Multiple share classes in Sweden: A guide for investors

When investing in a Swedish company, there are many factors to consider. One of the most important is the type of shares the company has issued. Some companies in Sweden issue multiple share classes, which can be confusing for investors. In this article, we explore what multiple share classes are, the history of dual-class shares, whether an unlisted company can have multiple share classes, and why companies choose to use them.

What are share classes?

By owning shares in a company, you hold cash flow rights and voting rights. Voting rights determine control over the company, while cash flow rights primarily determine the economic value of the shares. In companies where all shares are of the same class and carry identical cash flow and voting rights, the shares are referred to as ordinary shares.

Companies with two share classes typically issue two types of shares with the same cash flow rights but different voting rights, commonly referred to as A and B shares. A shares usually carry more voting rights per share than B shares, meaning holders of A shares have greater control over company decisions compared to holders of the same number of B shares. If a share class has preferential rights to cash flows, those shares are usually referred to as preference shares.

Some companies use more advanced structures with several share classes: A shares, B shares, C shares, Preference 1, Preference 2, and so on. This reflects a company’s ability to issue different share classes with different rights attached, such as varying cash flow and voting rights, sometimes combined with share-class-specific provisions in the articles of association.

The history of dual-class shares in Sweden

The practice of issuing dual-class shares has a long history in Sweden. Some of 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 company founders from hostile takeovers and to give them greater control over the company’s direction. In recent years, however, they have become increasingly controversial, with some investors arguing that they grant insiders too much power and undermine shareholder democracy.

Can an unlisted company have multiple share classes?

Yes, unlisted companies in Sweden can also issue multiple share classes. Unlike listed companies, however, 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 as it becomes listed or grows larger.

By granting insiders more voting rights per share, companies can ensure they retain 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 companies from hostile takeovers and provide greater stability and control over their long-term strategy.

Top five tips for investors

1. Pay close attention to the company’s share structure and the number of voting rights attached to each share class. This will give you a better understanding of who controls the company and how decisions are made.
2. Look for companies with strong corporate governance practices and independent board members. This can help ensure that insiders do not abuse their power or act in their own interests.
3. Consider the company’s financial health and performance before investing. Multiple share classes can make it harder for external investors to assess financial condition and governance, so thorough due diligence is essential.
4. Be aware of the risks associated with investing in companies with multiple share classes, such as the risk of insider abuse of power or unfair treatment of minority shareholders.
5. Consult a financial advisor or other investment professional if you are unsure how to evaluate a company’s share structure or governance practices. They can help you make informed investment decisions and navigate the complexities of multiple share classes.
   

In summary, multiple share classes can be a useful tool for companies to raise capital while retaining control and protecting their long-term vision. The use of multiple share classes is common among large technology companies, but it can also be applied by smaller companies. It is important to note, however, that multiple share classes can raise concerns about corporate governance and accountability. Companies should therefore carefully consider their rationale for implementing such structures and ensure transparency and fairness in their decision-making processes. Overall, the use of multiple share classes is a complex issue that requires careful consideration and planning, and companies should weigh the benefits and risks before adopting this structure.

Support for multiple share classes in NVR

NVR naturally supports an unlimited number of share classes, with outcomes automatically reflected in the company’s shareholder overview, or “cap table.” Different share classes may be in place from the company’s incorporation, arise through a new share issue where shares of a new class are issued, or be created through share reclassification. NVR provides automated functionality for all of these processes.