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Legal alerts / 29 Nov 2018

Legal Alert – Government Bill Proposes to Abolish Minimum Share Capital Requirement for Private Limited Companies

A new legislative proposal has been introduced that will simplify and enable a faster process for registering new limited liability companies as from July next year.

Under the current Finnish Limited Liability Companies Act, private limited liability companies must have a minimum share capital of EUR 2,500 and public liability companies a minimum share capital of EUR 80,000. The government bill, which was published on 22 November 2018, proposes to abolish the minimum share capital requirement for private limited liability companies as from 1 July 2019.

The purpose of the amendment is to better enable entities to benefit from the features of limited liability companies while carrying out trade and small-scale company activities. In addition, abolishing the minimum capital requirements will enable the development and simplification of the electronic registration process for companies.

Current Requirements

Incorporating a limited liability company involves the signing of a Memorandum of Association that sets out, for example, the directors, shareholders, shares and articles of the relevant company. In addition, a cash subscription price for the shares of the company under incorporation must be paid in full to a bank account opened in the name of the new company before the company can be entered into the Finnish Trade Register and gain full status as a legal person.

The bank account does not necessarily have to be opened in a Finnish bank. However, in practice, persuading a bank operating outside of Finland to open a bank account for a Finnish Ltd under incorporation is often a challenge. As such, bank accounts for companies under incorporation are, as a rule, opened in a Finnish retail bank.

The Finnish Trade Register currently verifies the payment of the subscription price by requiring

  • a declaration provided by the members of the new company’s board of directors and its managing director assuring compliance with the provisions of the Finnish Limited Liability Companies Act, and
  • a certificate provided by the auditors stating that the shares have been fully paid or, alternatively, other evidence of payment.

Consequences of the New Bill

As noted above, the new government bill proposes the abolishment of the minimum share capital requirement. If a limited liability company is established with no share capital, neither the declaration nor the certificate (or other evidence of payment) mentioned above will be required in order to register the new company.

A consequence of the proposed amendment will be that the company under incorporation will not be required to open a bank account prior to its registration. In practice, this will significantly shorten the time required to complete the incorporation process, which will then enable the quick establishment of corporate structures for the purposes of e.g. acquisitions and joint ventures by using Finnish limited liability companies.

It should be noted that, although the registration of a new Finnish limited liability company would not require a minimum share capital of EUR 2,500 under the new government bill, the costs associated with the registration (currently EUR 380) of the company and with arranging for bookkeeping and the registration of annual accounts would still have to be covered. This would then require some funds to be invested towards operating the company.

Furthermore, the government bill does not propose to amend the rules governing the voluntary liquidation of limited liability companies – a process that may involve significant costs and require upwards of 5–6 months to complete before the company can be removed from the appropriate registers.

The bill also proposes to abolish the requirements regarding minimum share capital and the minimum obligation to accrue capital reserves for housing companies and co-operations, respectively.

Borenius’ lawyers are available to assist in addressing any questions you may have regarding this legal alert. Please feel free to contact any of the Borenius’ attorneys listed in this alert or those with whom you usually work.

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