Private limited company 

A private limited company is dissolved by resolution of the shareholders or judicial decision.

Grounds for voluntary dissolution:

• A resolution of the shareholders approved by at least two-thirds of the shareholders who participate in the meeting, unless the articles of association prescribe a greater majority requirement.
• Dissolution of private limited company prescribed by the articles of association.

A liquidation proceeding shall always be conducted upon the voluntary dissolution of a private limited company. The dissolution resolution of the private limited company shall be entered in the commercial register. The management board shall submit an application for entry to the registrar. The resolution of the shareholders and the minutes of the meeting of shareholders or, in the cases provided by law, the record of voting are appended to the application.

 

Public limited company 

A public limited company can be voluntarily dissolved by resolution of the shareholders. As a general rule, the dissolution of a public limited company consists of three major stages:

• passing a resolution on dissolution and submitting an application for dissolution;
• liquidation;
• removal of the public limited company from the business register.

Dissolution resolution and submission of an application for dissolution

The voluntary dissolution of a public limited company is based on a resolution of the general meeting of shareholders, which must be approved by at least 2/3 of the votes represented in the meeting, unless the articles of association prescribe a greater majority requirement. If a public limited company has different classes of shares, it is also necessary that at least two-thirds of the votes represented by each class of shares vote in favour of the dissolution resolution.

In order to dissolve a public limited company, the board must submit an application to the business register and attach to it the resolution and the minutes of the general meeting. You can submit the dissolution entry application electronically in the e-Business Register.

If the dissolution of a public limited company is decided by an extraordinary general meeting, the board shall submit to the general meeting an annual report for the previous financial year approved by the general meeting and an overview of the economic activities of the public limited company for the current year, which must indicate the period within which the public limited company can satisfy the creditors’ claims.

 

Sole proprietor 

The dissolution process of a sole proprietor is simple and quick compared to companies. If you would like to terminate your activities as a sole proprietor, you must submit an application for the termination of the activities and deletion from the register to the registrar of the Business Register. A sole proprietor is deleted from the Business Register on the basis of their application.

A sole proprietor who is a person liable to value added tax must first apply for deletion from the national VAT register of the Estonian Tax and Customs Board before submitting the aforementioned application to the Business Register.

Payment of taxes and transferring assets into personal use

In order to transfer assets used in business activities into personal use, you must first pay all the required taxes and settle any obligations. The most important taxes that require your attention when terminating your business activity are income tax, social tax, and VAT.

Before you can be deleted from the VAT register, you must first pay the VAT on unsold goods if you deducted the input VAT upon acquisition, provided you are liable to pay VAT. The taxable value of goods is its acquisition cost, or in its absence, its cost price. After the termination of economic activity and the settlement of any obligations or taxes, you have the right to transfer assets into personal use. Upon dissolving a sole proprietor, the market price of assets, the acquisition cost of which you recognised as a business expense, is considered business income. You are liable to pay company taxes on business income when dissolving. Going forward, assets transferred into personal use will be used by you and the members of your family for personal interests or by third parties whom you allow to use the assets.

 

General partnership and Limited partnership 

A general partnership or limited partnership is dissolved by resolution of the partners, upon expiry of a term, upon attainment of the objective or by compulsory judicial decision.

In general the dissolution of a general partnership or limited partnership consists of three key stages:

• Adoption and submission of a dissolution resolution
• Liquidation
• Deletion of the company from the Commercial Register

Dissolution resolution and submission of dissolution resolution

The basis for dissolution of a general partnership or limited partnership is the resolution of its partners, for which over 3/4 of the shareholders vote in favour, unless the articles of association stipulates a larger majority. If the dissolution of a general partnership or limited partnership is set forth in the partnership agreement, or the general partnership or limited partnership is to be dissolved after the expiry of a term or upon attainment of an objective, the partners may decide to continue the activities of the partnership or merger, division or transformation of the partnership.

The partnership agreement can also specify that the partnership agreement is terminated upon departure of a partner from the partnership, the bankruptcy of the owner, or the death of a partner who is a FIE or the dissolution of a partner who is a legal person.

