The list of shareholders is going to be kept by the Commercial Register – who will be affected by this change?

The amendment to the Commercial Code adopted in February will enter into force in September, under which the Commercial Register will keep the list of shareholders. Below we analyse who will be affected by the amendment and what are its practical implications for transactions concerning transfers.

Who will not be affected?

If the shares of a limited liability company are registered with Eesti Väärtpaberikeskus (EVK), the Estonian Register of Securities will continue to keep the list of shareholders of such limited liability companies. Thus, nothing will change for private limited liability companies registered with the EVK.

The amendment also does not affect limited liability companies, which have waived the formal requirement for a notarial disposal. In the case of limited liability companies with a share capital of at least EUR 10,000 and whose articles of association contain a waiver of the notarial formal requirement, which is also entered in the register, the list of shareholders will continue to be kept by the management board. The number of such limited liability companies is increasing, and the amendment’s impact will be less significant.

Meaning in practice

In particular, the list of shareholders kept by the commercial register will simplify the transfer of shares. Whereas in the current situation, where the management board keeps the list of shareholders, the contracts certifying the acquisition of the shares must be submitted to a notary, and the management board must submit the list of shareholders; then, from now on the parties to the transaction will be able to rely on the entries in the commercial register. It will, therefore, no longer be necessary to search for historical documents to prove ownership, which will certainly simplify the transfer transactions.

At the same time, the amendment to the Commercial Code restricts the possibility for the parties to agree on the moment of transfer of ownership. Under the amendment, which will enter into force in September, the transfer of ownership will take place from the date of the entry in the Commercial Register. If the transfer of ownership is linked to an entry in the register, the parties will not be able to agree otherwise, nor will they be able to verify the transfer of ownership – under the Commercial Register Act, the registrar has five working days to make an entry. In practice, entries regarding a shareholder change are usually made more quickly, but this cannot be relied upon.

Notary’s deposit accounts gain more work

In practice, linking the moment of transfer of ownership to the entry in the commercial register will probably mean more frequent use of the notary’s deposit account. A notary’s deposit account ensures the buyer is registered as a shareholder and the seller receives the purchase price.

Linking the transfer of ownership to the registration also increases the risk of multiple share sales. In the absence of a transfer of ownership entry, the transferor will still be the share owner, and it will be possible to transfer the share based on the list of shareholders provided in the commercial register. In practice, this will probably lead to additional confirmations in the notarised transfer agreement and, in some cases, to contractual penalty agreements.

The moment of transfer of ownership is also important for voting rights and the distribution of dividends. In the case of a transfer of ownership with a desired fixed date, the transaction must either be planned well in advance or use the possibility of coming into force in March next year of requesting an entry with a fixed date. However, requesting a fixed date entry is not a magic wand; the potential risks and benefits must be weighed.

The Commercial Register keeping the list of shareholders simplifies some of the transfer transactions, but where the transaction structure is complex and involves significant corporate changes to the limited liability company, even more, careful planning and changes to existing practices will be necessary considering the new regulation.

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