Half your share capital gone: what you must do now

You have finished the books for September, opened the balance report and found that the equity line has shrunk to a few thousand kronor. The year went worse than planned, or you have just started and costs came before revenue. This is where a rule in the Swedish Companies Act kicks in, and it does not care that you are the only owner and know exactly what is going on.

The threshold is lower than you think

As soon as there is reason to assume that the company’s equity is less than half of the registered share capital, the board must immediately prepare a kontrollbalansräkning, a control balance sheet. The board is you. The same duty applies if the Enforcement Authority (Kronofogden) has found, during an attachment, that the company lacks assets to cover the debt.

With the minimum share capital, SEK 25,000 for a private limited company, the line sits at SEK 12,500. In a new company with no retained profit, a loss of SEK 12,501 is enough. That is a laptop and a few months of software subscriptions.

Take an example. Share capital is SEK 25,000, you have SEK 30,000 in retained earnings from earlier years, and the result for January to September is minus SEK 45,000. Equity is then 25,000 + 30,000 − 45,000 = SEK 10,000. That is below 12,500, and the obligation has been triggered.

How to prepare the control balance sheet

It is a balance sheet as of a current date, prepared using the company’s normal accounting principles. The difference is that you may make certain adjustments in the company’s favour. According to the Swedish Accounting Standards Board’s Q&A, assets may be stated at net realisable value, and untaxed reserves are split into equity and deferred tax.

In practice, most of a periodiseringsfond (a tax allocation reserve) counts as equity here, and a fully depreciated machine you could sell for SEK 20,000 can be stated at that amount. Each adjustment must be shown separately, and you must sign the document. If the company has an auditor, the auditor must review it.

The word “immediately” has no fixed deadline in the Act. The Riksdag Committee on Civil Affairs’ review of the rules describes practice as roughly one month for a one-person company and up to two months for larger ones. Do not count on more, and count from the day you should have understood the situation, not the day you happened to open the report.

If the control balance sheet, after adjustments, shows equity above half the share capital, you are done. Keep it dated and signed with your accounting records. It is your proof that you acted.

If the shortfall remains: two meetings and eight months

If it shows that equity really is below half, you must call a general meeting as soon as possible, the first kontrollstämma (control meeting). The meeting must decide whether the company should go into liquidation. As sole owner you hold the meeting yourself and write minutes, but it has to be held and documented.

If the meeting decides to continue, a clock starts. Within eight months a second control meeting must be held, with a new control balance sheet. This is the trap many people miss. To get out of the process, climbing back above half the share capital is not enough. The new control balance sheet must show equity equal to the full registered share capital.

In the example, equity has to rise from SEK 10,000 to SEK 25,000. That takes SEK 15,000 in profit during the period, or in contributions. If it does not get there, and the meeting does not resolve on liquidation, the board must apply to the district court for liquidation. The deadlines are in chapter 25, sections 13 to 20 of the Companies Act.

The quickest way to fix the shortfall

Bolagsverket, the Swedish Companies Registration Office, mentions shareholder contributions, a new share issue and a reduction of share capital as ways out. For a one-person company an aktieägartillskott, a shareholder contribution, is almost always the simplest. You transfer money from your private account, book it as equity and write a short dated decision stating that it is a contribution.

Lending money to the company does not help. A loan is a liability and leaves equity untouched. If you already have a claim on the company you can convert it into a contribution, but do it in writing and check the tax consequences first if the amount is large.

Why you should not wait

If you skip the steps, you as a board member become personally and jointly liable for the obligations the company incurs for as long as the failure continues. That covers supplier invoices, rent and taxes arising during that time. The whole point of a limited company disappears, without you noticing anything.

Pull up the balance report as of 30 September today and compare the equity line with half your share capital. If you are close to the line, prepare the control balance sheet this week and date it. And one real caveat: if the company already has unpaid debts it cannot settle on time, this is no longer only a question of a capital shortfall, and you should talk to a lawyer or an accounting consultant before putting in your own money.