To dissolve the company, submit to the Commercial Register a joint application by the partners along with the minutes of the meeting of partnership members.

 

Commercial association 

A commercial association is dissolved by resolution of the shareholders or compulsory judicial decision. A commercial association is also deemed dissolved upon the expiry of a term in the case of a fixed-term association or on the grounds specified in law or the articles of association. In general, the dissolution of a commercial association consists of three key stages:

• Adopting a dissolution resolution and submission of a dissolution resolution.
• Liquidation.
• Deletion of a commercial association from the Commercial Register.

Adoption and submission of a dissolution resolution

The basis for dissolution of a commercial association is the resolution of its shareholders, for which over 3/4 of the shareholders vote in favour, unless the articles of association stipulates a larger majority. The management board shall submit to the general meeting deciding on the dissolution the approved annual report for the last financial year and an overview of the economic activities of the commercial association in the current year. The dissolution of the commercial association must be decided by the commercial association even if the number of commercial association members has been below five for six months.

To dissolve a company, the management board must submit to the Commercial Register an application and the dissolution resolution of the shareholders along with the minutes of the general meeting. The commercial association shall be considered dissolved as of the making of the dissolution entry into the Commercial Register.

Private limited company 

A private limited company is compulsorily dissolved on the basis of a court order. In general, the reason for compulsory dissolution is non-compliance of the private limited company or its activities with the law. If it is possible to eliminate the circumstance or defect that is the basis of the compulsory dissolution, before deciding on the compulsory dissolution of the private limited company, the court sets a deadline for the private limited company, during which it is possible to eliminate the defect and continue its activities afterwards.
 

• The shareholders have not adopted the resolution on dissolution, even though its adoption was mandatory based on the law or articles of association.
• The term of office of the management board expired more than two years ago and a new management board has not been elected.
• The net assets of the private limited company have fallen below the minimum stipulated by law.
• The purpose or activity of the private limited company is not in conformity with the law, public order, or good manners.

There might also be other grounds provided by law for the compulsory dissolution.
 

Submit an application for the compulsory dissolution of the private limited company to the court. The application may be submitted by the management board, the supervisory board, a member or members of the management board, shareholders, as well as other persons specified in legislation. A compulsory dissolution may also be initiated by a court.

The application for compulsory dissolution must be submitted to the county court that has jurisdiction over the location in which the company is registered. Attach to the application the decision of the shareholders and the minutes of the meeting of the shareholders or, in the case provided by law, the record of voting.

Compulsory dissolution enters into force as of the entry into force of the relevant court decision. The court sends the corresponding information to the business register for making an entry of dissolution.

If the court decides on liquidation, the decision of compulsory dissolution is followed by the liquidation of the private limited company.

 

Public limited company 

A public limited company is compulsorily dissolved on the basis of a court order. There can be various reasons for compulsory dissolution, usually due to non-compliance of the public limited company or its activities with legislation. If it is possible to eliminate the circumstance or defect that is the basis of the compulsory dissolution, before deciding on the compulsory dissolution of the public limited company, the court sets a deadline for the public limited company, during which it is possible to eliminate the defect and continue its activities afterwards.
 

The most common reasons for compulsory dissolution:

• the shareholders have not adopted the resolution on dissolution, although its adoption was mandatory;
• the term of office of the management board ended two years ago and a new management board has not been elected;
• the net assets of the public limited company have fallen below the minimum stipulated by law or are less than half of the required share capital.

Other cases provided by law.
 

Submit an application for the compulsory dissolution of the public limited company to the court. The application may be submitted by the management board, the supervisory board, a member or members of the management board, shareholders, as well as other persons specified in the law. The application for compulsory dissolution must be submitted to the county court that has jurisdiction over the location in which the public limited company is registered.

A compulsory dissolution may also be initiated by a court.

Compulsory dissolution enters into force as of the entry into force of the relevant court decision. The court sends the corresponding information to the business register for making an entry of dissolution.

If the court decides on liquidation, the compulsory resolution on dissolution is followed by the liquidation of the public limited company. Read about liquidation on the voluntary dissolution page.

