The minimum share capital requirement of 2 500 euros for Estonian private limited companies has been abolished

In April 2022, the Parliament of Estonia adopted a package of amendments to the Commercial Register Act, as well as the Commercial Code. The main purpose of the amendments is to create new opportunities for entrepreneurs in the e-Business Register and improve reporting discipline. The general entry into force of the Act took place on February 1, 2023. We highlight the most important changes below.

As of February 1, 2023, the minimum share capital requirement of 2 500 euros for Estonian private limited companies has been abolished.

As of February 1, 2023, the minimum share capital requirement of 2500 euros for private limited companies in the Commercial Code has disappeared, and now founders are able to determine the amount of share capital themselves. This has moved Estonia from a hybrid system where the minimum share capital requirement was fixed, but in certain cases not required to be paid up immediately, to a situation where a low share capital requirement allows for a so-called 1-cent private limited companies. The disappearance of the minimum share capital requirement does not mean that a private limited company can be established entirely without share capital. The provision that the minimum nominal value of a share is one cent remains in effect; and therefore, the minimum share capital to form a private limited company must be at least one cent.

The size of a reasonable share capital will largely depend on the specific field of business activity of the company. In any case, when assessing the actual capital requirements, the founders or shareholders of the company should bear in mind that a private limited company must continue to have assets to meet its obligations. It should also be borne in mind that share capital plays a very important role in the assessment of the credibility of a private limited company. Whereas until now the founder had to eventually contribute to the capital of a company formed without any contributions, in a company with a “single-cent” share capital, the capital can be created from the profits of the company, and share capital is increased by means of a bonus issue.

The abolition of the minimum share capital requirement makes the provisions allowing the formation of a private limited company without a contribution impracticable. As of February 2023, a natural person cannot set up a private limited company without making contribution to the share capital. The establishment of a company without capital contribution was intended to be used by natural persons only (§ 140’1 (1) of the Commercial Code) in order to encourage the creation of micro-enterprises. The new regulation also allows legal persons to set up private limited companies at a lower cost.

When making a contribution, the law still requires the founders to open a bank account in the name of the private limited company being established, to which they make their monetary contributions. The start-up account must also be opened for the payment of the capital of a private limited company with a “single-cent” capital.

The existing rules on the control of the payment of the monetary contributions were also liberalized. A certificate from a credit or payment institution must be submitted to the registrar if the amount of the contribution exceeds 50 000 euros. If the monetary contribution is less than this amount, the members of the management board will have to confirm the payment of the contribution in a statement to the Commercial Register.

For public limited companies, the share capital requirement remained unchanged – it must still be at least 25 000 euros. The rules for payment of share capital for public limited companies also remained unchanged – it is still impossible to establish a public limited company without immediate contribution to the share capital.

As a result of the changes, the minimum amount of net assets for a private limited company and a public limited company is no longer linked to the minimum amount of share capital. For both public limited companies and private limited companies, the requirement that the net assets must be at least half of company’s share capital, respectively, remains.

The introduction of a low share capital requirement leads to the need for a somewhat higher diligence in civil transactions. It can also be predicted that so-called “1-euro” private limited companies are also more likely to abate in bankruptcy proceedings than private limited companies with no contribution, where trustee’s fees could be collected from founders to the extent the share capital was unpaid.