Estonia – The Effects of the Coronavirus on the Adoption of Resolutions by Shareholders and the Formal Requirements for Non-Electronic Share Transfers
On 18 May 2020, the Estonian Parliament passed an act amending the General Part of the Civil Code Act and other acts. The main purpose of the amendment is to provide flexible options for resolving difficulties relating to the adoption of resolutions and the transfer of shares as a result of the coronavirus outbreak. The amending act now awaits proclamation by the President, and the amendments described below will take effect on the day following their publication in the State Gazette.
Deadline for submitting annual reports to the commercial register postponed to 31 October 2020
Legal entities required to submit their annual report to the registrar between 12 March and 31 August 2020 now have until midnight on 31 October 2020 to do so. In other words, companies with their last financial year ending between 12 September 2019 and 29 February 2020 have been granted an exceptional extension for the approval and submission of their annual reports. Note, however, that this is a one-time-only extension, and in 2021, all annual reports must be submitted to the registrar within the usual 6-month deadline after the end of the financial year.
More options now exist for adopting resolutions without holding a meeting
The options for legal entities to hold meetings and adopt resolutions will be significantly more flexible.
Electronic attendance at meetings
A shareholder may attend a meeting by electronic means without being physically present even if the articles of association of the legal entity do not provide for this option. In the future, using this form of meeting may be either restricted or prohibited in the articles of association.
Shareholders may also submit their votes on agenda items before the meeting in a format that can be reproduced in writing, provided that the identification of the shareholder as well as the security and reliability of the voting process are ensured. Shareholders unwilling to attend a meeting may thereby transmit their votes, for example, by email if procedures are in place for verifying that the vote was cast by the right person.
Adopting resolutions without holding a meeting
The option of adopting resolutions via correspondence voting (without holding a meeting), which has so far only been available to private limited companies, has now been extended to public limited companies. The management board of a public limited company may send a draft resolution to the shareholders in a format that can be reproduced in writing (e.g. by email), specifying a deadline within which the shareholders must submit their votes on the matter, also in a format that can be reproduced in writing (e.g. by email). A draft decision need not be sent to the shareholders if the company has more than 50 shareholders, but in such cases it must be published in at least one daily national newspaper, or in the case of listed public limited companies, on the company website. The management board will draw up a record of voting results, attaching to it the votes sent in by the shareholders.
The option of voting on decisions by email described above has previously been available to private limited companies and has mostly been applied by companies with a large number of shareholders but also in situations where some shareholders are unable or unwilling to attend a general meeting.
The transfer of shares of private limited companies not registered in the Estonian securities register is simplified
The amendments will also affect the Commercial Code, simplifying the transfer of shares that are not registered in the Estonian register of securities.
For private limited companies (OÜ), transactions constituting an obligation (under the law of obligations) to transfer a share need not be notarised until 1 August 2020; dispositions (i.e. property law contracts for the transfer of ownership) will still be formally required to be notarised. In summary, foreign parties to sales contracts will still be required to have the documents associated with these transactions notarised in the foreign country, meaning authorised with an apostille by the relevant authority. But the amendment at least allows for faster transactions under the law of obligations.
From 1 August 2020, the formal requirement of notarisation can also be waived for disposal transactions relating to some private limited companies. The formal requirement can be waived in the articles of association if:
1) the share capital of the private limited company is at least 10,000 euros and is paid in full, and
2) all shareholders are in favour of amending the articles of association so as to waive the requirement.
In such cases, a contract concluded in a format that can be reproduced in writing (including a contract of sale or a contract for the transfer of a non-monetary contribution) is sufficient for the transfer of a share; either an unattested written contract or even an email will suffice.
This simplified format for share transfer is welcome, as it makes it possible to reduce the costs related to the transaction and speed up the transfer, eliminating the need to pay a notary fee (based on the the sale price of the share) and the need to acquire the notarised documents and powers of attorney from abroad if the buyer or seller is a foreign corporation. The amendments also simplify the transfer of a share to persons who cannot travel to Estonia to make the transaction or who do not have a representative in Estonia.