The adoption of group specific provisions in Swedish law : A study of the group interest and its bearing on effective corporate governance

This thesis is concerned with the regulation of corporate groups and more specifically, whether the adoption of group specific provisions in Swedish law that recognises the concept of “group interest” is motivated in light of efficient corporate governance. Swedish corporate law in general and the Companies Act were, in a historical context, developed, and still are, formed with the single entity corporation at heart. This development is reflected upon the general lack of provisions aimed at regulating corporate groups. The result is that groups has to accustom its operations based on the same legislation as the single corporate entity. However, as a form of conducting business operations, a corporate group operates under noticeably distinct conditions. The Companies Act thereby fails to address and govern different interest of conflicts that typically arise within group structures. As a result, business practices concerning the governance of corporate groups has shifted the balance of interests in a way that empowers the parent entity which en- hances the risks of unduly favouring towards minority shareholders and cred- itors. The entity-doctrine, of which corporate law was founded upon both in Sweden and world-wide, acts as an obstacle to accept the more recent con- cept of group interest. A group is not recognised as a legal entity but consists instead of the participating entities, all with a separate legal personality. It is therefore necessary to revisit the very core principles of which corporate law was founded upon. The essence of corporate group law is narrowed down to the questions of the parent’s right to manage its subsidiaries and the level of its responsibility. It is concluded that the incentives to engage in group structures also pro- vides compelling economic reasons for the legislator to introduce group pro- visions in order to enhance and facilitate both the formation of and the level of flexibility of the governance of a group structure. By way of comparative assessment with other jurisdictions, as well as the ongoing trends in Europe, this is possible while still maintaining an adequate level of protection to mi- nority shareholders and creditors. Although there are still major differences within EU member states on the topic, this thesis is clear in its conclusions; a recognized group interest is the right way forward