Estonia 102 - Establishing a Business I


  • We continue our series of introductory legal insights with a topic close to the hearts of many E-Residents - establishing a limited liability company in Estonia. Today, we look at the types of companies and the main regulatory requirements that apply.

    Types of Companies

    The most common types of companies in Estonia are the public limited liability company (“AS”) and the private limited liability company (“OÜ”). The OÜ may be compared to a closed corporation: its shares are not publicly traded and there are usually rather few shareholders. The shares of an AS, in contrast, are always in book-entry form and more easily transferable.

    Capital Requirements

    The main reason why most businesses opt for the OÜ form is that the minimum share capital requirement is EUR 2,500 (does not have to be paid up on registration by an individual person), whereas for the AS it is EUR 25,000.

    Management

    The management structure of the AS is three-tier: a general meeting of shareholders, a supervisory board and a management board. A company may have just one shareholder.

    Members of the management board and the supervisory board may not be the same persons. If more than one-half of the management board members are from other countries, the company must submit to the Commercial Register the address of a person (e.g. a law firm, an accounting consultant, another member of the group, etc) in Estonia to whom procedural documents can be served, and other declarations of intent directed to the company (e.g. complaints and debt claims) can be delivered.

    An OÜ has a two-tiered management structure (management board and general meeting), with the supervisory board an available option.

    Auditing

    An AS must always have an auditor to audit its annual reports. Whether an OÜ must have an auditor depends on its turnover, amount of assets and number of employees (there are two different standards of examination: an audit and review; to be subject to the review requirement, one of the following criteria must be met: the total value of assets EUR 1.5 million, turnover exceeds EUR 3 million, or more than 45 employees; or two of the following criteria must be met: value of assets EUR 0.5 million, turnover exceeds EUR 1 million, and more than 15 employees; to be subject to the audit requirement, there are higher thresholds); an examination by an auditor may also be necessary because such a requirement has been stipulated in the articles of association.

    Registrations and Licenses

    A license or registration may be required for certain regulated areas of activity. Companies engaged in areas such as construction, retail and wholesale business, and providers of services are required to register with the Register of Economic Activities. The registration can be completed online.

    The registration may be completed after the company has been established but it must be done before the company commences the activity which requires the registration. Other areas of activity, for example banking, insurance, medicine, transportation and education services, require a license from the authorities. A license may usually be obtained before the company is established (i.e. registered in the Commercial Register).

    Key statutes:
    Commercial Code 1995
    Accounting Act 2002

    Next time we will talk about the actual steps necessary in order to establish a limited liability company here in Estonia. Stay tuned!

    Information posted above is intended as a general guide and does not constitute legal advice.


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