According to the Commercial Code, there are several options for voluntarily dissolution of a private limited company or public limited company – including liquidation or merger with the assets of a natural person. If the company has only one shareholder who is a natural person, merging with the natural person is a faster alternative to the traditional liquidation process.
Liquidation is more suitable when the shareholder is a legal entity or when there are multiple shareholders. Typically, the liquidation process takes about 8 months, but amendments effective from 01.02.2023 allow for a shorter process if the company has one shareholder or if the other shareholder is the company itself.
| LIQUIDATION (ONE SHAREHOLDER) | MERGER OF A COMPANY WITH THE ASSETS OF A NATURAL PERSON | |
|---|---|---|
| Brief description | The company ceases operations step by step: assets are sold, debts are paid, remaining assets are distributed among the shareholders, and in the end the company is deleted from the commercial register. | The company is merged directly with the assets of the shareholder (natural person). This is only possible if the company has one natural person owner. |
| Conditions | One shareholder (legal entity or natural person), or the other shareholder is the company itself. | One natural person as a shareholder. The company being merged must not be bankrupt, and the natural person must not be insolvent. |
| Process duration | At least 6–8 months in practice | Approximately 4 months in practice |
| Initiation of the process | Decision by the sole shareholder, application, confirmation(s) from liquidator(s) to the commercial register. | Notarized merger agreement with an Estonian notary or through a representative with a power of attorney. |
| Protection of creditors | Official Announcement in the Official Journal, creditors have 4 months to submit claims. | Official Announcement in the Official Journal at least 1 month before the submission of the merger application. Creditors may request security for claims that arose before or within 15 days after the publication of the Official Announcement. |
| Accounting obligations | The liquidator shall prepare an opening balance sheet of the liquidation with the date of the liquidation decision and submit it to the commercial register within 3 months from the adoption of the liquidation decision. The opening balance sheet shall be submitted to the shareholder for approval, and the decision shall be submitted to the commercial register. At the end of the process, the liquidator shall prepare the final report together with the asset distribution plan. The final report shall be submitted to the shareholder for reviewing. | Final report is submitted to the commercial register through the notary in the application for entry of the merger in the register. The final report must not be older than 8 months at the time of submission of the application. |
| Asset distribution | After the creditors’ claims have been satisfied, the remaining assets are distributed among the shareholders in proportion to their shares in accordance with the asset distribution plan. Normally, assets may be distributed 2 months after the final report is submitted to the shareholders for reviewing, but if the company has one shareholder or if the other shareholder is only the private limited company itself, the assets may be distributed before 2 months after the final report of the liquidation has been submitted to the shareholders for reviewing and notification to the shareholders. | In the event of general legal succession, the company’s assets are considered to have been transferred from the date of the merger entry in the commercial register, i.e. financial transfers can be made once the merger entry has been done on the company’s registry card. |
| Deletion from the commercial register | Application with the final report and the asset distribution plan at least 6 months after the entry of the liquidation proceedings in the commercial register and the publication of the Official Announcement. | Application through a notary within one month of the publication of the Official Announcement. |
| Tax and Customs Board consent | The Tax and Customs Board gives the commercial register a written consent for deletion from the commercial register. | The Tax and Customs Board gives the commercial register a written consent for deletion from the commercial register. |
Both the liquidation process and merger with the assets of a natural person require compliance with legal requirements for dissolution of a company. Each process demands careful planning and documentation. Legal advisors at Leinonen Estonia are ready to assist and advise clients with both liquidation and merger procedures.
