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Multiple Shareholders in Estonian Company: Why You Should Add Them at the Incorporation Stage

May 20, 2022 · 5 min read

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In many small to medium-sized companies, one person often plays the roles of single shareholder and director. In another case, there are 2-4 or even more people considering each other as partners in the business. They form a new company and all become shareholders.

Or, one of them becomes a shareholder and director and others are waiting for the company to soar to take shares? In this article, we describe a process of incorporation with multiple shareholders and compare it with adding a shareholder when a company has been already operating.
Our practice in Estonia shows that adding a shareholder is much easier and cheaper at the stage of company formation. Nevertheless, Enty has solutions to do it later in a fully remote and convenient way. Let’s dive in!

What Is Shareholder In the Company

Since the SME community is used to having directors and shareholders in one, it can be very confusing to understand the difference between them. Basically, a shareholder is one who contributes funds to the company and owns a share of it, while a director is one who manages the company.

The most practical manifestations of each role are responsibility, engagement, and monetary reward. A director is legally responsible for delivering annual accounts, reports, and corporate tax returns. A shareholder stands over it.
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Shareholders are not involved in everyday business activities. They’re engaged when it comes to some vital changes or dealings, for example, a change of a director.

Approximately with the same frequency, that is not really frequent, they get their money reward from the company. Directors are paid regularly (mostly monthly), and shareholders receive dividends which can be received only once a year.

It’s worth noting that under Estonian law, dividends cannot be paid out before you have paid in the mandatory share capital in full and finished the first financial year. Having met the conditions, dividends are taxed and paid.

Shareholder’s rewards are subject to 20% corporate tax in Estonia and likely personal income tax in a tax residence country of the shareholder as well. Director’s fee, for comparison, is taxable with 20% income tax and 33% social tax. If the director is also an employee, his salary is taxable according to a tax residence country of a person.

How to Add a Shareholder During the Incorporation

In this case, the roles of the director/shareholder and the number of shares of the shareholder are determined initially in the Articles of Association.

To open a company online through the register, all shareholders, also mentioned as ‘members’ or ‘company subscribers’, must have an e-Residency card. Then you fill out a questionnaire about the company and its members and proceed to the payment. The service fee is €100 for each member.

Then all the future shareholders complete compliance check. In the end, our client manager does a 10-minute call to the shareholder to digitally sign the Articles of Association and the application for incorporation. In 1-2 business days, your company with multiple members is open, while shares are allocated.
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If anybody of the members doesn’t have an e-Residency, a company will be incorporated through a notary. Again, you fill out a basic questionnaire about the company and its members and pay a € 00 service fee per member. When compliance passed we generate the necessary documents for certification:

  • PoA (power of attorney) - for shareholders;
  • Statement (consent to be a director) - for a director;
  • PoA and Statement if a person is both a shareholder and a director;
  • + you will need to add your passport copy to the package and certify it along with the rest of the docs.

Then you sign the documents, notarize and apostille them in the country where you are physically located. Then our client managers check the scans of the documents and ask to send this package by courier service to Tallinn. In 1-2 weeks, your company with multiple members is open, shares are allocated.

Ways to Add a Shareholder After Incorporation

Adding new members to an existing company is more complex. But still, sometimes a company needs someone else to take the role of shareholder. It’s a very common thing among startups and new businesses that attract new funds to the legal entity.

Thanks to Estonian sustainable policy towards digitalization of governmental services, there are three fully remote ways to add a shareholder. We covered this issue in detail just after new legislation was released. Here we’ll recall basic requirements and focus on how the process goes.
Further, in the text, we’ll use ‘Owner’ meaning members holding a majority of shares. In the legal form of OÜ if Estonia, it’s usually considered as all the existing shareholders

Share transfer via PoA (notarial share transfer)

A very traditional way for adding a shareholder in case you don’t want to issue new shares. It’s always done via a notary. If shareholders have e-Residency cards, it can be done fully online using the e-Notary services. After that, notary will prove the transaction without PoA. If all the parties don’t have e-Residency, the process is a bit different. And here is where we can help you!

We generate a new Power of Attorney (PoA). Then you, the owner, and future shareholders sign it, notarize and apostille it. Then our client managers check the scans of the documents and ask you to send this document by courier to us in Tallinn. Enty signs the share transfer agreement with a notary on behalf of the company. Done!

€10 000 contributions to share capital

The modern and digitalized way introduced by Estonian authorities in August 2020 is through fully paid share capital equals at least € 10.000.
An owner must have an e-Residency of Estonia, while it’s not necessary for shareholders. A course of steps is following:

  • The owner contributes ten thousand euros to share capital. In fact, you increase the company’s share capital this way if it’s used to be less.
  • Estonian authorities make a note in a register about the increase in the share capital as a decision of the owner.
  • We prepare a change in the company's Articles of Association that the shares of the company can be transferred without a notary. All the current shareholders give their consent for it.
  • Then we prepare a contract for the purchase and sale of shares. The owner and future shareholder sign it, and it is submitted through the register with the addition of information about the shareholder.

Actually, this option is highly beneficial for Estonian scale-ups that are looking for investment — it significantly simplifies the process of adding new shareholders that may be investors as well.

Increasing Share Capital

The easiest way to add a new shareholder is via increasing share capital.
For this option, the owner must have an e-Residency card, and the shareholder(s) might have it optionally. A new shareholder should first contribute the amount that corresponds to her/his share to the share capital.

The amount is calculated as follows. Given, for example, the initial share capital of € 2.500 is paid by a single shareholder. This shareholder has 100% of the shares. S/he wants to add one more shareholder to split shares as % 80/20.

Then the owner will have 80%, and a new member get 20%. Then € 2.500 paid will become 80%, 100% will be calculated as € 2.500*0,8 = € 3.125, and 20% from it will be calculated as € 3.125*0,2 = € 625 that the new shareholder has to pay.

Both parties have to provide bank statements that their contributions to the share capital are paid. Then our specialists will prepare the resolution of the Shareholders' Meeting with information about changes in the company's share capital and send it to you to sign digitally.

We'll update Articles of Association, and submit all prepared papers to the registry where you're supposed to pay a share capital contribution. This authority will thoroughly observe all the documents and if it’s ok the change in the Articles of Association will be satisfied.

How to Add a New Director to the Estonian Company

If the role of a shareholder does not fit an engagement of a new person in the company, you can add a new director as well.

If the owner and the new director both have e-Residency, then the owner creates a decision about adding a director, logs in to the register, adds information about the new director. Then s/he calls the new director, and both sign the documents via e-Residency. An implementation takes up to 5 business days.

If one of them does not have an e-Residency, then a Statement is drawn up, the same as during company incorporation. The owner and the new director sign it, certify, and apostille it. Then our client managers check the scans of the documents and ask you to send the package by courier service to us in Tallinn. An implementation takes several days.

In conclusion, we encourage you to add all the necessary roles to people during incorporation. It’s essentially worth paying an extra €100 at the beginning to save your time and money in the future. But, if decision becomes needed later or you’ve attracted new investments, then Enty will help you add new shareholders or directors at any other time with ease. We will choose the option that suits your company best based on your case and we will guide through the whole process. Feel free to ask us any questions :)
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