Question 1

What to do with negative share capital (net assets)?

John Doe · Accepted Answer

When the net assets (equity) of an Estonian private limited company (OÜ) fall below the statutory threshold, the board and shareholders must act quickly to avoid personal liability and, in the worst case, compulsory dissolution.

Below is a practical roadmap that reflects the requirements of the Commercial Code (Äriseadustik) and common solutions in the market.

1. When is equity “too low”?

Under Commercial Code § 176(2) the company’s net assets must be at least:

50 % of registered share capital, and
not less than the minimum share‑capital requirement (currently € 2 500 for OÜs).

Example: An OÜ with a registered share capital of €10 000 must keep equity ≥ €5 000.
An OÜ with a registered capital of €2 500 must keep equity ≥ €2 500 (100 %).

If the balance sheet shows that equity is below either limit (often expressed as negative share capital), the board must, within three months after approval of the annual report, convene a shareholders’ meeting to decide on remedies.

2. Legal options (Commercial Code § 176)

#	Option	Typical use‑case	Key steps
1	Increase share capital	Profitable business, owners willing to invest	– Cash or non‑monetary contribution
– Register change with the Business Register
2	Reduce share capital	Company permanently downsized	– Adopt resolution (2/3 majority)
– Creditor notice & 3‑month wait
– Register reduction
3	Combine increase & reduction	Clean balance sheet and optimise capital structure	Sequence matters: usually reduce first, then increase
4	Merger or division	Part of group restructuring	Follow merger/division procedure; assets & liabilities move to new entity
5	Reorganisation (transformation)	Convert OÜ → AS, SE, etc.	Rare; governed by Ch. 10 of the Code
6	Voluntary liquidation	No future business planned	Two‑step shareholders’ resolution; liquidation takes ~6–9 months
7	Bankruptcy filing	Insolvent and cannot restore equity	Board must file immediately if insolvency is evident

3. Practical ways to restore equity

Issue new shares / owner cash injection – quickest textbook fix.
Convert shareholder loans into equity (set‑off contribution).
Revalue (upwards) real estate or IP – allowed if fair‑value report substantiates it.
Cut costs & improve margins – demonstrate turnaround in the next financial year.
Sell non‑core assets – realise gains, book profit.
Reduce share capital to minimum (€2 500) and cover rest via profit or later capital increase.

Tip: Make sure any capital manoeuvre is properly documented, entered in the accounting ledgers and registered in e-Business Register.

4. Exit scenarios

Sell the company – shares can be transferred to a buyer who is willing to recapitalise. Ensure the SPA allocates responsibility for past debts.
Liquidate – a clean way to close down if there is no buyer or business rationale. Requires publishing a creditor notice and preparing a final balance sheet.
Turnkey liquidation service – professional firms can handle filings, creditor notices, accounting & tax clearance (fees start around €300–€1 000).

5. Director’s liability

Failure to address negative equity may expose the board to personal liability for damages (Commercial Code § 187) and fines. Timely action and documented shareholder decisions are therefore crucial.

6. Frequently asked questions

Question	Answer
Can I operate with negative equity until next year?	Legally you may, but board must call an EGM within 3 months of the annual report approval; ignoring may lead to compulsory dissolution.
Does the €0 share‑capital option introduced in 2023 change the equity rule?	No. Even if the registered capital is €0, the moment you distribute dividends or raise capital to > €0, the net‑asset test and €2 500 minimum apply.
Is shareholder loan conversion taxable?	Generally no income tax, but check VAT/tax implications if asset contributed.

Need help?
We can assist with share‑capital operations, draft resolutions, Business Register filings, or a turnkey liquidation package.

This guide is provided for general information and does not constitute legal advice.

Question 2

What to do with negative share capital (net assets)?

John Doe · Accepted Answer

When the net assets (equity) of an Estonian private limited company (OÜ) fall below the statutory threshold, the board and shareholders must act quickly to avoid personal liability and, in the worst case, compulsory dissolution.

Below is a practical roadmap that reflects the requirements of the Commercial Code (Äriseadustik) and common solutions in the market.

1. When is equity “too low”?

Under Commercial Code § 176(2) the company’s net assets must be at least:

50 % of registered share capital, and
not less than the minimum share‑capital requirement (currently € 2 500 for OÜs).

Example: An OÜ with a registered share capital of €10 000 must keep equity ≥ €5 000.
An OÜ with a registered capital of €2 500 must keep equity ≥ €2 500 (100 %).

If the balance sheet shows that equity is below either limit (often expressed as negative share capital), the board must, within three months after approval of the annual report, convene a shareholders’ meeting to decide on remedies.

2. Legal options (Commercial Code § 176)

#	Option	Typical use‑case	Key steps
1	Increase share capital	Profitable business, owners willing to invest	– Cash or non‑monetary contribution
– Register change with the Business Register
2	Reduce share capital	Company permanently downsized	– Adopt resolution (2/3 majority)
– Creditor notice & 3‑month wait
– Register reduction
3	Combine increase & reduction	Clean balance sheet and optimise capital structure	Sequence matters: usually reduce first, then increase
4	Merger or division	Part of group restructuring	Follow merger/division procedure; assets & liabilities move to new entity
5	Reorganisation (transformation)	Convert OÜ → AS, SE, etc.	Rare; governed by Ch. 10 of the Code
6	Voluntary liquidation	No future business planned	Two‑step shareholders’ resolution; liquidation takes ~6–9 months
7	Bankruptcy filing	Insolvent and cannot restore equity	Board must file immediately if insolvency is evident

3. Practical ways to restore equity

Issue new shares / owner cash injection – quickest textbook fix.
Convert shareholder loans into equity (set‑off contribution).
Revalue (upwards) real estate or IP – allowed if fair‑value report substantiates it.
Cut costs & improve margins – demonstrate turnaround in the next financial year.
Sell non‑core assets – realise gains, book profit.
Reduce share capital to minimum (€2 500) and cover rest via profit or later capital increase.

Tip: Make sure any capital manoeuvre is properly documented, entered in the accounting ledgers and registered in e-Business Register.

4. Exit scenarios

Sell the company – shares can be transferred to a buyer who is willing to recapitalise. Ensure the SPA allocates responsibility for past debts.
Liquidate – a clean way to close down if there is no buyer or business rationale. Requires publishing a creditor notice and preparing a final balance sheet.
Turnkey liquidation service – professional firms can handle filings, creditor notices, accounting & tax clearance (fees start around €300–€1 000).

5. Director’s liability

Failure to address negative equity may expose the board to personal liability for damages (Commercial Code § 187) and fines. Timely action and documented shareholder decisions are therefore crucial.

6. Frequently asked questions

Question	Answer
Can I operate with negative equity until next year?	Legally you may, but board must call an EGM within 3 months of the annual report approval; ignoring may lead to compulsory dissolution.
Does the €0 share‑capital option introduced in 2023 change the equity rule?	No. Even if the registered capital is €0, the moment you distribute dividends or raise capital to > €0, the net‑asset test and €2 500 minimum apply.
Is shareholder loan conversion taxable?	Generally no income tax, but check VAT/tax implications if asset contributed.

Need help?
We can assist with share‑capital operations, draft resolutions, Business Register filings, or a turnkey liquidation package.

This guide is provided for general information and does not constitute legal advice.

What to do with negative share capital (net assets)?

What to do with negative share capital (net assets)?

1. When is equity “too low”?

2. Legal options (Commercial Code § 176)

3. Practical ways to restore equity

4. Exit scenarios

5. Director’s liability

6. Frequently asked questions

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