Associations back bill seeking to simplify foreign investment involvement

Euros. Source: Siim Lõvi/ERR

The Estonian Employers' Confederation, the Service Industry Association and the Bar Association's committee on business law all support a bill initiated by startups seeking to provide shareholders with the option to choose whether or not they prefer to carry out transfers involving shares in private limited companies at a notary's office.

The three associations have issued a joint statement expressing support for lifting requirements on shares in a private limited company.

Currently, the transfer of shares in a private limited company can be conducted at either a notary's office or by entering the shares in the Estonian Central Register of Securities, which allows for the carrying out of transfers via a bank by simple notification.

However, banks are reluctant to open accounts for foreign nationals, as it is deemed risky and costly. Doing the transfer through a notary thus remains the only option in practice, which may render the process much slower and more costly.

The bill seeks to establish a simpler business environment, which all political parties have also promised to deliver in their campaign platforms.

According to Karin Madisson, chair of the  Bar Association business law committee, the amendment isn't as risky as has been reported in the media.

"The bill seeks to establish that the lifting of requirements must be decided unanimously by all shareholders," Madisson said. "When such a decision has been made, the list of shareholders will be maintained by the management board."

Thus the requirement to carry out transfers through a notary can only be lifted with the consent of all shareholders and in a situation in which the management board has their full trust.

"If such a decision has been made by shareholders, it is also visible in the commercial register, and each new investor who acquires a holding in the company will also be fully informed of it," she explained. "It means that each new shareholder must decide prior to making the investment whether or not they sufficiently trust the management board."

Madison said that the issue also concerns whether or not Estonia as a society is prepared to move toward a freer, trust-based business environment.
The associations have also submitted their recommendations for mitigating the risks involved.

No notary needed in several other countries

Transfers of shares are done without a notary in Latvia, Lithuania, Finland and the majority of member states of the European Union and the Financial Action Task Force (FATF), such as Belgium Denmark, France, Sweden, the United Kingdom and the United States. As investing in businesses in these states,which do not require jumping through bureaucratic hoops, is notably faster and cheaper, it grants them a major advantage, Madisson said.

The committee chair added that it is worrying that a number of large industries have moved their operations away from Estonia and several foreign investors have left as well.

"There is one figure we can be proud of — the number of startups per population," she highlighted. "There were 5.2 startups per 10,000 residents in Estonia in 2018, compared to 1.8 in Latvia and 1.4 in Lithuania."


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Editor: Aili Vahtla

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