Updated: May 5, 2021
Author: Anne Veerpalu
2020 was certainly a memorable year, but not only for the pandemic. In 2020 a significant change was introduced to share transfer transactions of OÜ´s (Estonian private limited liability companies) that was lobbied by the Estonian startup and venture capital community.
Namely, the regulation that required notarial form for any share transfer transaction and additionally to transaction that creates obligations to transfer shares (such as shareholders agreement or option agreement) was relaxed. These amendments to relax these requirements was very welcomed as the regulation had been requiring notarial form of these transactions since the 1990s.
The relaxation of these requirements had the biggest effect on shareholders and option agreements as the amendments in the Estonian Commercial Code now allow for obligations to transfer shares no longer require a visit to the notary. However, the effect was much more limited in relation to share transfer agreement itself as in order to use a more simple form of transfer agreement a company needs to go through a corporate renovation and a mind-blowingly bureaucratic registration process.
To be more specific, there are three requirements to be fulfilled as part of the corporate renovation:
1) Share capital 10,000 EUR and paid in
2) Articles of association waiving the notarial form for share transfer transactions
3) Unanimous decision of shareholders to adopt such articles of association
As majority of OÜs have the minimum capital of 2,500 EUR and according to statistics, there are only 15% of OÜs that meet the share capital requirement – about 85 % need to go through these three steps of corporate renovation to enjoy the benefits of the amendments. While it certainly is not difficult to increase the share capital, amend the AoA and pass such a corporate resolution, the question remains – why is the 10,000 EUR capital necessary? In case it was important to test the will of the shareholders the other two requirements are sufficient. The 10,000 EUR requirement seems to fall in the category of „cannot really explain it“. The goal of it seems to create a burden and not make it available for all OÜ-s, which certainly does not meet any clear political or economic agenda.
We would recommend the regulator to forgo the increased share capital requirement and simplify the said regulation even further.