Estonia Commercial Code - Reporting and distribution of Profits

Chapter 28 REPORTING AND DISTRIBUTION OF PROFITS  

§ 331. Preparation of annual report

  After the end of the financial year, the management board shall prepare the annual accounts and activity report pursuant to the procedure provided for in the Accounting Act.

§ 332. Presentation of reports

 (1) After the preparation of the annual report, the management board shall promptly present it to the auditor.

 (2) The management board shall present the annual report, the sworn auditor's report and the profit distribution proposal to the general meeting.

 (3) A profit distribution proposal shall set out:
 1) the net profit;
 2) transfers to legal reserve;
 3) transfers of profit to other reserves prescribed by law or the articles of association;
 4) the share of profit to be paid to shareholders;
 5) the use of profit for other purposes.

 (4) The management board shall provide the shareholders with an opportunity to examine the annual report approved and signed pursuant to the provisions of § 25 of the Accounting Act for at least two weeks before the general meeting.

§ 333. Rights of supervisory board in preparation of reports

 (1) The supervisory board shall review the annual report and shall prepare a written report concerning the annual report, which shall be presented to the general meeting. The supervisory board shall indicate in the report whether it approves the annual report prepared by the management board. In addition, the report shall indicate how the supervisory board has organised and managed the activities of the public limited company.

 (2) The supervisory board has the right to make amendments to the profit distribution proposal before its presentation to the general meeting.

§ 334. Approval of annual report and submission to commercial register

 (1) An annual report shall be approved by the general meeting. The shareholders whose shares represent at least one tenth of the share capital may request of the private limited company that the auditor who prepared the sworn auditor's report participate in the making of the decision to approve the annual report, and provide explanations concerning the sworn auditor's report if the shareholders have submitted the corresponding written request at least five days before the general meeting.

 (2) The management board shall submit the approved annual report together with the proposal for the distribution of profit or the covering of loss, the division of the sales revenue and the sworn auditor's report to the commercial register within six months after the end of the financial year. Together with the submission of the annual report, the management board shall notify in what way specified in § 301 of this Code the general meeting have decided to cover the loss.

 (3) The division of the sales revenue shall contain information regarding the sales revenue for the accounting year in up to ten major areas of activity pursuant to the Classification of Economic Activities established on the basis of subsection 4 (6) of this Code. In case of the annual report of a consolidation group, the division of the sales revenue is submitted on the basis of the respective information in the unconsolidated income statement of the consolidating entity.

§ 335. Profit distribution resolution

 (1) A profit distribution resolution shall be adopted by the general meeting on the basis of the approved annual report.

 (11) A parent undertaking who prepares the annual report of the consolidation group shall approve the profit distribution resolution based on the consolidated reports of the consolidation group. Profit as apparent from the consolidated reports shall not be distributed in so far as this would decrease the net assets of the parent undertaking to a level below the total of share capital and reserves which pursuant to law or the articles of association shall not be paid out to shareholders.

 (2) A profit distribution resolution shall set out:
 1) the amount of net profit;
 2) transfers to legal reserve;
 3) transfers to other reserves prescribed by law or the articles of association;
 4) the share of profit to be distributed among the shareholders;
 5) the use of profit for other purposes.

 (3) The management board shall submit the information regarding the profit distribution resolution specified in subsection (2) of this section to the commercial register together with the annual report if this information is not manifested by the annual report. If the profit distribution resolution is adopted after the submission of the annual report, the aforementioned information shall be submitted together with the next annual report.

§ 336. Formation of legal reserve

 (1) Legal reserve shall be formed from annual net profit transfers and other transfers entered in the legal reserve pursuant to law or the articles of association.

 (2) The amount of legal reserve shall be prescribed in the articles of association and shall not be less than one-tenth of the share capital.

 (3) During each financial year, at least one-twentieth of the net profit shall be entered in the legal reserve. When the legal reserve reaches the amount prescribed in the articles of association, the increase of the legal reserve on the account of net profit shall be terminated.

§ 337. Use of legal reserve

 (1) Upon a resolution of the general meeting, legal reserve may be used to cover a loss if it is not possible to cover the loss from available shareholders’ equity of the public limited company (from undistributed profits from previous periods and legal reserve prescribed by the articles of association), or may be used to increase share capital.

