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Establishing a company

Legal form

According to the Commercial Code there are five forms of business entities, which are created by entry into the Commercial Register:  private limited company, public limited company, general partnership, limited partnership, or commercial association.

The most popular type of legal entity being set up by foreigners in Estonia is the so-called "Osaühing, OÜ", or private limited company.

Private Limited Company (Osaühing or OÜ)

A private limited company is a company that has its share capital (in Estonian: osakapital) divided into private limited company shares (in Estonian: osad). A shareholder is not personally liable for the obligations of the company. A private limited company is liable for the performance of its obligations with all of its assets.

The share capital must be a minimum of EUR 2,500. The minimum nominal value of a share is EUR 1. If the founders are private persons and the share capital is less than EUR 25,000 then the founders can decide that the contribution must not be paid upon the establishing of the company. Until the whole sum has been paid, the founders are personally liable for the obligations of the company within the amount of the missing contribution.

A private limited company must have a management board. The management board is a directing body of the private limited company that represents and directs the private limited company. The management board may have one member (director) or several members. A member of the management board does not have to be a shareholder. A member of the management board must be a natural person with active legal capacity. If more than half of board members are not residing in Estonia then the company must give the Commercial Register a contact in Estonia where necessary documents can be sent. The foreign owner must give the Commercial Register his/her address and e-mail address.

A private limited company can have a supervisor board if prescribed by the Articles of Association. But it is not mandatory by the law. A private limited company must have an auditor if prescribed by law or the Articles of Association. An auditor is also mandatory when the company surpasses certain threshold values in terms of turnover, number of employees and asset value.

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Branch of Foreign Company

If a foreign commercial undertaking wants to permanently offer goods or services in its own name in Estonia, it should enter its branch in the Commercial Register. A branch is not a legal person. The company is liable for the obligations arising from the activities of the branch. In the cases provided by law, a company must obtain a licence in order to found a branch in Estonia.

A foreign company must appoint a director or directors for the branch. A director must be a natural person with active legal capacity. The residence of at least one director must be in Estonia, in a member state of EEA or in Swiss Confederation. If several directors are appointed for a branch, each of them may represent the branch unless it is specified that the directors or some of them may represent the branch jointly.

A foreign company must maintain separate accounts concerning the branch. Accounts concerning the branch must be maintained pursuant to the requirements of the Accounting Act.

 

Additional information

The process of establishing a private limited company

  1. Choosing and checking the business name from the Commercial Register

  2. Registration of the company

    • Electronic filing request to the Commercial Register: possible for the holders of Estonian, Portuguese, Finnish and Belgian ID-card or Lithuanian Mobile-ID 

    • OR verification of foundation documents by the notary who will present those to the Commercial Register. List of notaries 

  3. Acquiring licenses if the area of activity is subject to special requirements. Information and electronic registration at the Register of Economic Activities

  4. Registration of the company as a VAT payer at the Estonian Tax and Customs Board
  5. Registration of the employees in the employee registry at the Estonian Tax and Customs Board

 

Entry in Commercial Register

In order to enter a private limited company in the Commercial Register, the management board must submit a petition to the Commercial Register. The following documents should be enclosed with the application:
  • the Memorandum of Association;

  • the Articles of Association;

  • a bank notice concerning the payment of share capital if the share capital must be paid before the entry in Commercial Register;

  • the names, personal identification codes and addresses of the founders and the amount of their contributions;

  • upon payment by a non-monetary contribution, the agreement concerning the transfer of the contribution to the private (public) limited company, documents certifying the value of the contribution and an opinion on the valuation of the non-monetary contribution signed by the auditor;

  • a notarized expression of consent of every member of the board to act as a member of the board and the confirmation of the absence of circumstances that would rule that out;

  • the names, personal identification codes and residences of the members of the management board, the supervisory board, and the auditors;

  • information on the planned principal activity;

  • telecommunication numbers (telephone, fax, etc.);

  • other documents provided by law.

 The following information shall be entered in the Commercial Register:

  • the business name of the private limited company;

  • the seat and address of the private limited company;

  • the amount of share capital;

  • the foundation of the company without making the contributions;

  • the date of conclusion of the Memorandum of Association;

  • the names and personal identification codes of the members of the management board;

  • the members of the management board entitled to represent the private limited company differently than provided for in subsection 181 (1) of the Commercial Code;

  • the beginning and end of the financial year of the private limited company;

  • other information provided by law.

 

If registered electronically, a company can be established in just a few hours. Registering through a notary will take up to 3 days.

The state fee for registering a private limited company is EUR 145. If one uses the services of the notary then the notary fee must be paid as well. The amount of the fee depends on the number of founders and the amount of share capital.

Entries in the commercial register are public. Everyone has the right to examine the registry cards and the business files, and to obtain copies of registry cards and of documents in the business files.

 

Additional information

 

Accounting requirements

The Law on Accounting (valid from 1 January 2003) regulates basic accounting functions in all business entities registered in Estonia. It does not regulate accounting for taxes, which are regulated by other laws and acts. The essence of the law is framed in compliance with International Accounting Standards (IAS).

Almost all Estonian companies can choose whether to prepare their consolidated and annual accounts in accordance with International Financial Reporting Standards (IFRS) or in accordance with the Estonian accounting standards ("Estonian GAAP"). Listed companies and financial institutions are required to prepare their accounts in accordance with IFRS. The Estonian GAAP is written by the Estonian Accounting Standards Board.

The length of a financial year is 12 months.  At the end of each financial year, an accounting entity is required to prepare an annual report that consists of the annual accounts and the management report. The auditor's report and, in the case of a company, the profit distribution proposal for the financial year should be annexed to the annual report. The auditor's report need not be annexed to the annual report if auditing is not compulsory.

Annual report should be filed at the Commercial Register during six months after the end of the financial year.

Auditing

The financial statements should be audited for all public limited companies and foundations.

In addition to that an accounting entity should be audited if, at the balance sheet date of the accounting year, the accounting entity exceeds the limits of at least two of the three following criteria:

  • sales revenue (net turnover), in the case of a company, or income, in the case of other accounting entities EUR 2 Million;
  • total assets EUR 1 Million;
  • number of employees 30.

Or if the accounting identity exceeds the limit of one of the three following criteria:

  • sales revenue (net turnover), in the case of a company, or income, in the case of other accounting entities EUR 6 Million;
  • total assets EUR 3 Million;
  • number of employees 90.

The financial statements of an accounting entity should be reviewed by an auditor if, at the balance sheet date of the accounting year, the accounting entity exceeds the limits of at least two of the three following criteria:

  • sales revenue (net turnover), in the case of a company, or income, in the case of other accounting entities EUR 1 Million;
  • total assets EUR 0.5 Million;
  • number of employees 15.

Or if the accounting identity exceeds the limit of one of the three following criteria:

  • sales revenue (net turnover), in the case of a company, or income, in the case of other accounting entities EUR 3 Million;
  • total assets EUR 1.5 Million;
  • number of employees 45.

A compulsory review may be replaced by an audit.

 

Additional information