The Estonian Commercial Code has been amended in order to prepare Estonian company law for adoption of the euro, scheduled for 2011. The majority of relevant amendments will take effect as of 1 July 2010, but some provisions on the day of changeover.
Stating Share Capital in euros
From 1 July 2010 until the day of changeover, share capital on formation of private and public limited companies may be expressed either in euros or Estonian kroons. However, as of the day of changeover, the share capital of private and public limited companies must be expressed exclusively in euros (for example, in the Articles of Association, the list of shareholders, resolutions of the general meeting). The share capital of a private limited company must be at least EUR 2,500 and the nominal value of a share one euro or a multiple of one euro. The share capital of a public limited company must be at least EUR 25,000 and the nominal value of a share 10 euro cents or a multiple of 10 euro cents.
Businesses registered before the changeover may also express their share capital in kroons after the changeover. In these cases, the share capital must be in accordance with current requirements – at least 40,000 kroons in private limited companies and 400,000 kroons in public limited companies. If share capital is expressed in kroons, the smallest nominal value of a share in a private limited company is 100 kroons and the smallest nominal value of a share in a public limited company 10 kroons.
Amending the Articles
Although the Articles of Association need not be amended merely to replace kroons with euros, the law still foresees some measures so that companies will recalculate their share capital in euros within a reasonable period. That is, if a private or public limited company decides to amend the Articles of Association or to increase or decrease share capital after the expiry of one year from the changeover, the share capital must also be converted into euros at the same time as other amendments are made. This means that expressing share capital in euros may be postponed until other amendments are required or when the share capital is increased or decreased.
Nevertheless, it would be practical to make such adjustments sooner rather than later as the changeover means that accounting and annual reports must express various indicators in euros.
Recalculating the share capital in euros generally also involves the need to increase or decrease share capital, as simply multiplying the nominal values of shares by the official changeover rate will produce results which do not appear as whole numbers and consequently fail to comply with requirements as to the par value of shares.
No par Value Shares
As of 1 July 2010 public limited companies will have the opportunity to issue no par value shares. The option to use shares without a nominal value has been introduced to the Commercial Code primarily with the objective of simplifying recalculation of capital in euros. Unlike in the case of par value shares, no par value shares enable recalculation of the share capital in euros without increasing or decreasing the share capital and allow exactly the same proportions of shareholdings to be maintained as earlier.
Further Amendments ahead
The Parliament is already working on another draft act to amend the Commercial Code, which will bring several important changes for private limited companies. The draft act will:
- foresee reduction of certain formal requirements for documentation under company law and the auditing duty;
- simplify share transfer provisions;
- abolish the fixed-term contractual relationship requirement for members of the management board; and
- provide an option to establish private limited companies without considerable capital investment unless their respective field of activity prescribes otherwise.
It would probably be wise to adjust the Articles of Association of many companies now.
The proposed date of entry into force of the follow-up amendments is 1 January 2011.
Should you have further questions regarding the EURO and corresponding Commercial Code amendments, please contact partner Karina Paatsi for further details.
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In anticipation of the EURO – what to expect from Commercial law?
The Estonian Commercial Code has been amended in order to prepare Estonian company law for adoption of the euro, scheduled for 2011. The majority of relevant amendments will take effect as of 1 July 2010, but some provisions on the day of changeover.
Stating Share Capital in euros
From 1 July 2010 until the day of changeover, share capital on formation of private and public limited companies may be expressed either in euros or Estonian kroons. However, as of the day of changeover, the share capital of private and public limited companies must be expressed exclusively in euros (for example, in the Articles of Association, the list of shareholders, resolutions of the general meeting). The share capital of a private limited company must be at least EUR 2,500 and the nominal value of a share one euro or a multiple of one euro. The share capital of a public limited company must be at least EUR 25,000 and the nominal value of a share 10 euro cents or a multiple of 10 euro cents.
Businesses registered before the changeover may also express their share capital in kroons after the changeover. In these cases, the share capital must be in accordance with current requirements – at least 40,000 kroons in private limited companies and 400,000 kroons in public limited companies. If share capital is expressed in kroons, the smallest nominal value of a share in a private limited company is 100 kroons and the smallest nominal value of a share in a public limited company 10 kroons.
Amending the Articles
Although the Articles of Association need not be amended merely to replace kroons with euros, the law still foresees some measures so that companies will recalculate their share capital in euros within a reasonable period. That is, if a private or public limited company decides to amend the Articles of Association or to increase or decrease share capital after the expiry of one year from the changeover, the share capital must also be converted into euros at the same time as other amendments are made. This means that expressing share capital in euros may be postponed until other amendments are required or when the share capital is increased or decreased.
Nevertheless, it would be practical to make such adjustments sooner rather than later as the changeover means that accounting and annual reports must express various indicators in euros.
Recalculating the share capital in euros generally also involves the need to increase or decrease share capital, as simply multiplying the nominal values of shares by the official changeover rate will produce results which do not appear as whole numbers and consequently fail to comply with requirements as to the par value of shares.
No par Value Shares
As of 1 July 2010 public limited companies will have the opportunity to issue no par value shares. The option to use shares without a nominal value has been introduced to the Commercial Code primarily with the objective of simplifying recalculation of capital in euros. Unlike in the case of par value shares, no par value shares enable recalculation of the share capital in euros without increasing or decreasing the share capital and allow exactly the same proportions of shareholdings to be maintained as earlier.
Further Amendments ahead
The Parliament is already working on another draft act to amend the Commercial Code, which will bring several important changes for private limited companies. The draft act will:
- foresee reduction of certain formal requirements for documentation under company law and the auditing duty;
- simplify share transfer provisions;
- abolish the fixed-term contractual relationship requirement for members of the management board; and
- provide an option to establish private limited companies without considerable capital investment unless their respective field of activity prescribes otherwise.
It would probably be wise to adjust the Articles of Association of many companies now.
The proposed date of entry into force of the follow-up amendments is 1 January 2011.
Should you have further questions regarding the EURO and corresponding Commercial Code amendments, please contact partner Karina Paatsi for further details.