 (2) Payments shall not be made to shareholders from legal reserve.

Chapter 29 ALTERATION OF SHARE CAPITAL  

Division 1 Increase of Share Capital  

§ 338. Methods of increase of share capital

 (1) Share capital may be increased by the issue of new shares or the increase of the nominal value or book value of existing shares.

 (2) Share capital shall be increased with or without supplementary contributions.

 (3) If the share capital is increased by issuing new shares without nominal value, the number of the shares shall be increased proportionally to the increase of the share capital. Any shares issued in violation of the requirement specified in the previous sentence shall be null and void.

§ 339. Notice calling general meeting

  In order to increase share capital, the notice calling the general meeting shall set out:
 1) the reason and method for the increase of share capital;
 2) the new amount of share capital;
 3) the number of new shares and their nominal value of shares with nominal value or the new nominal values of existing shares;
 4) the pre-emptive right to subscribe for new shares and the term for its exercise;
 5) if share capital is increased by the issue of new shares, the term and place for subscription;
 6) if a new class of shares is issued, the rights attaching to such shares.

§ 340. Documents presented to special general meeting

  If an increase of share capital is decided by a special general meeting, the management board shall present the preceding annual report, approved by the general meeting, and an overview of the economic activities of the public limited company for the current year to the general meeting. Clause 294 (4) 8) and subsection 294 (42) of this Code shall respectively apply to making the documents specified in the previous sentence available.

§ 341. Decision to increase share capital

 (1) A resolution on increase of share capital shall be adopted if at least two-thirds of the votes represented at the general meeting are in favour. The articles of association may prescribe a greater majority requirement.

 (2) If the public limited company has several classes of shares, a resolution on increase of share capital shall be adopted if, in addition to the provisions of subsection (1) of this section, at least two-thirds of the votes represented of each class of shares at the general meeting are in favour. The articles of association may prescribe a greater majority requirement.

 (3) If the articles of association must be amended due to the increase of share capital, amendment of the articles of association shall be decided before share capital is increased.

 (4) A resolution on increase of share capital shall not be adopted before entry of the public limited company in the commercial register.

§ 342. Resolution on increase of share capital

  A resolution on increase of share capital shall set out:
 1) the number of new shares and their nominal value of shares with nominal value, and also the amount of the increase of the share capital;
 2) the classes of shares to be issued if the public limited company has or issues several classes of shares;
 3) the pre-emptive right to subscribe for new shares and the term for its exercise, and the date as of which shareholders have a pre-emptive right to subscribe;
 4) the share subscription term;
 5) the time and place for payment of shares, and whether and to what extent the shares shall be paid for by a monetary or non-monetary contribution; in the case of a non-monetary contribution, the item of the non-monetary contribution;
 6) if the nominal values of shares are increased, the new nominal values of existing shares;
 7) if shares are issued with a premium, the premium amount, which may be specified either as a specific amount or a maximum premium; the supervisory board may determine a higher premium until the subscription commences;

 (8)
 9) in the case of a bonus issue, also reference to the underlying balance sheet and equity categories, and the amount of each equity category used to carry out the bonus issue.

§ 343. Entry in commercial register

 (1) If share capital is paid in full or a bonus issue is conducted, the management board shall submit a petition to the commercial register for entry of the increase of share capital in the commercial register. The following shall be appended to the petition:
 1) the resolution of the general meeting;
 2) the minutes of the general meeting;
 3) the new text of the articles of association if the articles of association are amended;
 4) upon an increase of share capital by new contributions, a bank notice concerning payment of the share capital;
 5) upon a bonus issue, the annual report or interim balance sheet on which it is based;
 6) upon payment by a non-monetary contribution, documents certifying the value of the contribution and its transfer;
 61) a notice from the registrar of the Estonian Central Register of Securities confirming that the management board has notified the register of the increase in share capital;
 7) other documents provided by law.

 (2) [Repealed - RT I 2008, 16, 116 - entry into force 15.04.2008]

 (3) The members of the management board shall certify the transfer of a non-monetary contribution by their signatures. If the non-monetary contribution is an immovable, an extract from the land register shall be appended to the petition.

