Dissolving a branch
- Dissolution resolution and submission of dissolution application
- Deletion of a branch from the Commercial Register
A branch is not a separate company but a part of a foreign company subject to Estonian law.
In general, the dissolution of a branch consists of three key stages:
- adopting the branch dissolution resolution and submission of dissolution application
- deletion of the branch from the Commercial Register
Dissolution resolution and submission of dissolution application
Possible reasons for dissolving a dissolution resolution:
- the foreign company files an application for deletion of the branch;
- the foreign company is dissolved;
- bankruptcy proceedings or liquidation proceedings are launched against the foreign company. In such a case, the branch director has 14 days to notify the Commercial Register of the dissolution of the company. The Commercial Register shall make a corresponding notation regarding the dissolution.
- the director of the branch left three months ago and a new director has not been selected;
- the branch director has not submitted the annual report for the branch by both the required deadline and within an additional term granted.
The dissolution of a branch can be decided by a competent body of the company (pursuant to the legislation of the company’s country of location), which is mainly the management board. To dissolve a branch, the management board must submit an application to the Commercial Register.
The branch dissolution resolution and submission of submission of application is followed by liquidation, in the course of which it is important that you follow a specific series of steps.
Liquidation consists of the following stages:
- Appointment of liquidators and entry of their names into the Commercial Register. The liquidators of the branch are the members of the company’s management board, unless provided otherwise in the articles of association, the resolution of the general meeting or judicial decision. You can submit the application for the dissolution entry into the Commercial Register electronically or through the Company Registration Portal.
- Publication of a notice regarding liquidation of the branch in the Ametlikud Teadaanded and notification of all known creditors. The liquidation notice must specify that the creditors must present their demands within four months of publication of the notice.
- Approval of the opening balance sheet prepared upon liquidation and annual report by resolution of the partners. After approval, the opening balance sheet prepared upon liquidation and the annual report shall be submitted promptly to the Commercial Register. A court may release a company of the obligation of auditing the branch opening balance sheet prepared upon liquidation and the annual report if the financial situation of the company is so unequivocal that an audit appears not to be necessary in the interests of the company’s owners or its creditors.
- Dissolving a branch, collection of debts, sale of assets and satisfying creditors’ demands, regardless of notification of demands. If the assets of the branch being liquidated are not sufficient to satisfy all of the requirements of the creditors, the liquidators must file a bankruptcy petition. If a creditor known to the branch has not presented a demand and the demand cannot be satisfied due to reasons independent of the branch, the funds belonging to the creditor shall be deposited in escrow. If it is not possible to discharge the obligation during the liquidation or if the demand is challenged, the branch’s assets may not be distributed among shareholders if the disputed sum of money has not been deposited or if the creditor has not been given sufficient security.
- Preparation of the final balance sheet of the branch and distribution of assets. Upon dissolution of a branch, transfer of assets from one structural unit of the company to another takes place – i.e. in general from the branch to the foreign parent company. As the parent company is responsible for the obligations arising from the branch’s activity, the foreign company will incur an income tax obligation with regard to gains earned from the transfer of assets. If the foreign company has not distributed the profit of its Estonian registered branch prior to dissolution of the branch, then the profits will be considered distributed upon dissolution of the branch and the foreign company will incur the obligation of paying income tax on the profit earned. Upon completion of liquidation, the final balance sheet shall be prepared.
Liquidation of a branch is a fairly time-consuming process that lasts at least six months. If the company that dissolved the branch wishes to conduct business activity in Estonia in future, it must establish a new branch.
Deletion of a branch from the Commercial Register
After the branch has been liquidated as required, the company’s management board will have to submit an application to the Commercial Register for the deletion of the branch from the Commercial Register. This can be done after a minimum of six months of the entry of the dissolution of the branch into the Commercial Register and providing notification thereof. You will have to attach the branch’s final balance sheet to the application for deletion from the Commercial Register.