Estonia boasts about its hassle-free and efficient business environment that eliminates unnecessary bureaucracy when starting and operating a company. A noteworthy achievement is the breaking of the world record for the quickest company registration by one of its e-residents.
As of 2023, Estonia has implemented various modifications to its Commercial Code, further streamlining the process of establishing a company in the country.
Abolishing the minimum share capital for OÜ company
The purpose of share capital contribution is to provide capitalization for a company, giving business owners an opportunity to determine how much capital they require to start and run their enterprise efficiently.
In Estonia, the current law mandates that the share capital for a private limited company (OÜ) must be a minimum of 2,500 euros. This regulation has been in effect since the Commercial Code’s inception in 1995. However, when laws stipulate a minimum requirement, it creates a situation where owners tend to overlook the actual capital needs and merely set the amount at the minimum. Therefore, the minimum share capital requirement under the current law is not related to the company’s actual capital requirements.
Under the new regulation, the minimum share capital requirement will be eliminated, allowing shareholders to decide on the necessary capital needed to commence business activities. The minimum share capital amount for a private limited company can be as low as 1 euro cent, empowering company owners to determine the ideal capital needed to operate efficiently.
For new companies in Estonia, eliminating the minimum capital requirement will reduce capital formation costs for OÜ and ensure more reasonable capital formation in the future. The responsibility of determining the appropriate share capital will also rest solely with the company owners. Ultimately, these modifications lead to more flexible and efficient company formation procedures in Estonia.
The changes to the Estonian Commercial Code that abolish the minimum capital requirement for a private limited company took the effect on 1 February 2023.
Simplified way to prove the share capital contribution for company
Amendments have been made to the regulations concerning proof of payment for share capital contributions. Presently, a notification of payment made to a credit or payment institution is necessary for every case, and the Estonian Business Register confirms the payment of contributions.
Under the new regulation, a notification of payment only applies to significant contributions, and only contributions exceeding 50,000 euros require a notification of payment to the registrar for verification. Board members can confirm contributions themselves if they are below this threshold. This modification minimizes administrative obligations and eradicates the requirement for a substantial number of companies to acquire proof of payment of contributions, including most e-resident-founded companies. It also eradicates issues encountered in practice in obtaining the proper proof of payment of contributions from payment institutions.
From a practical perspective, the Estonian Ministry of Justice has verified that a certificate from a banking institution is no longer necessary to prove the share capital contribution if the contribution is below 50,000 euros, unlike the previous law. It is now sufficient for the founder to confirm that they have made the contribution or intend to make it in the future, reducing the load on company founders in Estonia.
The changes to the Estonian Commercial Code simplifying proof of payment of share capital contributions went into effect on 1 February 2023.
Soon: Reserving a business name
Starting from 2024, companies in Estonia will have the opportunity to reserve a business name before registering or changing the name in the Estonian Business Register. This is a significant change that will give both natural and legal persons the ability to reserve a business name for up to 6 months by paying a state fee of 150 euros.
However, it’s worth noting that the general requirements for a business name will still apply. A business name cannot be misleading in terms of the legal form, area of activity, or scope of activity of the undertaking. It cannot be contrary to good morals, nor can it contain the names of state and local government bodies and agencies. Moreover, if a sign or combination of signs is protected as a trademark in Estonia, it cannot be used in a business name without the owner’s consent.
For e-residents, this new law will be a welcome change as it provides predictability and certainty in registering a company in Estonia with their preferred name. Additionally, it enables them to secure a desirable website domain and social media account names before registering their company.
The new law allowing for the reservation of business names in Estonia will come into effect on March 1, 2024. Until then, the existing procedures still apply, including the Business Register name query service, which allows applicants to check the availability of their desired company name. Rejected applications can be resubmitted at no additional cost.
Furthermore, there is no need to register additional trading names for companies or to match your brand name or trading name with your company name, as long as you are careful not to infringe on the intellectual property rights of other businesses.
Summary of changes to the Estonian Commercial Code
In conclusion, the recent changes to the Estonian Commercial Code have further improved the country’s already attractive business environment. The elimination of the minimum share capital requirement and simplification of proof of payment of share capital contributions will make it easier and cheaper for entrepreneurs to start and run a company in Estonia. The introduction of the possibility to reserve a business name will provide predictability and certainty for e-residents when registering a company in Estonia.
Estonia’s commitment to creating a business-friendly environment is reflected in its rankings in various international indexes. For example, according to the World Bank’s Ease of Doing Business report for 2020, Estonia ranked 18th out of 190 countries, and the country has consistently been ranked as one of the most digitally advanced nations in the world.
These recent changes demonstrate Estonia’s continued efforts to maintain its position as a leading destination for entrepreneurs and businesses. As such, it is no surprise that many startups and established companies, including those owned by e-residents, are choosing to establish and operate their businesses in Estonia. With its innovative mindset, entrepreneurial spirit, and supportive business environment, Estonia is poised to remain a top destination for businesses for years to come.