October 24, 2015
By: Stanislav Yurin

Creating the company

And first surprises on the way of..

Finally, when my Estonian visa was approved (for the sake of creating an account for a company), I went forward to the first vital step: creating a company itself.

To the credit of developers, the whole technical process went so smooth that I can hardly squeeze any better advice. Business register's site is self-explanatory.

However, first notable legal issues arose, which definitely need further elaboration.

There are some underwater rocks with company registration. Online registration process does not offer all the options that are defined in the Commercial Code. This is pretty annoying at first, but likely a reasonable sacrifice for the sake of simplicity of the initial online process. As far as Commercial Code suggests, some of those things may be fixed after creation of the company. Or may be not, so that will be my next step in e-resident adventures. Right now I shall describe what are those differences in principal.

Digital identity

One thing that can’t be fixed online at all: with online registration all founders and board members should have either Estonian (also Belgium, Finland, Lithuania or Portugal) digital signature of some kind. Pretty understandable, since the system must be sure about the person's legitimacy. If you are going to have several founders or want to introduce your friend to the board, he has to be e-resident too. Otherwise, use the offline notary services.

Share capital

Other things are related to Articles of Association, which are the rules of functioning of your company. Articles are basically the subset of the Commercial Code, where you define all the optional things that are required to be defined explicitly. Online registration process has a basic Articles template where several options can be defined via the straightforward options interface.

The main constraint is how the share capital is formed. Commercial Code offers two options: pre-formation and post-formation of the share capital, which should be 2500 EUR minimum, the sum most of people reading this post are likely interested in (once again, the leaner our start, the better). Even "Microsoft Estonia OÜ" has the share capital of 2556 EUR.

You either transfer the capital with the formation of the company or at some other future point of time. The second option implies that you’ll be not able to reimburse the dividends until the capital is formed (and some other minor things, read the Code).

Online registration offers only the second option, which is a pretty natural limitation of the online legal process (likely due to the fact that contribution management is rather cumbersome before company bank account even exists) and in general should not bother us too much.

Non-monetary contribution

More severe limitation is that online registration does not offer the option of non-monetary contribution.
That is, if you are the owner of a, say, top-level laptop, worth 2500 EUR (or any other tech totalling to this sum), which you are planing to use as an instrument of your business, you can contribute it as your share capital and you are done. Unfortunately this option is closed as for the time of writing despite the fact some options for non-monetary contribution are present in the UI for already functioning entities, for other purposes. Boom. Add 2500 EUR to your future expenses, unless this is fixable by electronic Articles amendment, and subsequent non-monetary contribution documents submission.

Other things

Company formation expenses

Small bonus: during the formation you can state (in the Articles) that your company should reimburse you the costs of formation (but not more than share capital amount) at some point of future. This will require some additional e-paperwork, 2500 EUR will still remain frozen, but at least that amount should not be taxed (in theory). Note that, according to the Code, share capital itself can not be reimbursed. Probably only travel and accompanying costs of a kind. This is also a good point for further research.

Legal reserve

One other notable thing that could be easily foreseen is legal reserve (see Commercial Code). An optional amount of money (accounted in percentage from capital) that should be kept for specific emergency situations. Given the fact the default reserve of 10% from 2500 EUR will not make much effect anyway, I felt free to exclude this paragraph from the Articles (it is there by default and can be turned off). A bit less paperwork in the future.

Advance dividends disbursement

Unlike the public limited companies (AS), private companies (OÜ) in Estonia are not allowed to pay dividends in advance. Accordingly, you can pay dividends yourself (and other shareholders, if any) just once a year, after the annual report. (Thanks Katrin Sepp for correcting me on this)

Tags: legal