07.09.2022 M&A and Corporate

Partner Lada Riisna and lawyer Brigitta Jõgi explain differences in non-monetary equity contribution in the case of immovable property

On June 15, 2022, the Supreme Court made a decision in civil case No. 2-22-3018, which approached non-monetary contribution of share capital. The company submitted an application to the register to increase the share capital and to enter a new shareholder in the register, which the register did not satisfy. The property as a subject of a non-monetary contribution was transferred to a third party before the application was submitted, and a real right contract was concluded before the agreements under the law of obligations for the transfer of ownership of the property.

Increase of share capital by non-monetary contribution

Share capital contribution can be both monetary and non-monetary. The documents required to be submitted to the register when increasing the share capital derive from § 196 of the Commercial Code (CC). First, the decision of the shareholders, minutes of the meeting and the new text of the articles of association (if it is amended) are required. In the case of a monetary contribution, a notification from the bank about the transfer is required, with which generally there are no problems, and the regulation concerning the monetary contribution is unambiguous. In cases of a non-monetary contribution, the CC requires documents proving the value of the contribution and its transfer. A non-monetary contribution can be any thing that can be valued and transferred to a private company, or any property right that can be claimed. Regarding the value of the item to be contributed, the board prepares an assessment report, which must be checked by an auditor in certain cases. If the item is a real estate, an extract from the land register shall be submitted to prove the transfer.

In the commendable decision, the company found that there is no restriction from the law, according to which the limited liability company may not resell real estate received as a non-monetary contribution before the application for the increase of the share capital is submitted and entered in the business register. According to the Supreme Court, the court had misinterpreted sections 1, 2 and 4 of § 196 of the CC. The court stated that the limited company must be the owner of the non-monetary contribution at the time of submitting application to the register.

Thus, the Supreme Court found that it is only necessary to prove that the obligation to pay the contribution has been fulfilled. At this point, it is not important that the owner of the real estate would be a private limited company at the time of submitting the application. The condition is that the contribution has been transferred to the private company and its value corresponds to the agreed contribution value at the time of transfer. The foregoing means, in turn, that the purpose of the obligation to pay the contribution is not to achieve the preservation of the specific property to be transferred to the private limited company. Due to the previously formulated goal, it is not required that the limited company must be the owner of the non-monetary contribution at the time of submitting the application.

The time of adoption of the shareholders resolution and conclusion of the real right agreement

The reason why the Supreme Court nevertheless agreed with the position that the private company’s application should not be satisfied, is instead, the time when the declarations of intent were made. More specifically, the real right agreement was concluded before the agreement under the law of obligations.

By the decision to increase the share capital, the acquirer of the share undertakes to pay a contribution due to the debt relationship, because it is a person’s proposal to accept and register a share (offer) and the private company’s acceptance (acceptance). As a result of the above, a subscription agreement is created between the person and the company.

In the present case, a notarized real right agreement on the transfer of ownership of the real estate was first concluded, and only after a few months the decision to increase the shareholders’ share capital was made, i.e. a subscription agreement was entered. The notary will certify the real right agreement, which is a prerequisite for the transfer of ownership of the immovable property, only if the notary public is presented with a notarized transaction creating the legal obligation to transfer the ownership right, or if the corresponding contract is certified at the same time as the real right agreement. This means that the said real right agreement was not concluded as a result of the said subscription agreement, i.e. it had not yet been concluded.

On the basis of the above, the transferor of immovables may have a claim against the company arising from unjust enrichment for the return of the transfer, insofar as the immovables were transferred to the limited liability company on the basis of a non-existent obligation. Such a claim may also be the object of a non-monetary contribution within the meaning of § 142 subsection 1 of the CC.

Therefore, in the event that the object of the non-monetary contribution is real estate, the shareholders resolution shall be adopted either before the conclusion of the real right agreement or at the same time. It is not important whether the company is still the owner of the property at the time of submitting the application for the increase of the share capital or not.


Lada Riisna
Cuesta Law Office partner

Brigitta Jõgi
Cuesta Law Office lawyer