Running a Swedish Limited Company (Aktiebolag): Legal, Administrative, and Tax Considerations

A Swedish limited liability company, known as an aktiebolag (AB), is the most widely used corporate form in Sweden. It is suitable for a broad range of activities, from small consulting businesses to large multinational operations. The structure combines legal certainty, limited liability, and relatively straightforward administration, which explains its popularity among both Swedish and foreign entrepreneurs.

This article explains how a Swedish limited company functions in practice, covering the legal structure, governance, accounting obligations, and key tax considerations.

The Legal Nature of a Swedish Limited Company

An aktiebolag is a separate legal entity. This means that the company exists independently from its shareholders. It can enter into contracts in its own name, own assets, incur liabilities, and be a party to legal proceedings.

One of the central features of this corporate form is limited liability. As a general rule, shareholders are not personally responsible for the company’s debts. Their financial risk is limited to the capital they have invested in the company. This legal separation between the company and its owners is a fundamental principle of Swedish company law.

However, this protection is not absolute. Personal liability may arise in certain situations, for example if the company fails to comply with mandatory rules on capital protection or accounting obligations. Swedish company law therefore places significant emphasis on proper governance and financial oversight.

Share Capital and Formation Requirements

To form a private Swedish limited company, a minimum share capital must be contributed. For private companies, the statutory minimum share capital is SEK 25,000.

This capital represents the company’s initial equity and is intended to provide a basic financial buffer for creditors. The capital is typically contributed in cash, although contributions in kind are possible under specific conditions. Unlike in some other jurisdictions, the share capital cannot be merely treated as a debt that the shareholders owe the company. It has to be fully paid and held by the company.

Once the share capital has been paid and the company has been registered with the Swedish Companies Registration Office, the company becomes a legal person capable of conducting business.

Corporate Governance Structure

Swedish limited companies operate through a structured governance system consisting of three principal corporate bodies: the shareholders’ meeting, the board of directors, and, where applicable, the managing director.

The Shareholders’ Meeting

The shareholders’ meeting is the company’s highest decision-making body. It represents the owners and exercises ultimate control over the company.

Key decisions typically taken at the shareholders’ meeting include the election of the board of directors, approval of the annual financial statements, decisions on dividend distributions, and amendments to the articles of association.

The annual general meeting must be held each year to approve the company’s accounts and discharge the board from liability for the financial year.

The Board of Directors

The board of directors is responsible for the overall management and organization of the company. It ensures that the company is run in accordance with applicable laws and the company’s articles of association.

Among other things, the board must ensure proper accounting and financial control, oversee the company’s financial position, adopt strategic decisions, and appoint and supervise the managing director, if one is appointed.

Even in small companies, the board has formal responsibilities that cannot be ignored. Failure to comply with these duties may lead to personal liability for board members.

The Managing Director

In smaller private limited companies, the appointment of a managing director is optional. Where no managing director is appointed, the board itself handles the day-to-day management.

If a managing director is appointed, the role is to manage the company’s daily operations in accordance with the board’s instructions. In many small owner-managed companies, the same individual acts as shareholder, board member, and managing director.

Separation Between the Company and the Owner

A fundamental principle in Swedish company law is the financial separation between the company and its shareholders.

The company’s funds belong to the company, not to the owner personally. This means that shareholders cannot freely withdraw money from the company at will. Payments to the owner must be structured in legally recognized forms, such as salary, dividends, reimbursement of expenses, or loans under specific conditions.

Improper withdrawals may be treated as unlawful value transfers and can lead to tax consequences, repayment obligations, and in some cases personal liability.

Accounting, Reporting, and Compliance Obligations

All Swedish limited companies are subject to accounting and reporting requirements.

Ongoing Bookkeeping

The company must maintain proper accounting records, documenting all financial transactions. This includes sales and purchase records, bank transactions, payroll records, and asset registers. The purpose of these rules is to ensure transparency and financial control.

Annual Financial Statements

At the end of each financial year, the company must prepare annual financial statements. These typically include a balance sheet, a profit and loss statement, notes, and a management report.

The annual accounts must be submitted to the Swedish Companies Registration Office within the statutory time limits.

Audit Requirements

Small companies are often exempt from the requirement to appoint an external auditor. The audit requirement depends on the company’s size, measured by factors such as turnover, balance sheet total, and number of employees.

Larger companies must appoint an authorized auditor.

Taxation of a Swedish Limited Company

While the legal structure defines how the company operates, taxation is a central practical aspect of running a Swedish aktiebolag.

Corporate Income Tax

A Swedish limited company pays corporate income tax (20,6%) on its profits.

The taxable profit is calculated based on the company’s accounting result, adjusted in accordance with Swedish tax rules. The company files an annual corporate tax return, and the final tax is determined by the Swedish Tax Agency.

Salary to the Owner

If the owner works in the company, remuneration is normally paid as salary. The company must withhold preliminary income tax and pay employer social security contributions.

Salary is deductible for the company, which reduces the company’s taxable profit. From the owner’s perspective, the salary is taxed as employment income.

Dividends to Shareholders

Profits remaining after corporate tax may be distributed to shareholders as dividends.

In closely held companies, dividends are subject to special tax rules that determine how much of the dividend is taxed as capital income and how much is taxed as employment income. The system is designed to prevent excessive conversion of salary into lightly taxed dividends.

Double Taxation in Practice

A key feature of the Swedish corporate tax system is economic double taxation. The company first pays corporate income tax on its profits. When profits are distributed, the shareholder pays tax on salary or dividends received from the company.

While this may appear disadvantageous, the system also provides flexibility. Owners can choose a mix of salary and dividends, depending on the company’s results and applicable rules.

Practical Advantages of the Swedish Limited Company

The aktiebolag structure offers several practical advantages. It provides limited personal liability, a clear separation between business and private finances, credibility toward customers and banks, and flexibility in profit distribution.

For many entrepreneurs, especially those with growing businesses or higher earnings, the limited company is the preferred structure.

Conclusion

Running a Swedish limited company involves more than simply registering a business. It requires an understanding of corporate governance, accounting obligations, and tax rules.

The structure offers significant benefits, particularly in terms of limited liability and flexibility in remuneration. At the same time, it comes with formal responsibilities that must be respected in order to maintain the legal protection the structure provides.

Need Advice on Swedish Limited Companies?

If you are considering starting or operating a Swedish limited company, professional advice can be valuable, especially in cross-border situations or when planning remuneration strategies.

Felix Schöttle (LL.M.) is a Swedish lawyer specialized in Swedish and international tax law and regularly assists entrepreneurs, consultants, and foreign business owners with Swedish company and tax matters.

Disclaimer

This article is for general informational purposes only and does not constitute legal or tax advice. You should seek professional advice before acting on the information above.