Transformation of a Joint-stock Company into a Private Company

Transformation of a Joint-stock Company into a Private CompanyAn Estonian company may be changed or transformed into another type of company by the decision of the owners/shareholders. Reorganization is often the simplest, fastest and cheapest alternative to two separate procedures – liquidation of the company and creation of a new one. But what should be noted in this case?

When comparing a joint-stock company and a private limited company, the law imposes much more serious requirements on a joint-stock company. For example, a joint-stock company has a three-tier management structure, an auditor’s requirement and an obligation to audit the annual report even if the company does not operate during the year. As a result, the maintenance costs of an excise company are much higher than those of a limited liability company, so it may be advisable to transform a joint-stock company into a limited liability company. Below is a brief description of the steps to be taken to transform a joint-stock company into a private limited liability company in Estonia.

Conversion process

If the company wants to change the structure, you need to follow certain procedural steps:

  1. The Board of the transforming company must prepare a written report on the transformation, in which the transformation is legally and economically justified.
  2. The report shall be submitted to the shareholders together with the report for the last financial year for review at least one month prior to the general meeting that adopted the conversion decision.
  3. If more than six months have elapsed since the end of the financial year report at the time of the general meeting, an interim balance shall also be established. A transformation report need not be prepared if there is only one shareholder in the converted company or if all shareholders agree that a transformation report is not prepared.
  4. The decision on transformation is made by the shareholders at the general meeting with the adoption of the decision on transformation. General meeting shall be carried out as required. The decision to reorganize shall be in writing and shall be supported by not less than 2/3 of the votes presented at the General Meeting, unless the Statute requires otherwise.
  5. A new charter must be drawn up for the new limited liability company. The charter must be approved by a decision on transformation.
  6. In addition, the members of the Board shall be elected together with the decision.

 The decision on conversion shall specify:

  • into which type of business the joint stock company will be transformed
  • new company name
  • shareholder replacement ratio
  • the amount of authorized capital, the rights granted to shareholders
  • the effects of the transformation on employees
  • the time at which transactions of a reorganized society are considered completed by a newly reorganized society

Also, when transforming a joint-stock company into a limited liability company, it is necessary to inform the holder of the securities registry.

Application for conversion to a business register

A company is deemed to have been transformed if the transformation is entered in the commercial register. The board of the transformed company must apply to the Business Register for conversion to the Business Register – this can be done if at least one month has elapsed since the conversion decision was made.

Together with the application should be provided:

  • minutes of the shareholders’ meeting
  • conversion solution
  • charter of the New Association
  • transformation report, balance
  • board and board members’ data
  • confirmation by the securities registry holder of the conversion notification.

The members of the Board should also confirm in the application that they had not contested the conversion.

For the incorporation of the company into the Business Register, the state must pay 130 euros. Applications shall be processed in the commercial register within five working days. By making the transformation in the commercial register, the company is considered to be transformed. After conversion to the Business Register, the company must immediately inform creditors of the company’s transformation by issuing a notice in the official notices.

Transformation takes at least two months.

  1. A month before the General Meeting, shareholders must be presented with a report on the conversion.
  2. A month after the decision is made, an application can be submitted to the Business Register.
  3. The application will be considered in the business register within 5 days.

For detailed advice on the transformation of your Estonian Company, please contact the legal department of Service OÜ and get answers to your questions.