Negative net assets – company equity alignment law

If the company fails to notify the register of his future plans regarding to equity, or ignores the warning letter or a regulation in full, then the commercial register has a right for compulsory dissolution of the company and remove it from the commercial register. Whether it is an active company or a shell company, has no relevance in this connection.  

POSSIBILITIES FOR COMPANY EQUITY ALIGNMENT WITH LAW

If a private limited company or public limited company has net assets less than required, the Commercial Code provides the following ways for equity alignment:

1. The increase or reduction of share capital with either monetary or non-monetary contributions;
2. Voluntary dissolution of the company or submission of bankruptcy petition;
3. The company’s reorganization through merger, division or transformation;
4. Other possible measures (involvement of investors, the sale of shares, the formation of additional reserves).

NON-MONETARY CONTRIBUTION AS A POSSIBILITY FOR EQUITY IMPROVEMENT

In practice, the most common ways of solving the problem of equity are monetary or non-monetary contributions made by shareholders.

Non-monetary contribution may be the owners’ loan, debt, miscellaneous items, the property – any thing which is monetarily appraisable or a proprietary right which may be the object of a claim.

In order to improve equity through a non-monetary contribution the following documents should be prepared:

1. Partner’s/shareholder’s decision;
2. Appraisal report on non-monetary contribution value;
3. Deed of conveyance of non-monetary contribution;
4. The application to the commercial register;
5. If necessary, change the statutes or the drafting of the new articles of association;
6. If necessary, notification to the Estonian Central Securities Registry, bank etc.

In the case of a joint stock company, an auditor will verify the adequacy of the assessment of the value of the contribution and will prepare a written report hereof.

In case of private company an auditor must verify the valuation of the property only if the share capital of the company is at least EUR 25 000 and non-monetary contribution exceeds 1/10 of the share capital. All private limited companies, the capital of which is up to EUR 24 999, appreciates the value of the contribution by the management board, and the auditor does not have to examine it further.

In practice is also used the possibility of establishing a voluntary supplementary reserve; the establishment, operation and termination procedures of it must be decreed in the statutes of the company.

If you need help or advice about company’s equity alignment with law or corporate reorganization please contact us and we will find for you the best solution.