According to the Estonian Commercial Code (Äriseadustik), a company’s equity must be at least 50% of its share capital or stock capital. Equity refers to the company’s net assets, which is the difference between the company’s assets and liabilities as recorded in the balance sheet.
If the equity falls below the level required by law, the shareholders of the company must take immediate corrective actions. The shareholders must decide on:
- increasing or reducing the share capital or stock capital so that, after the measure is implemented, the equity is at least 50% of the share capital or stock capital;
- other measures that will result in the equity being at least 50% of the share capital or stock capital;
- the dissolution, merger, division, or any other corporate reorganization of the company;
- filing for bankruptcy.
Measures to rectify the situation may include:
- converting liabilities into equity, such as the capitalization of loans granted by shareholders;
- revaluing the company’s assets to their fair value.
If the annual report indicates that the equity does not meet the legal requirements, the Commercial Register may issue a written notice requiring the company to rectify the situation. If the notice is ignored and the insufficiency of equity persists, the company may be subjected to compulsory liquidation.
The management board is responsible for ensuring that shareholders are informed of the company’s equity situation as soon as it is detected.