Today, Estonia’s Parliament, Riigikogu, approved changes in Commercial Code, which will make the notarial certification of a transaction voluntary. The long-awaited change in the startup sector will significantly improve the competitiveness of Estonian startups in attracting foreign investments.
According to Maarika Truu, Head of Startup Estonia, a program uniting and supporting Estonian startups, this is a significant change that significantly reduces bureaucracy in attracting foreign investments and has a positive and wide-ranging impact on the Estonian economy as a whole.
“The change is imperative. According to the existing Commercial Code, in case of any additional investments all the shareholders of the company and the investor involved or his/her representative had to meet with a notary in Estonia at the same time. Existing legislation was almost 15 years old and clearly outdated. We acknowledge the Committee on Legal Affairs, which was solution-oriented and professional throughout the process and prepared a bill where both the coalition and the opposition were unanimous," she stated.
In Estonia, the current formalities for share transfer were too strict, creating much unnecessary bureaucracy and complexity. Previous regulations did not encourage the growth of local businesses and the involvement of foreign investors.
Raido Lember, Director of the Foreign Investment Center of Enterprise Estonia, pointed out that every month potentially tens of millions of euros of foreign investments are lost for Estonian businesses and it is good to see that the bill was promptly accepted by Riigikogu. "We see daily in our work that foreign investors' interest in young Estonian technology companies has clearly increased in recent years, and the need to adapt legislation and reduce bureaucracy has increased," he explained.
"It is very important to keep Estonian legislation up to date and to support the development of Estonian businesses in every way," said Raido Lember, Director of the Foreign Investment Center of Enterprise Estonia.
“The expansion of the startup sector encompasses growth in all areas and local startups are attractive employers, where high added value is created, they are important taxpayers and drivers of innovation. Therefore, it is important to contribute to the continued growth of the sector, which this legislative change undoubtedly will do, facilitating the involvement of investments necessary for the growth of our startups,” said Maarika Truu.
Valter Võhma, the partner and attorney at law of Hedman Partners commented that this change significantly reduces transaction costs and accelerates investments.
"At the moment the process of signing the shareholders' agreement may be delayed for months due to notarial certification obligation. Firstly, because the number of notaries who are prepared to certify such agreements in English is limited. Secondly, organizing the necessary documentation for a notary from foreign countries is expensive and time consuming. And last but not least, if a company has many investors from different countries, then finding a common timeslot to visit the notary can be very difficult. These challenges will disappear once the amendment to the law comes into force," Võhma concluded.
Startup Estonia is a national program for the development of the startup ecosystem in Estonia, providing impetus for startups and international success stories. Startup Estonia program is implemented by KredEx.
Hedman Partners is a law firm that offers know-how to startups in various areas of business law. The firm is the legal partner of the foundME.io portal.