01.07.2020 M&A and Corporate

From 2 August 2020, part of the obligation to transfer a share does not have to be notarized

2020 has brought significant changes to company law. One of the most important changes concerns the transfer of a share in a private limited company. Although the amendment to the law significantly improves civil turnover, not all parts of the transfer transactions are exempted from the requirements of notarial form.

If according to the regulation of the previous Commercial Code, both the obligation transaction for the transfer of a part and the disposal transaction had to be notarized, then as of 24 May 2020, only the transaction for the disposal of a part must be notarized.

From 2 August 2020, private limited companies with a share capital of at least EUR 10,000 and fully paid-in may waive the requirement that the transfer transaction be notarized. It is important to note that to waive the formal requirement, all shareholders of a private limited company must be in favor of the decision to approve or amend the articles of association. The amendment does not apply to the transfer of shares registered in the Estonian Securities Register (EVR), because the transfer transactions for the shares registered in the EVR have been form-free also before 24 May 2020.

The purpose of these changes is to reduce the costs and time, and thus to facilitate legal turnover. In the past, the requirement of notarizing of the transfer transactions was difficult in practice, especially in the case of private limited companies whose shareholders had a foreign background. Problems arose from the fact that, in addition to standard share sale agreements, the notarial form requirement also applies to all agreements between shareholders that involve a direct or indirect obligation to transfer shares (option agreements and shareholder agreements).

At the same time, it must be taken into account that the abolition of the requirement of notarization of transfer transactions means that the identity of the transferor, the right of representation, restrictions on the right of disposal and the actual will of the transferor are no longer checked. This increases the chances of violations.

As notaries are obligated persons within the meaning of the Money Laundering and Terrorist Financing Prevention Act, i.e. they must ensure the identification of the actual beneficiary and the origin of funds used in the transaction, also the obligated person is obliged to notify the Financial Intelligence Unit (RAB) of suspicious transactions registered companies are used for money laundering.

Thus, although the changes have simplified the transactions of the transfer of shares in a private limited company and help to attract (foreign) investors more easily, one must be aware of certain risks involved therefore.

 

Head of M&A Lada Riisna

Lawyer Gerda Kabrits