 

Sole proprietor 

A sole proprietor (FIE) is deleted from the Commercial Register at their request or on another basis set out by law. A sole proprietor will not be deleted from the Register if they are required by law to be entered onto the Register.

If the FIE no longer meets the definition of an undertaking pursuant to Section 1 of the Commercial Code and has not notified the registrar of the suspension or termination of their activity, the registrar will delete the sole proprietor from the Register on the basis of Section 59(32) of the Commercial Code.

A court may impose a prohibition on engaging in business activities as punishment for an offence committed by an undertaking. The registrar will immediately delete the FIE from the Register on the basis of a court judgment imposing a prohibition on engaging in business activities.
 

The FIE’s business activity is considered ended if no-one continues the FIE’s business activity. The entrepreneur’s tax obligations and assets pass to the successors in accordance with the Law of Succession Act. If the successors give up claim to the inheritance, the business assets and obligations of the bequeather will not be transferred to them. In case of failure to communicate abandonment of claim, the estate will without exception be considered accepted by the successors.

If the assets of the bequeathed are inventoried, the successor will be released from the obligation to pay the bequeather’s debts from his/her own assets. Thus, if debts exist, they are to be paid only within the limits of the value of the inherited assets. The successors must pay both the tax amounts declared by or determined for the bequeather.

 

General partnership and Limited partnership 

A general or limited partnership is compulsorily dissolved on the basis of a court order. There can be various reasons for compulsory dissolution, usually due to non-compliance of the company or its activities with the law. If it is possible to eliminate the circumstance or defect that is the basis of the compulsory dissolution, before deciding on the compulsory dissolution of the partnership, the court sets a deadline for the partnership, during which it is possible to eliminate the defect and continue its activities afterwards.
 

The most common reasons for the compulsory dissolution of a general partnership and limited partnership:

• the partners of the partnership have not adopted the resolution on dissolution, although its adoption was mandatory in accordance with the law or the partnership agreement;
• the partnership does not meet the requirements established by law;
• the purpose or activity of the partnership does not meet the requirements stated in the law or is contrary to public order or good manners;
• the partnership agreement is in conflict with legislation.

Other cases provided by law.
 

Submit an application for compulsory dissolution to the county court that has jurisdiction over the location in which the partnership is registered. A compulsory dissolution may also be initiated by a court.

Compulsory dissolution enters into force as of the entry into force of the relevant court decision. The court sends the corresponding information to the business register for making an entry of dissolution.

If the court decides on liquidation, the compulsory resolution on dissolution is followed by the liquidation of the general or limited partnership. Read about liquidation on the voluntary dissolution page.

 

Commercial association 

The compulsory dissolution of a commercial association takes place on the basis of a court decision.

There may be various reasons for a compulsory dissolution; in general the reason is that the company or its activities do not conform to legislation. If it is possible to eliminate deficiencies related to the company, the court shall grant a term before making a compulsory dissolution decision. This term allows you to eliminate deficiencies and continue the company’s activities.
 

• shareholders did not adopt a dissolution resolution, even though they were required to do so;
• the powers of the management board expired two years ago, but a new management board was not elected;
• the company’s share capital no longer conforms to the requirements specified in legislation.

In addition, compulsory dissolution may be based on other reasons arising from legislation.
 

Submit an application for compulsory dissolution of the commercial association to the county court that has jurisdiction over the location in which the association is registered. The application can be submitted by the management board of the association, the supervisory board, a member of the management board, a member of the supervisory board, a member of the association, as well as other persons specified in legislation. A compulsory dissolution may also be initiated by a court.

Attach the resolution on dissolution of the members of the association together with the minutes of the general meeting to the application.

Compulsory dissolution enters into force as of the entry into force of the relevant court decision. The court sends the corresponding information to the business register for making an entry of dissolution.

If the court decides on liquidation, the compulsory resolution on dissolution is followed by the liquidation of the commercial association. Read about liquidation on the voluntary dissolution page.

