Overview Of The Commercial Law Amendments Entered Into Force On 1 February
On 1 February, the Commercial Register Act entered into force as a law and additionally more than one hundred amendments in the Commercial Code entered into force. Below you will find an overview of the amendments in the commercial law that affect entrepreneurs the most.
One cent is enough to establish a private limited company
According to the previous Commercial Code the share capital of a company had to be at least €2,500, but from 1 February there is no minimum capital requirement. As the smallest nominal value of a share continues to be one cent, from February, the size of the share capital has to be at least one cent.
At the same time, it should be considered that even when a private limited company is established with a share capital of 1 cent, the shareholder’s liability may in certain cases still be €2,500. Namely, on 1 February amendment of the Bankruptcy Act (Section 29(91)) entered into force establishing that if the share capital of a private limited company is less than €2,500 and interim administrator is unable to satisfy a claim on the account of the debtor’s other assets, the interim administrator shall have the right to request from the shareholder of the private limited company a fee and compensation of expenses in the sum that is between the share capital of the private limited company and €2,500.
In relation to the abolishing of the minimum capital requirement it will be impossible from 1 February to establish a private limited company without paying instalments. The situation will not change for the private limited companies who have already been established that way and they can continue under previously valid terms. An exception here is only the fact that private limited companies that have been established without an instalment will no longer be subject to the prohibition to settle the share capital instalments with the shareholder’s claim against the private limited company (Commercial Code, Section 5201 (4)). First and foremost, the opportunity to settle may arise in case if a private limited company established without an instalment has earned profit.
One net assets requirement no longer needs to be fulfilled
A requirement was removed from the Commercial Code according to which the net assets of a private limited company (equity) must be at least the amount of minimum share capital of the private limited company established by the law. Such net assets requirement shall soon not be applicable also for the net assets of a public limited company. This is a positive amendment, which helps to prevent a situation where a private or public limited company should operate in profit already the first year of operations in order to fulfil the requirement of net assets. However, the requirement according to which net assets should be at least half of the share capital will remain in force.
Important amendments related to the submission of Annual Report
The Commercial Register Act (Sections 60 and 61), which entered into force on 1 February allows omitting legal entities from the Commercial Register in a quicker and simpler manner in case if they have failed to submit their Annual Report. If a legal entity fails to submit their Annual Report duly, if certain preconditions are met, the legal entity may be omitted from the Commercial Register. The earliest date for the omission can be three months after the term for the submission of the Annual Report has passed. One of the preconditions for omission from the register is that the legal entity cannot have assets registered in the Land Register, Ship Register, Commercial Register or Estonian Register of Securities. Secondly, a private limited company cannot be a party to the proceedings in any court proceedings, criminal proceedings or enforcement proceedings. A third precondition is that the omission from the register must be approved by certain persons and institutions. These institutions will most probably include the Tax and Customs Board.
With a proposal from the Chamber, a requirement was entered into the Commercial Register Act (Section 60 (5)) according to which the registrar must publish a notice regarding the omission of the legal entity from the Commercial Register in the Ametlikud Teadaanded at least three months before the omission. This provision is necessary to protect the interests of the creditors.
From 1 February, a principle shall be in force according to which if shareholders do not make the decision to approve the Annual Report, the management must file the unapproved Annual Report to the Commercial Register with the respective note (Commercial Code Section 179(4) and Section 334(22)). If the shareholders approve the report, the management must file the approved Annual Report as a repeated report to the Commercial Register.
The Commercial Code (Section 179(43)) was updated with the principle that if a private limited company has no board members, the obligation to file the Annual Report lies, if there is no council, with the shareholders of the private limited company with majority or sole shareholder. For example, if one shareholder holds three quarters of the private limited company and five shareholders hold one fourth, the obligation to file the Annual Report lies with the majority shareholder and not the minority shareholders.
