If you are considering founding a company in Estonia, the first step is to decide which type of business undertaking is best for your proposed business activity. The main types of companies under Estonian legislation are: private limited company (osaühing, OÜ), public limited company (aktsiaselts, AS), general partnership (täisühing, TÜ), limited partnership (usaldusühing, UÜ) and commercial association (tulundusühistu, TuÜ). The most popular of these are the private limited company and the public limited company.
PRIVATE LIMITED COMPANY
The share capital of a private limited company is divided into private limited company shares and shareholder(s) of such companies are not personally liable for the obligations of the private limited company. A private limited company has at least one shareholder, who can be a legal or natural person, and at least one management board member. A private limited company does not have to have a supervisory board. Before you can set up a private limited company, you must make a payment to contribute share capital. This can be done both by monetary and non-monetary contributions. You will only need to provide proof of making a monetary contribution to the Commercial Register if the amount of the contribution exceeds 50,000 euros. In the case of a non-monetary contribution, the value of the contribution must be assessed by an auditor if the nominal value of the share is at least 25,000 euros.
The minimum size of a share in a private limited company is 0.01 euros, which is also the smallest possible share capital, as legislation does not specify a minimum share capital requirement. While there is no minimum share capital requirement, it is still recommended to found a private limited company with a share capital of 2,500 euros, because if bankruptcy proceedings expire without a declaration of bankruptcy, the trustee will request that the shareholder be ordered to pay an amount ranging between the amount of the share capital and 2,500 euros to cover the trustee’s fees and expenses.
A private limited company is the preferred type of business undertaking for entrepreneurs who do not wish to be personally liable for the company’s obligations and who do not wish to be listed on the stock exchange.
PUBLIC LIMITED COMPANY
The share capital of a public limited company is divided into public limited company shares and shareholder(s) of such companies are not personally liable for the obligations of the public limited company. The general meeting of shareholders is the highest managing body of a public limited company. A public limited company has at least one management board member, who is elected for a term of 3 years, unless otherwise specified in the articles of association. A public limited company has a supervisory board consisting of at least three members, and a member of the supervisory board may not be a member of the management board, a procurator, auditor, or a member of the management board of a subsidiary of the public limited company. A public limited company must have an auditor appointed, and its annual report must be audited even in the absence of any business activity.
The share capital must be at least 25,000 euros and the minimum nominal or book value of a share is 0.1 euros.
A public limited company is the best option for those who do not wish to be personally liable for the obligations of the company and for those who wish to be listed on the stock exchange.
GENERAL PARTNERSHIP AND LIMITED PARTNERSHIP
General partnerships and a limited partnerships are companies with two or more partners, who may be legal or natural persons. The partners of a general partnership are jointly and severally liable for the general partnership’s liabilities with all their assets, while in the case of a limited partnership at least one general partner is liable for the limited partnership’s liabilities with all their assets and at least one limited partner is liable for the limited partnership’s liabilities to the extent of the limited partner’s contribution. A general partnership and a limited partnership operate under a partnership agreement entered into between the partners. This agreement can only be amended at a meeting of the partners. A partnership agreement can also be entered into orally or in writing. However, we recommend that all agreements be recorded at least in a form reproducible in writing so as to avoid disagreements and mitigate the risk of conflicts. A partnership agreement also determines the monetary and non-monetary contributions to be made by the partners. Such contributions are to be paid within the time limit specified in the partnership agreement and are equal in amount, unless the partnership agreement specifies otherwise. There is no minimum initial capital requirement.
A general partnership is managed by its partners and it has no other mandatory managing bodies. A limited partnership is managed by a general partner, unless a limited partner has been given the right to manage the limited partnership by the partnership agreement.
The greatest advantage of a general partnership and a limited partnership is that the foundation process is very simple. The only step is filing a notarised application with the Commercial Register.
COMMERCIAL ASSOCIATION
A commercial association is a company founded for supporting and promoting the economic interests of its members through joint economic activity. The members of a commercial association participate in the association as consumers, suppliers, through work contribution, through the use of services, etc. Unless otherwise specified in the articles or association, the members are not liable for the obligations of the association with their personal assets. In this case, the minimum share capital of the association must be at least 2,500 euros. If full personal liability is prescribed, there is no minimum share capital requirement. The general meeting of the association is the highest body of the association and each member has one vote regardless of the size of their contribution. An association can be founded by at least two natural or legal persons. The management board of a commercial association may have one or more members. An association must have a supervisory board if the association has more than 200 members or if its share capital is greater than 25,000 euros. An association must have at least two members, and its share capital is made up of the members’ contributions.
The advantage of a commercial association is that the members are not personally liable for the obligations of the association. At the same time, it is important to remember that each member has one vote, regardless of the size of their contribution, meaning that those contributing more and those contributing less all have equal standing.
If you are interested in founding a company in Estonia, feel free to contact our Tax & Legal department.
