Pursuant to the Commercial Code of Estonia the management board is obligated to call a meeting of shareholders in case the net assets of the company are less than one-half of the share capital. The meeting is called in order to find a solution and recover the equity.
If the shareholders do not decide on the solution and choose to ignore the issue, a court may issue a ruling for a compulsory dissolution of the company. The company will then be deleted from the Commercial Register even if the company is active.
There are several options for restoring the equity and bringing the equity in compliance with the law. The most common options are:
- reduction or increase of share capital either by monetary or non-monetary contributions;
- merger, division or transformation of the company;
- dissolution or submission of bankruptcy petition; or
- other measures, including, but not limited to: involving investors, waiver of claim or formation of a voluntary reserve.
REDUCTION OR INCREASE OF THE SHARE CAPITAL
The most common ways to restore the equity are reduction or increase of the share capital.
The reduction of the share capital can be used in cases which the share capital is high. For example if the share capital is 100,000 euros the equity must be at least 50,000 euros. If the company decides to reduce the share capital to 2,500 euros, the equity must be only 1,250 euros. This measure reduces the company’s net asset requirement.
The increase of the share capital on the other hand is used in cases where the reduction of the share capital will not solve the issue. The increase of the share capital can be done either via monetary or non-monetary contributions, where the share capital is increased by minimum amount and the remaining amount is share premium.
Non-monetary contribution can be done either by using the shareholder’s loan, debt claim, various items, real estate, in other words- any right which can be claimed or property which are monetarily appraisable.
In case the company is a public limited company, an auditor must verify the adequancy of the assessment of the value of the non-monetary contribution. Private limited company’s non-monetary contribution must be verified by the auditor only in cases where the share capital is at least 25,000 euros or has been received on account of a non-monetary contribution or the nominal value of the share to be increased is at least 25,000 euros.
OTHER MEASURES
One of the „other measures“ is creating a VOLUNTARY RESERVE in case allowed by the Articles of Association of the company. As the voluntary reserve is part of the equity, the shareholders will make a monetary or non-monetary contribution into the voluntary reserve and restore the equity.
Other possible option is, in case in which the the company has obligations in front of the shareholder, for example unpaid invoices, the shareholder can WAIVE THE CLAIM against the company in order to restore the equity.
As the „other measures“ is not exhaustively defined by law, the possible measures will have to be evaluated separately for each company based on the company’s options and capabilities.
If you have found yourself in a situation where your company’s equity is not compliant with the law, legal advisors of Leinonen OÜ are ready to help you with restoring the equity of your company and support you during the process.
