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A friend wrote this sentence:

und sie sagt...

Isn't "sie" always supposed to be capitalized?

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Imagine, sie is always written lower case. Who do you think was addressed in a talk, written in a book, with Könnten sie das tun?. - the conversational partner or the group of people in the background? You see Sie and sie also help to understand the context of a situation. –  falkb Jul 9 '13 at 12:53
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2 Answers

"sie" can either be a formal adress, this is when it is capitalized or it can be a pronoun, in which case it is not capitalized like all other pronouns.

This is direct speech, in which "Sie" serves to address a person / a group of persons which can be male or female in a formal way:

"Kann ich Sie auf einen Drink einladen?"

This is not directed to the person(s) I want to invite to a drink, but to a third person, which might be asked for permission. The "sie" relates to a female person or a group of persons, which are not addressed directly by the question, as I said.

"Kann ich sie auf einen Drink einladen?"

In your example the "sie" is used in the second sense, as a pronoun and thus is correctly written small

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` "Sie" serves to adress a person` or several persons (as in more than one) –  embert Feb 26 at 3:32
    
@embert Just go ahead and edit my answer, if you think it may or should be improved. –  bouscher Feb 26 at 9:05
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