Reorganisation (restructuring) of a company helps the company to avoid bankruptcy proceedings and liquidation. Reorganisation is meant above all for companies whose activities could be made better through restructuring – new procurement opportunities, reducing number of staff, finding new markets etc.
 

Reorganisation proceedings take place in several stages. Reorganisation proceedings are conducted with regard to legal persons in private law.

To initiate reorganisation, a reorganisation application shall be submitted by the undertaking to a country court explaining the reasons for the economic difficulties and the need to reorganise the enterprise, and stating that the sustainable management of the enterprise is likely after the reorganisation.

The following shall be appended to the reorganisation application:

• a financial statement for the previous financial year;
• an overview of the financial situation, economic results, and cash flows of the undertaking;
• a list of debts as at the date of submission of the reorganisation application.

The list of debts shall set out the name and details of the obligee, the amount of the principal claim and the collateral claim, and information concerning the assets of the undertaking.

Reorganisation proceedings are not commenced in court if bankruptcy proceedings have been brought against the undertaking, a court ruling concerning the compulsory dissolution of the undertaking has been made or supplementary liquidation is carried out, or less than two years have passed from the termination of reorganisation proceedings regarding the undertaking.

If an application for the commencement of bankruptcy proceedings and reorganisation proceedings are submitted with a court at the same time, the applications are joined for one procedure and heard by the court with whom the first application is submitted.

On the initiation of reorganisation proceedings, the court shall appoint a practitioner in the field of restructuring after hearing the company’s view. The court is not bound by the company’s view when making its decision. If the court has appointed several practitioners in the field of restructuring, but has not determined the division of their duties, the practitioners in the field of restructuring shall perform their duties on the basis of a mutual agreement and cooperate fully in the re-structuring proceedings.

You can read about the duties of a person acting as a restructuring practitioner in section 15 of Reorganisation Act.

An undertaking is obliged to provide the court and the reorganisation adviser with information they need in connection with the reorganisation proceedings and help the reorganisation adviser in the performance of their duties. If an undertaking fails to perform the obligations, a court terminates reorganisation proceedings.

The division of companies is possible in two ways: as a full division or a partial division.

In the event of a division, all the assets of the company being divided shall be transferred to existing or newly created companies and the company being divided shall cease to exist. The shareholders of the company being divided shall become the shareholders of the company being acquired.

In the event of a partial division, only a part of the assets of the company being divided shall be transferred to the acquiring companies and the company being divided shall be retained. The shareholders of the company being divided shall become shareholders of the acquiring company.

Transformation means changing from one legal form to another. If necessary, you can transform your company into another type of company; for instance a public limited company can be transformed into a private limited company. A commercial association cannot be transformed, nor can other forms of business be transformed into a commercial association.
 

Potential methods of transformation

• from a general partnership or limited partnership into a private limited company or public limited company
• from a private limited company or public limited company to a general partnership or limited partnership
• from a private limited company to a public limited company
• from a public limited company to private limited company

The transformation decision shall be made by the partners or shareholders in the company being transformed.

The management board or shareholders of the company being transformed shall prepare a transformation report in which they justify legally and economically the transformation, as well as the ratio of replacement of shares and if necessary the amount of cash payment. A transformation report is not required if the company has only one partner or shareholder or if all partners or shareholders are in agreement.

A new article of association or partnership agreement must be prepared for the new type of company.

In the case of a private limited company or public limited company, the members of the management board and, if necessary, members of the supervisory board shall be elected.
 

Transformation decision and report

The partners or shareholders of the company being transformed shall make the transformation decision. The management board or shareholders of the company being transformed shall prepare a transformation report in which they justify legally and economically the transformation, as well as the ratio of replacement of shares and if necessary the amount of cash payment. A transformation report is not required if the company has only one partner or shareholder or if all partners or shareholders are in agreement. A new article of association or partnership agreement must be prepared for the new type of company. A transformation resolution is made by the partners or shareholders of a company being transformed. The resolution shall be in writing. The transformation resolution approves the articles of association or partnership agreement of the new company. In the case of a private limited company or public limited company, the members of the management board and, if necessary, members of the supervisory board shall be elected.

