upcoming changes to the commercial code make it easier to start a company
Estonia prides itself on being a place where it is easy and convenient to start and run a company without excessive bureaucracy. The brightest example is the recently set world record by an e-resident for the fastest time to register a company. But we know we need to continuously improve as the economic environment changes. We work hard to surpass the expectations of entrepreneurial people, who want better and more accessible and flexible services from public institutions, when they start, run and grow their businesses. In 2023 and 2024, several changes to the Estonian Commercial Code will come into force, which will simplify company creation in Estonia even more.
In this article, we highlight the 3 most important ones.
3 Upcoming Changes to the Estonian Commercial Code
1. Abolishing the minimum capital requirement of €2,500 for an OÜ
The purpose of paying the share capital contribution is to capitalise the company. It's a good opportunity for company owners to decide how much capital is needed to start and run their business.
According to the current law in Estonia, the share capital of a private limited company - an OÜ - must be at least 2,500 euros. This requirement has been in force in the Commercial Code since its creation in 1995. When the law stipulates a minimum requirement like this, it creates a situation where owners do not think about how much capital they actually need. Instead, they just automatically set it at the minimum. Thus, the minimum share capital requirement stipulated in the current law generally has no relation to the company's actual capital needs.
According to the new regulation, the minimum requirement will be abolished, and the shareholders of a company can decide for themselves how much capital is necessary to start its activities. Under the new law, the minimum share capital amount of the private limited company can be as little as 1 euro cent.
For founders of new companies in Estonia, abolishing the minimum capital requirement will reduce the costs of capital formation for an OÜ and make future capital formation more reasonable. Company owners will also have greater responsibility in determining the right amount of share capital. Ultimately, this leads to more efficient and flexible company formation procedures in Estonia.
The changes to the Estonian Commercial Code abolishing the minimum capital requirement for a private limited company will enter into force on 1 February 2023.
The regulation regarding proof of payment of share capital contributions will also be amended. According to the current regulation, a notice of payment of a credit or payment institution must be submitted in every case and the Estonian Business Register verifies the contribution is paid.
According to the new regulation, a notice of payment of contributions will only need to be made for large contributions. A credit or payment institution notification must be submitted to the registrar for verification only if the deposit is over 50,000 euros. If the contribution is less than this amount, the board members can themselves confirm the contributions. This will reduce the administrative burden, as the need to obtain proof of payment of contributions disappears for a large proportion of companies - including the vast majority of e-resident-founded companies. It also reduces problems encountered in practice, related to obtaining the proper proof of payment of contributions from payment institutions.
From a practical perspective, the Estonian Ministry of Justice has confirmed that with the new law, it is not necessary to prove the share capital contribution via a certificate from a banking institution, if the contribution is below 50,000 euros. This requirement was previously required under the old law. Instead, now it is enough for the founder to confirm that they have made the contribution or will make it in the future. Eliminating this requirement further lightens the load of company founders in Estonia.
The changes to the Estonian Commercial Code simplifying the proof of payment of share capital contributions will enter into force on 1 February 2023.
Read more about share capital contributions on the e-Residency Knowledge Base.
3. Reserving a business name will soon be possible
From 2024, it will become possible to reserve a business name. This means it will be possible to reserve a business name for a company before registering or changing the business name in the Estonian Business Register.
The business name can be reserved by both natural and legal persons. The business name can be reserved for up to 6 months for a state fee of 150 euros.
The general requirements for a business name remain in effect. For example, a business name cannot be misleading with regard to the legal form, area of activity, or scope of activity of the undertaking. The business name cannot be contrary to good morals. The names of state and local government bodies and agencies cannot be used in a business name. Also, a sign or combination of signs which consists of letters, words, or numerals and is protected as a trademark in Estonia shall not be used in a business name without the consent of the owner.
For e-resident founders, the possibility of reserving a business name will be a welcome change. It gives predictability and certainty for e-residents that they can register a company in Estonia with the name they want. For e-residents planning to create a website and social media accounts for your company, this new law also means you can take steps to secure a desirable website domain and social media account names before registering your company.
The possibility to reserve a business name will enter into force on 1st March 2024.
Until then, the current procedures still apply. For example, you can check if your desired company name is available at the Business Register name query service. If your company name gets rejected, you can resubmit the application free of charge. No additional trading names for companies need to be registered in the Business Register. Plus, your brand name / trading name does not need to match your company name (but take care not to infringe the intellectual property rights of other businesses).
This article was written by e-Residency's Head of Risk & Legal, Oscar Õun.