About the Changes in the Estonian Commercial Code Related to the Notarization of the Transactions of Shares of the Private Limited Company

17.08.2020

Related to the changes in the Commercial Code entered into force at the end of May the form requirement for the obligation transaction for the transfer and pledge of a share in private limited companies became invalid. As a result such contracts could be today concluded as if without a form and without a notary. Should the contracts be though still concluded as notarized and why?

Despite losing the form requirement, the mere conclusion of the contract for transfer of the share is not enough for the transfer of ownership – in addition, a notarized contract for the transfer of an ownership, called a disposition in legal language, is required.”Thus it is reasonable to draw up the contracts for transfer and pledge of shares in the future as earlier – in one document in a notarized form, as notary should be anyway once visited,” Merle Saar-Johanson, chairman of the Chamber of Notaries, explained. The notary is hereby obliged to ensure that the interests of all parties to the transaction were protected and that all related to the transaction were clear for the parties. “Upon certification of the contract, the notary’s fee is still calculated on the basis of law and the price of the contract does not change due to it,” chairman of the Chamber of Notaries confirmed.

The change will enter into force in August, by which in case of private limited companies with the share capital of at least 10 000 euros it is possible, upon the agreement of all shareholders, to conclude also the disposition pursuant to the simplified procedure in addition to the contract of sale under the law of obligations and a contract of pledge. Thus the shareholders can, upon unanimous agreement, decide upon the transfer and pledge of the shares of the private limited company, e.g. in the format that can be reproduced in writing. Thus, the justified question could arise – why to address notary at all with such contracts? Saar- Johanson lists six reasons below:

  1. A notarized contract gives the acquirer of a share in a private limited company the certainty that the share to be transferred actually belongs to the seller, as the notary checks the existence of the right of disposal prior to certification of the contract. Thereby, concluding a transaction with a notary helps to protect, for example, the interests of the partner’s spouse, to whom the share of the private limited company may belong as a joint property. In addition, in the case of a notarized contract, the buyer will no longer have any problems if it is necessary to prove the ownership of a share.
  2. The notarized contract of disposition can be forwarded by the notary immediately, electronically and without extra fee to the commercial register and this should not be done by the management board of the company. The notification forwarded by the notary ensures the higher reliability of the register data.
  3. The notary must be impartial in advising the participants in the contract and must protect the interests and rights of all parties and explain to them all legal nuances.
  4. In a situation where the interests of all parties are impartially taken into account and the contract is properly drafted, the result is a legally competent contract that prevents further disputes.
  5. A contract drawn up by a notary is always available to participants both digitally and on paper – this prevents future disputes between the parties and, if necessary, helps to prove the facts of the dispute in court.
  6. It is no longer necessary to physically meet with a notary in order to conclude a contract – a transaction with a remote certificate can be made from home, office or a power of attorney can be drawn up abroad.

To sum up, it is still safest to enter into a contract in a notarized form, as the notaries with long-term experience can best draw up a properly drafted contract in accordance with the applicable law. The notary also verifies the contract by proving all relevant facts, by thus mitigating the risk that someone will be deceived or subsequent cumbersome and costly legal disputes will arise.

Source: www.notar.ee