Starting from 1 February of 2023, the Commercial Code of Estonia changed, and a new Commercial Register Act came into force.
Why are the changes needed?
The new act consolidates all principles related to the maintenance of the commercial register and creates a unified and clear system for maintaining the register, which the Estonian legislation lacked before.
In addition, the Commercial Code has been supplemented with several important changes, the most prominent ones outlined below.
Creation of group rules
The main purpose for such rules is to include in legislation the possibility of taking into account the group’s interests as a whole and to regulate the responsibility of a parent company in a situation in which the subsidiary has been managed pursuant to the orders of the parent. The rules also specify the responsibility of management board members in group relations and stipulate in which cases and under what conditions the management board of a subsidiary is not responsible for damages caused by the execution of orders of the parent company.
Changes in contact person regulation
Previously it was mandatory to appoint a contact person if a company’s management was not in Estonia. Starting from 1 February 2023, it is mandatory to appoint a contact person only if the company’s address is foreign, i.e., the address is outside of Estonia.
Furthermore, there now exists a requirement for an Estonian branch of a company to have an Estonian address, and the obligation to appoint a contact person due to the branch manager’s foreign place of residence has now been waived.
Moreover, it is now mandatory to include a term when appointing a contact person, which must be submitted with the application for appointing a contact person. The registrar must be notified if the term is extended. Otherwise, the contact person shall be removed from the register.
The minimum share capital requirement has been abolished
The minimum share capital requirement has remained unchanged for a long period of time. Given that the smallest nominal value of a share is one cent, it is now possible to establish private limited companies with a share capital of one cent (compared to the previous regulation, which required a share capital of at least 2 500 euros).
However, it should be noted that provisions which have been added to the Bankruptcy Act established the condition that a shareholder of a private limited company with a share capital of less than 2 500 euros is responsible for the fee and expenses of the interim bankruptcy trustee to the extent of the amount remaining between the share capital of the company and 2 500 euros (this in the event that the debtor’s assets are not sufficient to cover the fee and expenses of the interim bankruptcy trustee).
In addition to the above, new changes eliminate the possibility to establish a private limited company without making an initial share capital contribution. The corresponding changes do not affect companies which have already been established without making initial share capital contribution. However, the prohibition to set off share capital contribution obligation against a shareholder’s claim for dividends has been waived (for companies established without initial share capital contribution).
Moreover, the requirement according to which company’s net assets must be at least as significant as the minimum share capital pursuant to the law has also been abolished. The requirement according to which the amount of net assets must be at least half of the share capital of a company has remained in force.
The monitoring capacity of the registrar has been improved
The registrar now has the possibility to:
(a) to include a notation in the commercial register next to the legal person referencing the difficulty in contacting the person;
(b) to publish information on fine orders issued to natural persons related to legal persons if there are at least five valid fine orders for one natural person (e.g., board member);
(c) if the annual report is not submitted on time, impose a fine on shareholders of the private limited company;
(d) delete a legal person from the register if the person fails to submit the annual report, or there is no contact person appointed, if its appointment is mandatory; and
(e) refrain from making an entry for the reorganisation of a legal person if the annual report has not been submitted by any of the persons participating in the reorganization.
Obligation to submit an annual report (including an unapproved report)
A principle has been added pursuant to which the management board of a company must submit to the commercial register, with a relevant notation, an annual report which has not been approved by the shareholder’s of the company if the shareholders do not adopt a resolution to approve the annual report.
Starting from 01.09.2023, the list of shareholders shall be considered as register card data and shall be kept in the commercial register.
The changes shall apply only to companies whose shares are not registered in the securities register or which have not waived the mandatory notarial form requirement for the disposition for the share transfer.
If the shares are registered in the securities register, the list of shareholders shall be kept by the securities register. If the form requirement for the disposition for the transfer of a share has been waived, the list of shareholders shall be kept by the management board of the company.
The purpose of the changes is to make the maintenance of the commercial register similar to the land register. This means, e.g., that the transfer of title of a share shall be deemed as taken place from the moment of making the relevant entry in the commercial register. Corresponding changes allow, among others, the bona fide acquisition of a share.
Starting from 01.03.2024, it will be possible to reserve a business name for six months and request to make an entry in the commercial register on a specific date.
When reserving a business name, the field of activity for which the business name is to be used and also the legal form of the company must be specified. The reservation can be extended once for three months. The same person cannot reserve the same name a second time.
In addition to reserving a business name, there will be an option to request to make an entry in the commercial register on a specific date. There must be a compelling reason for requesting entry on a specific date, which may be, e.g., the need for the merger to take effect. This enables the possibility to make sure whether there are any deficiencies in the submitted application or whether the entry can be made on the desired date.
By Martin Nikolajev, Attorney, Lextal