In the beginning of 2006 the Estonian Minister of Justice initiated a new activity plan, which sets clear goals in thirteen domains of commercial law based on feedback from entrepreneurs in order to simplify a number of operations and thus increase legal certainty and economic turnover in Estonia. One of the most remarkable of these aims was establishing a new framework for performing most common and relevant commercial procedures (especially concerning internal decisions and register entries of a company) by using electronical means.
As of 1 January 2007, the according amendments to the Commercial Code became applicable and inter alia brought in a new type of legislative proceeding - the expedited procedure of proceeding an entry, also known as the turbo procedure. For instance, it is possible to establish an incorporated entity by turbo procedure within two hours. All petitions for entry will be reviewed on the following day the latest. The basic notarial model of establishing an entity will remain in use along with the new method.
Main factors in the turbo procedure
The turbo procedure differs from the regular model by two main factors.
Firstly, entrepreneurs can submit data to the Commercial Register via the new E-filing portal at https://ekanded.eer.ee/ run by the state governed Centre of Registers and Infosystems of Estonia. For the time being, with the help of the E-filing portal one can establish a private limited (in Estonian "Osaühing"), general partnership (in Estonian "Täisühing") or a limited partnership (in Estonian "Usaldusühing") company and register a sole proprietor (in Estonian "Füüsilisest isikust ettevõtja"), but not form a public limited company (in Estonian "Aktsiaselts"). On the other hand, amendment of entries is made available for sole proprietors and companies including private limited companies, commercial associations and branches. Users of the portal can also perform simple operations such as specifications in the right of representation, changes in location and contact information etc.
The E-filing portal creates a separate administrative environment for entrepreneurs and persons connected to the enterprise. Persons are identified and procedures are performed by using the Estonian ID-card and digital signature. By entering the portal using ID-card an entrepreneur gets an overview of all enterprises and pending operations correspondent to his profile. It is also made available to pay state fees and monetary capital down payments in the portal, however, it is not possible to establish an enterprise in the turbo procedure in case of paying capital down payments in kind.
In the turbo procedure one has to rely on a standard Articles of Association, which provides the most regular conditions and mandatory requirements set by the law. This document has a definite form and it contains both the foundation agreement and the Articles of Association obligatory in the basic notarial model of foundation. It is possible to create a supervisory board and set limitations for the right of representation in a limited scope of application.
By the mid of March 18% of all first petitions for entry had been submitted via the E-filing portal since its release, that is 509 private limited companies, 23 sole proprietors, 4 limited and 3 general partnership companies.
The second factor concerns the absence of notarial mediation in the turbo procedure – all operations are prepared in the E-filing portal, persons are identified and transactions confirmed using the Estonian ID-card and digital signature. The entrepreneur prepares the petition for entry in the portal and it is then digitally confirmed by all related parties. Hence the physical presence of related persons is not necessary as all operations are done via Internet. This saves the entrepreneur a considerable amount of time because there is no need to find a mutually suitable time for an appointment at a notary.
The absence of notary determines the circle of persons who have access to the turbo procedure – at the moment all foreign persons whose data is not available for automatic control in the Internet cannot initiate nor take part in the turbo procedure.
Accessory elements in the turbo procedure
Accessory elements in the turbo procedure
When founding an incorporated entity by turbo procedure the first down payment of the share capital has to be paid to court deposit. This can be done by Internet- or telephone bank. The Commercial Register information system automatically verifies the accrual of the down payment to the court deposit account directly from the Centre of Accountancy of the Courts. If there is no accrual, the petition for entry cannot be submitted.
In turbo procedure there is no possibility to use trademark in the business name of an enterprise, which operates in areas of activity where the trademark is not protected. If the trade mark is protected even in just one class of services, it can only be used with the approval of the owner of the trade mark.
The institute of turbo procedure creates the basis for acknowledging foreign prohibitions on businesses. The corresponding authorisation is given to the Minister of Justice.
Also, starting 1 January 2007 there is no obligation to show areas of activity in the statutes and memorandum of association nor in the partnership agreement, thus it has been left out also from the standard Articles of Association in the turbo procedure. Such change has resulted in the fact that even if an entrepreneur plans to operate in a field of activity where a licence is needed, the entrepreneur is not demanded to submit an activity licence to the registrar anymore. All activities and planned activities must be described in the annual report.
Currently it is not feasible to perform more complex operations – merger, division, transformation – whereas in the future the functionality of the turbo procedure will expand. The Centre of Registers and Infosystems is conceptualising tighter co-operation with different institutions and companies to make the administration of an enterprise even more effective and comfortable.
Estonia is already planning to create solutions, which would make it possible to make transactions including foreign parties. In the future, presumably, the control of the data of foreign persons can be interconnected with the database of any company rendering the service of certifying digital signatures. Also, the E-filing portal will be made available in foreign languages.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.