What do you need to know when establishing a private limited company (OÜ)?

If you want to start a business and establish a private limited company (OÜ) for that purpose, you need to know various legal nuances. Only then can you make informed decisions and have a better understanding of the business world from a business law perspective in the future. Below, lawyers from the Lepmets & Nõges Law Firm explain how to set up an OÜ and what to consider when founding one.

Advantages of OÜ

First of all, it is good to know that although the Commercial Code provides for various forms of entrepreneurship, OÜ is the most common form in Estonia. Why? It is relatively easy and quick to establish an OÜ, in business activities, shareholders generally do not bear the obligations of the OÜ, and from February 2023, there is no requirement for a minimum share capital. Thanks to the latter, the shareholders can now decide what their financial capabilities are and how much capital the OÜ needs at the beginning of its lifetime. Previously, the law stipulated a mandatory share capital requirement, which was 2500 euros. However, if later a bankruptcy procedure is initiated in respect of the OÜ and it is terminated due to lapse without being declared bankrupt, and the share capital of the OÜ is less than 2500 euros and the interim trustee is unable to satisfy their claim from other assets, the interim trustee is entitled to demand remuneration and reimbursement of expenses from the shareholder of the private limited company to the extent that it remains between the share capital of the private limited company and 2500 euros.

Establishing an OÜ

Before establishing an OÜ, decisions must be made, among other things, regarding the field of activity in which the OÜ will operate and what the OÜ business name will be. In terms of the field of activity, the main field of activity must be selected using the official Estonian Classification of Economic Activities (EMTAK). Regarding the business name, it should be noted that it is entered in the business register, and the OÜ operates under it. The suitability of the business name should be checked first through the e-Business Register name search. Once a suitable field of activity and business name have been found, it is necessary to move on to the OÜ founding documents. To establish an OÜ, an incorporation agreement and articles of association must be concluded and approved. The founding agreement is concluded by the founders. If there is only one person as a founder, they make the decision to establish the company. If the OÜ is established in expedited procedure, it is possible to use standard documents, which are available on the e-Business Register. Then it is necessary to decide who can become a member of the OÜ management board. The application for entry of the OÜ in the business register must include the notarized consent of all members of the management board regarding their membership on the management board, if it is not included in the application for registration.

Payment for a share

The share must be fully paid in cash or in-kind before the OÜ is entered into the business register. In general, making a cash contribution does not need to be proven to the business register, unless the amount of the contribution exceeds 50,000 euros. If the share capital contribution is less than 50,000 euros, the confirmation of the management board that the contribution has been paid to the OÜ is sufficient. In the case of a non-cash contribution, it is necessary to submit a transfer agreement for the contribution to the private limited company and documents proving its value.

How to register an OÜ?

There are two ways to register an OÜ: either through a notary or electronically through the e-business register. If you register the OÜ through a notary, the notary prepares the application for the establishment of the OÜ, the articles of association, and the founding agreement. When registering an OÜ through a notary, a state fee of 200 euros and a fee for the notary must be paid. The exact amount of the notary's fee depends on the size of the OÜ's share capital and the number of founders. VAT is added to the notary's fees.

If you want to register the OÜ electronically through the e-business register, all persons involved in the establishment must obtain a digital signature for the first registration application and founding documents. In addition, the OÜ must be established with a financial contribution. If the contribution is less than 50,000 euros, confirmation of payment from the management board is sufficient. If the contribution is more than 50,000 euros, the contribution must be made electronically through the e-business register portal during the application process.

How long does it take to register an OÜ and what needs to be done after registration?

The registrar will review the application within 5 working days from the date of receipt of the application. If the fast-track option is chosen, the review will be done by the next working day after the application is received. Therefore, if there are no deficiencies in the application, the OÜ can be registered within up to 5 working days. After the OÜ is established, if employees are hired, they must be registered with the tax and customs board on the day they start working. If the planned annual turnover of the OÜ exceeds 40,000 euros, the OÜ must be registered as a VAT liable person with the tax and customs board. During the registration of the OÜ through the e-business register, the OÜ can also be registered as a VAT liable person and the employees can be registered.

If you have specific questions about establishing an OÜ or regulating its founding documents, please contact our lawyers and we will find the best solution for your situation! Lepmets & Nõges - Law firms Estonia