All limited companies must have a board, but what function does it fulfill and what responsibility does a board member always have?
The board of limited companies
Under the Swedish Companies Act, all limited companies must have a board. The number of board members is specified in the articles of association, and changes to the board are registered with the Swedish Companies Registration Office. If the company is a small limited company, one or two board members will suffice, provided there is a deputy. If the company is a public company, by law the board must comprise at least three members. The role of the board varies greatly depending on the size of the company and is regulated in chapter 8 of the Companies Act.
In this article we focus on smaller boards.
For many small companies the board is made up of immediate family and then often only with the aim of meeting legal requirements. But irrespective of the company’s size, it is important to have skilled, dedicated board members.
The board is appointed or removed by the general meeting of shareholders, which is the forum for shareholders and the company’s highest decision-making body. The board is appointed at the AGM, which is held in conjunction with adopting the annual report. In an upcoming article we’ll go into more detail about the responsibilities and powers of the general meeting of shareholders and the shareholders.
Control of the financial situation
The board’s main task is to be responsible for the company’s organisation and administration. This means it has to keep track of the company’s financial situation and make sure that the company’s organisation is well structured. This also means that accounting, the company’s funds and other assets and the company’s general financial conditions have to be controlled in a satisfactory manner. You can read more about this in chapter 8, §4 of the Companies Act. The board shall manage the company’s business operations in the most financially sound way possible.
Basis for sensible financial decisions
The board is also a control function. The term “control” means that the board regularly requests reports and monitors the company’s position and results, as well as its development month by month. The board is responsible for ensuring that information and reports produced by the company are accurate. Financial reporting is often delegated to an accounting consultant and the consultant then produces a reconciled and analysed report which is submitted to the company board so that it can then make sensible financial decisions. It’s important to maintain an ongoing dialogue between the consultant and company management so that any issues are resolved so as to provide the best possible fair presentation.
If the company has appointed a managing director, they must submit such a report to the board. If the company has an auditor, the auditor may also review the board’s discharge of its duties on behalf of the shareholders.
Responsibility for the company
The board is also responsible for ensuring that the annual report submitted to the Swedish Companies Registration Office is accurate and provides a fair presentation of the company and its accounts. This is important because the annual report is a public document that banks and suppliers regularly read to learn about the company’s development. If no annual reports are submitted, under the Annual Accounts Act the board members are personally responsible for all of the company’s obligations. This also applies if the company is not in a situation where it produces a balance sheet for liquidation purposes, i.e. where the company’s equity is wholly or partly depleted. In that situation, protective rules for the share capital come into effect and this can lead to personal responsibility for the board members if they haven’t done what is required by the rules set out in the Annual Accounts Act.
The board is responsible for taxes being paid on time. Under the Tax Procedures Act, board members may be personally liable for payments to the Swedish Tax Agency if taxes are not paid on time.
The role of the chairman of the board
In a board with more than one member, one of the members shall be appointed the chairman. The role of the chairman is to lead the board’s work and ensure that the board fulfils its tasks as set out above. The chairman shall also ensure that board meetings are held as required and that the board has a quorum. Board decisions are made by majority vote. If the board is unable to make a majority decision, the chairman of the board has the casting vote.
Who’s allowed to sit on a board?
A board member must be a natural person of legal age who is not bankrupt and has not been prohibited from carrying on a business. There is nothing to say that a shareholder cannot also be a board member. In fact this is quite common in small companies. A legal entity, i.e. another company, however, cannot be a board member. A board member may resign prematurely and this is then reported to the Swedish Companies Registration Office.
We hope that your questions about the role and responsibilities of the board have been answered and that you will not hesitate to get in touch if you would like our assistance or have any further questions. We often assist our customers’ boards with decision-making documentation, annual reports, board minutes and other services. Please contact us at Azets for the best possible advice on these issues!