Furthermore, soon the Registry Department of the Tartu County Court shall have the right to impose a fine to the shareholders of the private limited company for the failure to file the Annual Report in due time if they were obliged to submit the Annual Report on behalf of the private limited company, but have failed to do so in due time (Commercial Registry Act, Section 57(3)).
Private limited companies can be omitted from the register under simplified procedure
The Commercial Register Act (Section 63) allows omitting from the register under simplified procedure, i.e. without the regular procedure of cessation and liquidation, the private limited companies that meet three requirements. First, the private limited company must not have started activities and it must be confirmed by all members of the board and all shareholders. The other three preconditions are the same that apply for omission from the register in case of failure to file Annual Reports.
Commercial Register will be disclosing more information
Commercial Register Act (Section 55) will give the registrar the opportunity to make a notation for a legal entity regarding difficulties in contacting them and disclose it in the Commercial Register if the registrar is unable to contact the legal entity. This is a positive change because this information serves as a good warning for others who will be informed of the fact that there might be problems in contacting the company. At the same time, this amendment will motivate companies to keep their contact data updated in the Commercial Register.
Furthermore, the registrar will soon have the right to publish with the information on a legal entity in the Commercial Register if natural persons related to the legal entity have orders for imposing a fine, if there are five orders for imposing a fine valid simultaneously for one natural person, e.g. board member (Commercial Register Act, Section 56). This should also give information on problematic legal entities and natural persons related to them.
Commercial Register to keep a list of shareholders
From 1 September 2023, as a general rule, the list of shareholders will be kept by the Commercial Register (Commercial Code, Section 182). At the moment, as a rule this obligation lies with the board. If there is a change in the list of shareholders, the Commercial Register must be informed of it. The respective application may be submitted to the Commercial Register by the board or shareholder whom the change concerns.
The board of a private limited company will remain the keeper of the list of shareholder only in a situation where the private limited company waives the formal requirement for a disposition for the transfer of a share (Commercial Code, Section 1821). If the shares are registered in the Estonian Register of Securities, the keeper of the Estonian Register of Securities continues to be the keeper of the list of shareholders (Commercial Code, Section 1822).
In the future, transfer of a share is considered to have been completed after the entry has been made in the list of shareholders in the Commercial Register (Commercial Code, Section 149 (41)). Thus, as a rule, the data of the shareholders of a private limited company are the data of the entry in the Commercial Register. This means that as a general rule the data of the shareholders in the Commercial Register bear a legal significance and they have public credibility. Therefore, when the amendment enters into force, there will be a list of shareholders of private limited companies and shares belonging to them that has been verified.
The data of shareholders will not be changed into entries in the Commercial Register if a private limited company deviates from the formal requirement of transferring a share with their articles of association or if the share have been registered in the Estonian Register of Securities. In these cases, the current procedure will remain in force. Currently, the data of shareholders is publicly available in the Commercial Register, but the data is informative with no legal significance.
Two positive amendments will enter into force next year
On 1 March 2024, amendment of the Commercial Register Act (Section 38) will enter into force, giving legal entities the opportunity to request making a register entry on a specified date if good reason exists. A good reason may be, for example, the need to ensure that a merger enters into force on a specific date, e.g. 1 January. Making of an entry on a specified date can be requested up to six months in advance.
On the same date, amendment of the Commercial Cod (Section 151) will enter into force, granting the right to reserve a business name of a company in the Commercial Register. One business name reservation may be per one person for six months, which may be extended once by three months if good reasons exist. The same person cannot reserve the same name for a second time. If during the reservation period of the business name, a company with the reserved business name has not been entered into the Commercial Register, the registrar shall remove the reservation by their own initiative. The state fee for the reservation of the business name shall be €150.
Should you have questions regarding the amendments in the commercial law that entered into force on 1 February, do not hesitate to contact the lawyers of the Chamber by writing to juristid@koda.ee.
See also:
Commercial Register Act
Commercial Code as of 01.02.2023