Negative Equity in Estonia: 6 Ways to Fix It

Estonian law requires every private limited company (OÜ) to keep its net assets above a certain minimum. When net assets fall short, the law gives you several lawful ways to fix the situation — from increasing capital to filing for bankruptcy. Here’s what net assets are, when the problem arises, and how to solve it.

What Are Share Capital and Net Assets?

Under current Estonian law, every private limited company must have paid-in share capital — money the shareholders contribute before the company is founded. Net assets (equity) are the difference between a company’s total assets and its total liabilities on the balance sheet. As long as net assets stay positive and above the legal minimum, there’s no problem with this requirement.

What Is the Minimum Share Capital?

Estonian law now lets you incorporate an OÜ with share capital starting at just 1 cent. Before the Commercial Code reform that took effect on 1 February 2023, the minimum was €2,500, and you could incorporate without paying it in immediately. The revised law removed that option.

What Happens If Net Assets Fall Below the Minimum?

Business owners and managers need to keep net assets (total assets minus total liabilities) above a certain limit. For companies with fully paid-up capital, or those incorporated after 1 February 2023, that limit is half of the share capital.
The Estonian Business Register monitors this through annual reports and can order a company to fix the shortfall within a set deadline. If the company doesn’t respond, the register can start removing it from the register.

NB! Don’t wait for a formal notice from the register before addressing a net-assets shortfall — by then you have fewer options and less time to fix it.

Six Lawful Ways to Fix the Problem

If your company’s net assets have fallen below the required level, the law gives you several ways to respond — which one fits depends on how serious the shortfall is:

• Reduce the share capital. If net assets have dropped below 50% of capital but are still positive, shareholders can pass a resolution to lower the share capital to a level that matches the company’s actual net assets.
• Increase the share capital. Shareholders contribute additional money or assets to bring net assets back into positive territory.
• Waive shareholder claims. If the company owes money to its founders — for example, under a loan — they can forgive that debt in full or in part with a simple agreement. This raises net assets without any cash actually changing hands.
• Merge with another Estonian company. Combining the net assets of two companies can bring the combined figure back in line with the legal requirement.
• Liquidate the company. If the business has run its course and net assets are still positive, you can wind the company down in an orderly way rather than face forced measures.
• File for bankruptcy. If net assets have turned negative — meaning liabilities exceed assets — that signals insolvency, and bankruptcy proceedings are the right path.

How Magrat Can Help

Magrat’s lawyers and accountants can assess your company’s financial position, help you choose the right one of these six solutions, and carry it through — from drafting the shareholder resolution to handling liquidation or bankruptcy proceedings. See also our ERK Recognised Accounting Firm status and our guide on how to indicate a company’s legal address correctly — both are closely tied to keeping your company in good standing with the Business Register.

Conclusion

Negative or insufficient net assets aren’t a reason to panic if you act in time:

• if net assets are still positive, reducing capital, increasing it, or waiving shareholder loans is usually enough;
• if the business has served its purpose, consider a merger or an orderly liquidation;
• if net assets have turned negative, start bankruptcy proceedings as early as possible.

Magrat provides corporate and legal services to companies in Estonia. If your company is facing a net-assets shortfall, get in touch — we’ll help you find and carry out the right solution.