(ref. the Business Register Act - a new law adopted by the Parliament of Estonia in April 2022).
The norm in the Commercial Code, which stipulates that the share capital of a private company must be at least 2,500 euros, will no longer be valid.
The minimum capital requirement of a private limited company has been in the Commercial Code since its entry into force in 1995. The original requirement was 40,000 Estonian crowns, after the introduction of the euro, this amount has been 2,500 euros.
In 2011, amendments to the Commercial Code came into force, which allowed natural persons to establish a private limited company without making contributions. This meant that the amount of share capital had to be agreed upon when establishing a company, and it had to be at least 2,500 euros, but it was possible to postpone the time of actual investment.
From February 1, 2023, where the minimum capital requirement will be waived in the case of a private limited company, the founders or shareholders of the company must agree on the amount of share capital that is actually necessary to start the activities of the company. The authors of the amendment to the law have found that the existing minimum capital requirement in the law has created a situation where this amount is not particularly thought about when establishing a company, and a limited company is automatically established with the minimum required by law. However, the minimum capital stipulated in the law has no relation whatsoever with the actual capital requirement of the private limited company to be established, as the legislator cannot know what the capital requirement of a particular limited company is. It is believed that in a situation where there is no minimum capital requirement, the founders begin to pay more attention to the actual capital requirement and agree on the amount of share capital required in a particular case.
Considering the fact that the provision, according to which the minimum nominal value of a share is one cent, remains in force, the minimum share capital of a private limited company must be at least one cent. Therefore, the absence of a minimum capital requirement does not mean that a private limited company can be established without absolutely any capital.
However, when establishing a “one-cent company” or other company with essentially non-existent capital, it must be taken into account that a condition has been added to the Bankruptcy Act, according to which a shareholder of a company with a share capital of less than 2,500 euros is responsible for the fee and expenses of the bankruptcy trustee in the amount between the share capital and 2,500 euros.
Although there will no longer be a minimum share capital requirement stipulated by law, this does not remove the responsibility of the shareholders to create an appropriate amount of share capital. A shareholder of a company whose share capital is 1 euro or 1 cent must take into account that the law assumes that this company is not sufficiently capitalized and that the shareholders must pay the costs incurred due to the lack of assets when the bankruptcy proceedings are terminated. The provision aims to avoid a situation where the company does not have the means to pay the fee of the bankruptcy trustee and the claim can no longer be filed against the shareholder, as is currently possible at least in the case of private limited companies established without contributions. Therefore, according to the provision to be added to the Bankruptcy Act, the trustee has the right to demand reimbursement of fees and expenses from the shareholders of the company in the amount of up to 2,500 euros, if the share capital of the company is less than 2,500 euros. The assumption is that the bankruptcy trustee will not be able to satisfy his/her claim at the expense of the property of the company.
With the changes in the law, the possibility to establish a company without contributions will no longer exist. The norms currently applicable to the companies established without a contribution do not provide for the possibility of forming the share capital at the expense of the profit that the company has earned. At the same time, it would be fully justified, especially if it is a growing business. The amendments to the Commercial Code stipulate that in companies established without contributions before the changes came into force, it will be possible to set off the claim of the company to receive a contribution against the shareholder with the shareholder's claim against the company, if the company has made a profit and the shareholders have decided to pay dividends. Although these dividends are not paid out, in the event of an offset, dividend payments are taxed as if the dividends had been paid. Thus, the obligation to pay income tax arises.
If, after the amendments to the Commercial Code have come into force, a company is established with a share capital of, for example, one eurocent, then the capital can be increased in the normal way. In other words, if one wants to capitalize the earned profit, it is possible to increase the share capital with a bonus issue, which does not involve tax liability.
The current regulation regarding verification of the payment of financial contributions will also change. If currently a notification of a credit or payment institution is submitted in any case, and the registrar verifies the payment of the contributions based on this, then in the future the proof of the payment of the contributions will be dependent on the amount of the contribution. A notification from a credit or payment institution must be submitted to the registrar for verification only if the financial contribution will be over 50,000 euros. If the financial contribution will be less than this amount, the management board will confirm the making of the contributions to the business register. In essence, this reduces the administrative burden, as the need to obtain evidence of payment disappears for a large proportion of contributions. At the same time, since the law still stipulates that the founders open a bank account in the name of the company being established for paying in the financial contributions, the contributions cannot be paid, for example, in cash to the company's cash register. Even for a one-cent contribution, one will need to open a start-up account in the bank.