Share capital in Estonia: payment, process, all you need to know
If you want to establish the most popular among E-Residents private limited company (known as OÜ in Estonia), you have to know some details about quite a comprehensive process of contributing a share capital. We often face the gullibility of our clients on this matter that's why we've decided to give you some clues in this article.
What is Share Capital in Estonian Jurisdiction
Before going into Estonian specifics regarding share capital contribution in Estonia, let's take a look at what share capital is and its significance.
The share capital is a conditional amount of money, which founders set during company incorporation by issuing equity. It shows the sizes of all founders' shares: the percentage of owned shares will be equal to the portion contributed to the share capital. The share capital is also divided into separate shares and each founder can have the shares with an unequal par value. Note that founders of an OÜ risk only assets contributed to the share capital. But if the company can't pay all the debts by itself, the founders will be brought to the additional liabilities.
Take into account that the share capital doesn't show the value of the company's assets. In most cases, the share capital will never be changed, only if you want to modify it. You should also notice that the share capital is not a fee or a tax, this sum of money might be used for business purposes (but with some limits). The information regarding the size of the share capital of your company will be available publicly as well.
But don't worry, the share capital works in your favor as well. First, knowledge of a share's distribution simplifies the running of your company because it sets each shareholder as a voter by the percent of the shares. Secondly, the share capital is the minimum size of a company's assets and can help you in case of liquidation of the company.
Share Capital Contribution in Estonia
Now let's take a look at the specific regulation in Estonia. The minimum share capital is €2500 which is much lower than in most European jurisdictions. This condition lowers the threshold to start a business in Estonia. Of course, you can contribute more than €2500, this is just a minimum limit.
And one more good news is that this contribution can be deferred up to 10 years from the incorporation day which lets you save money for business management at the initial stage. In this case, each founder will be personally liable for the unpaid sum of the share capital, while a company won't be able to pay dividends or change the share capital's par value. The postponed payment might be done by a single transaction or by several smaller payments. Note that the share capital contribution of more than €25000 can't be deferred.
Actually, these quite humane conditions explain why so many people from all over the world are fond of Estonian jurisdiction and want to run their businesses here using E-Residency. There are small barriers for entrepreneurs, simple ways to interact with the government, and transparent jurisdictions.
How to Contribute the Share Capital
The payment for the share capital can be done online promptly after obtaining your Estonian ID-card. 'To pay the share capital' means transfer the needed sum to the company's bank account, after that you have to prove the payment is done. To make this happen, you should request a digitally signed statement that should conform to some requirements from your banking provider. It takes several days for the Estonian Business Registry to approve the share capital contribution. And remember that you can defer this payment, pay a full cost at once or pay the sum partly. Please notice that the proof of payment must be provided strictly in Estonian language.
And more good news for you! The Estonian government simplified this process. Earlier you had to register the share capital only in Estonian banks. Fortunately, since 2019 the registration may be done with any credit or payment institution across the EEA (European Economic Area).
How May I Use the Share Capital?
Remember, that the share capital is not an income, a stash, or a fee. When you've paid the share capital's contribution, you can use this money for the business's sake. Although there are limits. For example, you won't be able to use the share capital or the company's revenue for paying dividends until the share capital contribution is paid. Take into account that net asset value at the end of the financial year should be higher than the share capital.
Actually, you are given free rein. You can enlarge/reduce the share capital by increasing/decreasing the par value of the shares and each founder can dispose of, donate or sell the shares. In case of the liquidation of the company, after debts are paid the share capital, as well as other assets, is distributed among the founders proportionally of their shares.
That's it! Now you are more aware of this tricky process even for the profs. And believe us, this is quite a simplified operation in the context of the other European jurisdictions. Estonia is always making entrepreneurial life easier: the business starting threshold is low, there are simple options to pay the share capital contribution and the duration of the payment postponing is quite long.
But even in these pleasant conditions, there are some tricky juridical moments that should be followed. Enty can help you with company incorporation, back-office management, and banking operations. Also, you can ask us any question on the share capital matter. Just visit our website to make sure of it.
