various laws such as keeping an updated share ledger, and ensuring that an appropriate policies, such as GPDR and AML, are in place.
Perhaps most importantly, the BoD has a form of fiduciary duty towards the company and the shareholders. Such obligations are not explicitly stated in legal paragraphs but that are found in general principles and case law. These include, first and foremost, the duty of care and loyalty - as defined closer in case law and legal doctrine. Importantly, the duties are towards the company and its shareholders, not just any third party dealing with the BoD or the company.
So, when considering whether to accept a position as director on a board of directors – keep in mind that the responsibilities are vast and do come with the aforementioned individual and personal liabilities. You must ensure that you keep on top of the company´s financial situation, its overall needs and the specific legal requirements that are placed on the board of the individual company (such as AML, financial regulatory demands and GDPR obligations). Also, make sure to have an appropriate D&O insurance in place.
Stockholm, 2023-08-21
Author: Katarina Strandberg
The board of directors (the “BoD”) is the second highest decision making body in a corporate structure. The highest being the general meeting of shareholders. The board is, as an outset, appointed by the shareholders at a general meeting.
It is the highest executive body in a corporate structure with the capacity to represent the corporation in relation to third parties (i.e. this is something that the general meeting of the shareholders cannot do).
It is a collegial body – where the decisions, in order for them to have a binding effect on the company, must be made collectively (and in accordance with specific quorum rules). No individual board member can, as an outset, hence make decisions on their own on the companies behalf - unless it is a one-man board or it is based on delegation by the board in full. Basically it is majority decisions that rule (with specific qourum rules stipulated by law).
However, the responsibility is individual and in Sweden you may not have a legal person as part of the board nor do you have a right to appoint a substitute for yourself. Rather, substitutes are, as an outset, appointed by the general meeting. The directors have individual obligations and individual liability for their actions (or lack of actions).
The general role and responsibility of the BoD is broad and rather general, as they are responsible for the strategic and overarching operations and management of the company. They shall accordingly ensurethat the company´s organization is fit to purpose, that it has the required communication channels, resources and facilities etc. The broad and vague responsibility should be assessed and defined on a case-by-case basis looking at the specific company at hand.
Importantly, the BoD must ongoingly assess the company´s financial situation. The board has a control responsibility and must take actions to ensure that is has adequate information in this regard and take actions in case the company faces challenges in relation to its financial situation now or in the future.
The BoD will also have specific obligations that are imposed in various laws such as keeping an updated share ledger, and ensuring that an appropriate policies, such as GPDR and AML, are in place.
Perhaps most importantly, the BoD has a form of fiduciary duty towards the company and the shareholders. Such obligations are not explicitly stated in legal paragraphs but that are found in general principles and case law. These include, first and foremost, the duty of care and loyalty - as defined closer in case law and legal doctrine. Importantly, the duties are towards the company and its shareholders, not just any third party dealing with the BoD or the company.
So, when considering whether to accept a position as director on a board of directors – keep in mind that the responsibilities are vast and do come with the aforementioned individual and personal liabilities. You must ensure that you keep on top of the company´s financial situation, its overall needs and the specific legal requirements that are placed on the board of the individual company (such as AML, financial regulatory demands and GDPR obligations). Also, make sure to have an appropriate D&O insurance in place.
Stockholm, 2023-08-21
Author: Katarina Strandberg