 (4) The management board shall submit a petition for entry of the increase of share capital in the commercial register within six months after adoption of the resolution on increase of share capital.

 (41) In the case of increase of share capital by bonus emission, the petition submitted to the registrar shall include a confirmation that the members of the management board who signed the petition are not aware of a decrease to the assets of the public limited company, during the time between the date of preparation of the balance sheet which was the basis for the increase of the share capital and the date of submission of the petition to the registrar, to an extent which could hinder the making of the decision on the increase of the share capital on the date of submission of the petition.

 (42) The registrar need not check the conformity of the content of the balance sheet which was the basis for the increase of the share capital with the law.

 (5) The share capital shall be deemed to be increased and the rights arising from the new shares, the increased nominal values of the shares or the increased book value of the shares without nominal value shall be deemed to have arisen as of the making of such entry in the commercial register.

§ 3431. Liability of members of management board upon entry of increase of share capital in register

 (1) The members of the management board of a public limited company are solidarily liable for damage caused to the public limited company by submission of incorrect or inaccurate information or incorrect valuation of contributions upon the increase of the share capital unless a member of the management board proves that he or she was not aware and did not have to be aware of the circumstances which caused the damage.

 (2) An agreement which derogates from the provisions of subsection (1) of this section shall only be valid with respect to the creditors of a public limited company if such agreement was entered into in the course of liquidation proceedings of the public limited company.

 (3) The claim provided in subsection (1) of this section expires after five years of the date on which the increase of the share capital was entered in the commercial register.

§ 344. Application of foundation provisions

  The provisions for payment of contributions on the foundation of a public limited company and for the subscription of shares shall apply to an increase of share capital by contributions unless otherwise provided for in this chapter.

§ 345. Pre-emptive right of shareholder

 (1) A shareholder has a pre-emptive right to subscribe for the new shares in proportion to the sum of the nominal value or book value of the shareholder’s shares. The pre-emptive right of the shareholders may be barred by a resolution of the general meeting which receives at least three-quarters of the votes represented at the general meeting. The management board shall provide a written explanation to the shareholders in advance as to why it is necessary to bar the pre-emptive subscription right and shall also justify the issue price of shares.

 (11) A shareholder may transfer the shareholder’s pre-emptive right to subscribe for shares under the same terms and conditions as a transfer of shares.

 (2) If a public limited company has several classes of shares and new shares of one or some classes are issued, the holders of the corresponding classes of shares have a pre-emptive right in the subscription of such shares before other shareholders.

 (3) The management board shall send the resolution of the general meeting to the shareholders who have the pre-emptive right of subscription and who did not participate in the general meeting.

 (4) The term for subscription of shares with a pre-emptive right shall be two weeks from the adoption of a resolution on increase of share capital unless the resolution of the general meeting prescribes a longer term.

§ 346. Set-off of claim

  A claim of a shareholder or of any other person who wishes to subscribe for share against the public limited company may, by a resolution of the general meeting, be set off against a payment for new shares if this does not damage the interests of the public limited company or of its creditors. A claim shall be valuated as a non-monetary contribution.

§ 3461. Oversubscription

 (1) If upon an increase of share capital shares are subscribed for to the full extent of the increase of share capital, the supervisory board may decide to terminate the share subscription before the end of the term prescribed in the resolution on increase of share capital.

 (2) If it becomes evident that shares are subscribed for in excess of the planned increase of share capital, the supervisory board shall decide on the distribution of shares based on the number of subscribed for shares and on the cancellation of oversubscribed shares unless the resolution on increase of share capital prescribes otherwise. Payments for oversubscribed shares shall be returned to the subscribers promptly at the expense of the public limited company.

§ 347. Undersubscription

 (1) A share subscription shall be deemed to be an undersubscription if all new shares are not subscribed for during the term indicated in the resolution on increase of share capital.

 (2) Upon undersubscription, all rights of subscribers associated with the subscription shall terminate, and the increase of share capital shall not occur. The management board shall promptly refund the payments made by subscribers. The members of the management board shall be solidarily liable for the refund of payments.

