In the world of business and entrepreneurship, one of the fundamental questions that often arises when establishing a company is, “What is the required minimum share capital?” The answer to this question can vary significantly from one country to another, and Estonia is no exception.
Let’s take a look at the intricacies of minimum share capital requirements in Estonia, providing you with a clear understanding of how this aspect of business works in Estonia.
The variable nature of minimum share capital
Similar to almost every country in the world, the lowest required capital amount varies by the type of enterprise you are planning to establish – the same goes for the minimum share capital for companies in Estonia. When talking about the minimum share capital in general, there are companies that can be founded with zero starting capital and companies that must be founded with at least €25,000 and go through an audit.
So, the brief answer is that the required minimum share capital in Estonia is variable. Below, we will go over private limited and public limited companies, as they are the two most common legal entities to be founded with starting capital.
Private limited companies: a revolution in equity requirements
As of February 2023, significant changes were introduced in the equity requirements for Estonian private limited companies, known as “osaühing.” These changes brought about a revolution in the way entrepreneurs can establish and operate their businesses.
A nominal share capital of one cent
A private limited company can now be established with a share capital of just one cent. Yes, you read that correctly – one cent! This share capital must be paid immediately upon establishment, with simplified documentation for proving the payment. The minimum share capital requirement was eliminated, allowing companies to be established with a share capital as low as one cent.
However, it’s worth noting that a genuine zero capital is not allowed. At least one share must exist, and the minimum value of one share is one cent. Even though it’s possible to start a company with just one euro cent of share capital, it is advisable to have a reasonable amount if the company requires capital for its operations, which can be maintained as share capital. This not only ensures the financial stability of the business but also creates a more respectable image for the company.
Protecting creditors: the €2,500 clause
To protect creditors’ interests, a clause was introduced alongside these changes. This clause allows a temporary bankruptcy administrator to demand payment and reimbursement of expenses from the shareholders of the private limited company, up to a limit of 2,500 euros if the company’s share capital is below 2,500 euros.
This mechanism ensures that creditors have a safety net in place, even when dealing with companies with minimal capital.
Options for companies established before the changes
For companies established prior to these revolutionary changes with unpaid share capital, there are several options to consider:
- Continue as before: Businesses can choose to continue as before and make the share capital payment when needed.
- Utilize retained earnings: Another option is to make a share capital payment from retained earnings, albeit with the obligation to pay income tax on the amount transferred.
- Reduce to one cent: Companies can opt to reduce the share capital to one cent (or any desired amount), make the payment, and leave it as is.
- Increase through capital increase: Alternatively, companies can reduce the share capital to one euro and then increase it through a capital increase without the need to pay income tax. This provides flexibility in managing the company’s capital structure.
Capital increase: the bonus issue process
If a private limited company is established with a share capital of just one euro, it can increase its capital in the usual way. For example, if there is a desire to capitalize on retained earnings, the share capital can be increased through a capital increase process known as bonus issue (fondiemissioon in Estonian). The beauty of this process is that it does not incur tax liabilities, making it an attractive option for businesses looking to bolster their capital.
With these changes, the possibility of making share capital payments after the company is registered in the business register was eliminated because the minimum share capital requirement no longer exists. When increasing share capital with new payments, it is necessary to provide the business register with a notice from a credit institution or payment institution confirming the share capital payment, but this requirement applies only when the payment exceeds 50,000 euros. Otherwise, a shareholder’s confirmation is sufficient.
Ensuring solvency: The half-net-assets rule
While private limited companies now have the flexibility to start with minimal share capital, it’s important to note that the net assets of the company must be at least half of the specific private limited company’s share capital.
This requirement is in place to ensure that companies maintain a certain level of solvency, preventing them from becoming insolvent or unable to meet their financial obligations.
Public limited companies: a higher threshold
As public limited companies are a little more complex in their structure, founding process, and needs, it is only logical that the minimum share capital is higher than that of other companies. To create an Estonian public limited liability enterprise, the founders must contribute at least €25,000.
Complexity and Requirements
We will not be specifically going over the process of share capital registration for public companies in Estonia, as they require slightly different measures and are not so popular among our clients.
In case you would like to get more information about it, please feel free to reach out to us.
Conclusion
In conclusion, the minimum share capital requirements for companies in Estonia have undergone significant changes, particularly for private limited companies. These changes, effective as of February 2023, have made it possible to establish a private limited company with a nominal share capital of just one cent, eliminating the previous minimum capital requirement.
This newfound flexibility empowers entrepreneurs and small business owners, allowing them to start their ventures with minimal capital while maintaining the option to increase it as needed. It’s important to remember that while the minimum share capital requirement may have been eliminated, prudent financial management remains crucial to the success and solvency of any business.
Whether you’re considering establishing a private limited company with minimal capital or exploring the intricacies of public limited companies in Estonia, it’s always wise to seek professional advice and guidance to navigate the legal and financial aspects effectively.
Incorporate is ready to help you! Please feel free to reach out to us if you would like to get more information about any of our company formation & management services or accounting services.
FAQs
Q1: Can I really start a company in Estonia with just one cent of share capital?
Yes, as of February 2023, you can establish a private limited company in Estonia with a nominal share capital of just one cent. However, while the minimum capital requirement has been eliminated, it’s advisable to consider your company’s financial needs and maintain a reasonable level of capital for stability.
Q2: What happens if my private limited company’s share capital falls below 2,500 euros?
If your private limited company’s share capital is below 2,500 euros, a temporary bankruptcy administrator can demand payment and reimbursement of expenses from the shareholders up to that limit. This mechanism is in place to protect creditors’ interests.
Q3: Are there specific requirements for public limited companies in Estonia?
Yes, public limited companies in Estonia have different requirements, including a minimum share capital of at least €25,000. The process of establishing and managing public limited companies is more complex and distinct from private limited companies.
