The e-Residency program allows anyone, regardless of their citizenship or residence, to open a company in Estonia. When discussing how to open a company in Estonia, usually the conversation refers to a Private Limited Company, or Osaühing (OÜ) in Estonian. However, there are many types of companies in Estonia beyond the OÜ.
While a OÜ is probably the best choice for most location independent entrepreneurs, there are situations in which another option could be better for you. That’s especially true if you are planing on going public, or you have an NGO or charity in mind.
In this article, I enumerate most types of companies in Estonia, and showcase their characteristics and differences.
The Most Popular Boy In College: Osaühing (OÜ)
By far, the most common type of company in Estonia is the Private Limited Liability Company, or Osaühing (OÜ) in Estonian. As in other legislations, in this type of business, the liability of the shareholders regarding the activity of the company is limited to the amount of the share capital.
That means that, whatever happens to the company, the members won’t be liable for any problems, debts or fines, beyond the share capital of the company.
The minimum share capital for a OÜ is 2500€, which can be paid as a monetary or non-monetary contribution. One very interesting aspect of the Estonian business system is that you can defer the payment of the share capital up to ten years.
That means that the shareholders don’t need to make the payment of the share capital effective right away. However, until the share capital has been paid, the company won’t be able to distribute dividends. It can still pay salaries, though.
The OÜ is headed by a management board. This management board must have at least one member, and there’s no limit to the number of members it can include. The founder (or founders) can be a legal or natural person. However, in order to take advantage of the e-Residency program, and open your company online, all shareholders and members of the board need to be natural persons with the e-Residency card. Otherwise, a visit to Estonia or a power of attorney is required.
The OÜ is suitable for most small and medium size companies. 95% of the businesses established thanks to the e-Residency program may easily fall into this category. So most probably, your company will be a Osaühing.
When you want to go big, public, or both. The Public Limited Liability Company (AS)
The Public Limited Liability Company (AS for Aktsiaselts, its name in Estonian) is usually the best solution for large companies. In this type of company, the liability of the shareholders is also limited to the amount of share capital, but in this case the minimum share capital is 25.000€. This share capital can also be paid as a monetary or non-monetary contribution.
An AS company is supposed to go public, meaning, it will issue and distribute shares among the shareholders, and potentially enter the stock market. The shares need to be registered into the Estonian Central Register of Securities. Generally speaking, the shares of a AS grant their owner some rights over the company.
Unlike an OÜ, a Public Limited Liability Company needs to have, apart from the management board, another one called “Supervisory board“. The supervisory board, needing at least three members, is elected by the shareholders, and its goal is taking care of the strategic, long term operation of the company. Conversely, the management board in a Public Limited Liability Company takes care of the daily management, minor contracts and operational issues.
Additionally, every AS company must have an auditor. This figure is in charge of making sure the company has elaborated its financial statements in compliance to the law and the financial reporting rules. His or her duties include preparing an independent report with all this information to the shareholders periodically.
So why would you need a Public Limited Liabilty Company? Mainly if your business structure is too big or complex, you needs a high share capital, or the business needs to go public for some reason. Some very high-level activities, like acting as a financial institution, may require some licenses that are only granted to Aktsiaselts companies.
Going Solo. The Sole Proprietorship (FIE)
Then there’s a Sole Proprietorship figure in Estonia, the FIE. Sole owners in Estonia don’t need to contribute a share capital, write Articles of Association or establish shareholders and board members. It’s aimed towards micropreneurs and sole proprietors in Estonia.
However, this is not the best option for online freelancers or non-Estonian residents (like e-Residents) for several reasons. The main one is that the sole proprietor has unlimited personal liability for debts incurred in business. That means you pay with your own money for debts or fines incurred by your business. Not a good prospect.
The second reason is that Sole Proprietors must have a registered address of residence in Estonia. In other words, you must live in Estonia (and be indeed a tax resident there) if you want to become a FIE.
So while it may look like being a Sole Proprietor is the perfect framework for your business if you are a freelancer, in fact, as a digital nomad or non-Estonian resident, it’s better to have a one-man Osaühing (OÜ, or Private Liability Company) than being a sole proprietor.
Non-Profit Organizations. For the Good Folks Out There (MTÜ)
A Non-Profit organization, or NGO, is a special type of company that does not seek profit or earn an income for its shareholders, but achieve a very specific goal or set of goals declared in the Articles of Association. They are called MTÜ in Estonia, short for MitteTulundusÜhing.
While it may not distribute dividends, and its income should only be used to fulfill the goals of the organization, an MTÜ can perfectly be economically active. Meaning, they can have a bank account, hire employees, pay them a salary, and have expenditure like any other business.
In a way, the only thing that differentiates an MTÜ from a OÜ conceptually is the fact that you cannot distribute dividends. Additionally, an MTÜ requires at least two members, either legal or natural persons, and at least one of them must be a board member. The board member cannot be a legal person in an MTÜ.
The accountancy and responsibilities of a Estonian Non-Profit organization are quite similar to a regular Private Limited Liability Company. So if you have a charity or NGO in mind, this is the perfect business framework for your project.
Partnerships. When You Don’t Like To Share Your Cake (TU & UU)
Partnerships are very weird types of companies. They kind of work as a Private Limited Liability Company where its members act as Sole Proprietor. Meaning, they are liable for all the debts incurred by the company.
The General Partnership (TU) is a special type of company used to express a partnership between two or more partners. All partners in a TU have joint, complete responsibility over the activities of the company. A General Partnership has no minimum share capital, and dividends are distributed according to the share distribution, as usual.
The Limited Partnership (UU) is another special type of company where there is a clear distinction between the liability of the partner. Every UU has a general partner, that is fully liable for the activities and legal obligations of the company, and a limited partner, that is liable up to the limit specified by the share capital only.
To be honest, I can’t think of a scenario where these kind of partnerships are more beneficial or preferable to a Private Limited Liability Company. Probably if the partners need a very special arrangement, or for some unusual situations. But generally speaking, I think a OÜ is a much better solution for a company of several members.
Going International. The Estonian Branch Office.
Finally, you could open a Branch Office in Estonia for a foreign company. This Branch Office is not a legal entity on its own in Estonia. Hence, the parent company is liable for its activities. Nevertheless, the Branch Office still has to be registered at the Commercial Register, and needs to fulfill certain obligations with the Tax Authorities.
The Branch Office may be interesting for international companies willing to expand through Europe but still keep a centralized management of their root company somewhere else.
So Many Types Of Companies In Estonia… What’s The Best For Me?
Don’t let the different types of companies available in Estonia confuse you. Most of the times, the best choice for you is a Private Liability Company (OÜ).
If you need a large capital investment up front, you are considering establishing a big corporation, or need to go public, the Public Limited Liability Company, AS is the best alternative. Other company types are uncommon, more limited in scope, and not the best alternative except for very specific scenarios.
When people discuss opening a company in Estonia through the e-Residency program, they usually focus on a Private Limited Liability Company (OÜ). However, there are many other types of companies in Estonia.
In this post, I talk about the most common ones. Probably, though, your best option will still be a Osaühing, but it’s good to know the options available.
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