Starting a Business in Estonia
In Estonia, the Commercial Code determines the incorporation and regulation of business entities. We can say that private and public limited companies, branches of foreign entities are the most common company structures we might encounter in Estonia. Rarely formed business entities are the general and limited partnerships.
When a company is to be established, it is required to be entered in the Commercial Register. It is a public register meaning that everyone can review the registry and work files and obtain copies of the registraty cards and documents.
The following information must be submitted in order to enter a company in the Commercial Registry:
- Business name and the official address
- Founders’ names and their residences or seats.
- The amount of share capital which is proposed.
- The amount to pay for shares, procedure, time and place of payment.
- The nominal value and the number of shares in case of more than one class of shares, the rights attached to the shares and the distribution of the shares between the founders.
- the item of the non-monetary contribution and its valuation method, upon issue of a share is paid for by a non-monetary contribution.
- Info about the Management Board members, auditor and the Supervisory Board.
- Info about the authorized persons if appointed.
- Projected foundation costs and payment procedure.
Types of Legal Entities
Limited Liability Companies
Limited Liability Companies are solely responsible for their obligations to the extent that their assets are covered. Shareholders are responsible for the amount to be paid for all shares they subscribe to. Shareholders are not personally responsible for the company’s obligations. If the members of the Supervisory Board or members of the Management Board harm the company, the company may claim a compensation.
- Private Limited Liability Companies
The minimum share capital for an Estonian private limited liability company (Osaühing or OÜ) is €2,500 in Estonia. In case of the situation that the founders are private persons and the share capital is less than €25,000, they may decide whether they will pay their shares when incorporating the business entity. The founders are liable for the missing contribution personally until the whole amount has been paid. A private LLC must have a management board which represents and manage the company. It may have more than one member that must be natural persons with active legal capacity, and the members of the management board don’t have the obligation to hold shares from the company. The minimum number of shareholders is one.
- Public Limited Liability Companies
The minimum share capital for a public limited liability company (aktsiaselts, AS) is €25,000. There is no max. number of shareholders. The shares of the public LLC must be registered and entered in the Estonian Central Register of Securities. It must have a management board and a supervisory board to represents and manage the company. The shares that registered and entered in the Central Register of Securities may be freely transferred. In the event that shares are transferred to third parties in the articles of association, it may foresee that other shareholders have a preventive right which is valid for the transfer of shares in each payment.
Full Liability Companies
I. General Partnerships
In a general partnership ((täisühing, TÜ), a legal person or a natural person is a partner. General partnership’s liability of shareholders for the company’s obligations have no limit. A general partnership can operate on the basis of a partnership agreement by the partners who are jointly liable for the obligations of the general partnership with all their assets.
II. Limited Partnerships
A limited partnership includes both general and limited liability members and it is a company where more than two persons run under a common business name. The liability of general liability members is unlimited. Although a limited liability partner has no right to manage the limited partnership, it may participate as a general partner in the process of making decision.
Branches of Foreign Companies
If a foreign company intends to provide services or goods permanently on its behalf in Estonia, it may register and enter a branch in the Commercial Register. A branch is not a legal person. The main company is responsible for the liabilities arising from the branch activities. For the tax purposes, the branches registered in Estonia are considered as permanent incorporations.
Personal Enterprise or Sole Proprietorship
A sole proprietorship may be entered in the Commercial Register. It may have unlimited liability for its obligations. It can’t be considered as a private company. Sole proprietorships are widely used by individuals for the businesses (smaller-scale entrepreneurial).