ESTABLISHING A BUSINESS ENTITY IN ESTONIA 1. Types of Business Entities 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. The main reason most businesses opt for the OÜ form is that the minimum share capital requirement is EUR 2,500 (does not have to be paid upon registration by an individual person), whereas for the AS it is EUR 25,000. As of February 1, 2023, the minimum share capital requirement for OÜ will be abolished and the founders will have the option to determine the minimum share capital according to the need and the purpose of the company. In addition, the OÜ form has a simpler management structure (one level with a sole management board member) and it does not have an automatic auditing obligation. A shareholder may be liable for damage caused to the company, another shareholder or third persons by carelessness, gross negligence, or an intentional act. A shareholder is not liable for any damage caused if the shareholder did not participate in the adoption of the respective resolution or if the shareholder voted against the resolution. If the shareholders adopt a resolution on a matter that would normally be in the capacity of the management or supervisory boards, they may be liable as if they were members of the management or supervisory board. 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 exceeds EUR 2.4 million, turnover exceeds EUR 4.8 million, or more than 72 employees; or two of the following criteria must be met: the value of assets exceeds EUR 0.8 million, turnover exceeds EUR 1.6 million, and more than 24 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. 2. Steps and Timing to Establish It is possible to acquire an existing company, but to establish a new company, the following steps must be taken: • concluding a notarised memorandum of association to which articles of association are annexed; • opening a bank account in an Estonian credit institution, into which monetary contributions are paid. Generally, founders are required to go to the bank in person for identification purposes. If the articles of association so prescribe, non-monetary contributions may also be used. The valuation of non- monetary contributions must be audited in the case of an AS and, in certain instances, in the case of an OÜ; • registering the shares in the Central Register of Securities (not required in the case of an OÜ, but optional);





Commercial Register. To establish a branch, a notarised application must be filed by the director of the branch. At

ILN Corporate Group – Establishing a Business Entity Series

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