The transformation resolution shall state the type of company the company is transformed to, the business name of the company, the exchange ratio of shareholders, the rights of shareholders, the consequences of transformation for employees, the size of the share capital, and the balance sheet date of the transformation.

List of shareholders and transfer of shares of a private limited company

Pursuant to the Commercial Code, a shareholder may transfer their share to another shareholder or to a third person.

It may be prescribed in the articles of association that the transfer of a share is permitted exclusively if an additional condition is fulfilled, primarily that a resolution of the other shareholders, the management board, the supervisory board, or another person is required to transfer a share. If the requirement of this resolution is required in the articles of association, you must first apply for this decision to be made, whereby you will be given consent or a refusal to transfer the share.

Upon transfer of a share to a third person, the other shareholders have the right of pre-emption for one month after presentation of the transfer agreement. The seller submits the sales contract to the management board of the company, which promptly notifies the other shareholders of entry into the sales contract. It may be prescribed in the articles of association that the right of pre-emption is not applied to the transfer of shares. A transaction constituting an obligation for the transfer of a share does not require a form, but a disposition must be notarially authenticated by an Estonian notary. The requirement of notarisation does not apply to the transfer of shares registered in the Estonian Register of Securities or if the formal requirement has been waived in the articles of association.

 

Transfer of shares of a public limited company

Shares shall be registered and entered in the Estonian register of securities. The rights attaching to a registered share belong to the person who is entered as the shareholder in the share register. The share register shall be maintained by the Estonian register of securities or another depository. Registered shares may be freely transferred, but the articles of association may prescribe that, upon transfer of shares to third persons, other shareholders have the right of pre-emption. The transactional acquisition of a share takes place pursuant to the provisions of the Securities Register Maintenance Act. A transaction constituting an obligation to transfer a share and a disposition required to transfer a share are made in a free format and the transfer of a share takes place as a transfer of securities with the securities account operator at the bank.

The transferee has the right to demand to be entered as a shareholder in the share register. For the purposes of the public limited company, the share is deemed transferred as of entry of the transferee in the share register. The management board of the public limited company shall ensure the timely submission of information to the person maintaining the share register.

Shares are inheritable and upon the death of a shareholder, their share is transferred to their successors.

Insolvency is a situation where a natural or legal person (the debtor) is unable to pay their debts. An estate can also be insolvent. Bankruptcy is the insolvency declared regarding a debtor by a court order.

Insolvency of a natural person

If a person is unable to meet their obligations for an extended period of time, they can submit an insolvency petition with the court, either

• to declare bankruptcy or
• to declare bankruptcy and initiate proceedings for the release from obligations or
• to restructure their debts.

Debtor spouses or registered partners can submit a joint insolvency petition.

An insolvency petition can also be submitted by a creditor to whom the debtor is indebted. A creditor can submit an insolvency petition against a debtor under the conditions set out in legislation. A creditor may submit an insolvency petition against a debtor either

• to declare bankruptcy or
• to restructure their debts.

An insolvency petition of a debtor, a joint insolvency petition of spouses or registered partners and an insolvency petition of a creditor must be submitted on the prescribed form. The forms are available on the websites of the Ministry of Justice and the court.

Insolvency of a legal person

If the debtor fails to meet their obligations for a prolonged period of time, or if such a failure is foreseeable in the future, they must submit a bankruptcy petition without delay (but no later than after 20 days) to protect the interests of creditors.

A creditor may submit a bankruptcy petition against a debtor under the conditions set out in legislation. When a bankruptcy petition is accepted, the creditor must generally pay a deposit to cover the fees and costs of the interim trustee in bankruptcy. If the creditor fails to pay the deposit, the court does not appoint an interim trustee in bankruptcy and the proceedings are terminated. In such a situation, the employee creditor is entitled to an insolvency benefit.

After the bankruptcy petition has been accepted and the creditor has paid the deposit, the court appoints an interim trustee in bankruptcy. The role of the interim trustee in bankruptcy is to identify the financial situation of the debtor and the reasons for the insolvency.