 (3) The management board may, by a resolution of the general meeting, be granted the right to extend a subscription term or to cancel shares which are not subscribed for during the subscription term. The management board may exercise such right within fifteen days after the end of the subscription term. If shares are subscribed for by the new due date provided by the management board, the subscription is deemed to be valid.

§ 348. Participation in profit distribution

 (1) A resolution on increase of share capital may prescribe a date as of which shares grant the right to receive a dividend. This right shall not arise later than for the financial year following the increase of share capital.

 (2) If the date specified in subsection (1) of this section is not prescribed in a resolution on increase of share capital, the right to receive a dividend shall arise during the financial year in which the entry on increase of share capital is made.

§ 349. Right of supervisory board to increase share capital

 (1) The articles of association may grant the supervisory board the right to increase share capital by contributions for up to three years.

 (2) The supervisory board may increase share capital to an amount prescribed in the articles of association. Share capital shall not be increased by more than one-half of the share capital which existed at the time the supervisory board received the right to increase share capital.

 (21) The supervisory board shall have the rights specified in subsection 347 (3) of this Code.

 (3) The supervisory board may pay for issued shares by a non-monetary contribution only if prescribed in the articles of association.

 (4) The resolution of the supervisory board and the minutes of the meeting and, in the case provided for in § 323 of this Code, the record of voting, shall be appended to the petition submitted to the commercial register concerning the increase of share capital.

§ 350. Bonus issue

 (1) A public limited company may increase share capital from the shareholders’ equity of the public limited company without making contributions (bonus issue).

 (2) After approval of the annual report and passing of the profit distribution resolution, the general meeting may decide on a bonus issue based on the annual report and the profit distribution resolution. A bonus issue may also be carried out on the basis of the interim balance sheet which must be prepared and approved pursuant to the procedure for the preparation and approval of the balance sheet included in the annual report. Increase of the share capital need not be entered in the commercial if the petition for increasing the share capital and the corresponding resolution are submitted to the registrar of the commercial register within eight months after the date as at which the annual report or interim balance sheet which was the basis for the share capital increase was prepared.

 (3)

 (4) Upon a bonus issue, a shareholder’s part of the share capital shall increase in proportion to the nominal value or book value of the shareholder’s shares. Any resolution contrary to the above is void.

 (5) Own shares held by the public limited company shall also participate in the bonus issue.

 (6) Share capital shall be increased by the bonus issue to the extent of the sum of the nominal values or book values of new shares or to the extent of the increase of the nominal value or book value of existing shares.

§ 351. Conditional increase of share capital

 (1) If a public limited company issues convertible bonds (§ 241), the management board may increase share capital to the extent of the sum of the nominal values of the convertible bonds exchangeable for shares. The management board may also increase share capital to a greater extent if such possibility in prescribed in a resolution on a conditional increase of share capital and the difference between the nominal value of convertible bonds and nominal value or book value of shares is covered in money.

 (2) Upon the demand of the holder of a bond, the management board shall issue shares and exchange them for bonds during the term specified in the bond.

 (3) If the public limited company issues convertible bonds, the shareholders have the pre-emptive right to subscribe for them pursuant to the procedure provided for in § 345 of this Code.

 (4) The general meeting may also decide on a conditional increase of the share capital to the extent of the performance of the subscription rights if this is necessary for preparing the concentration of the public limited company or for granting the subscription rights to the members or employees of the public limited company or a company related thereto.

 (5) A conditional increase of the share capital to an extent of more than one third of the share capital at the time of the making of the decision is prohibited.

 (6) A resolution of the general meeting contrary to the conditional increase of share capital is void.

 (7) A resolution for conditional increase of share capital shall set out:
 1) the objective of the conditional increase of share capital;
 2) the set of persons entitled to participate in the conditional increase of share capital;
 3) the issue price of shares or the bases for determination thereof;
 4) the term for performing the subscription rights.

 (8) In the event of conditional increase of share capital, the shares shall be paid for only in money.

§ 3511. Conduct of conditional increase of share capital

 (1) The management board shall submit a petition for conditional increase of share capital to the commercial register.

 (2) Shares shall not be issued based on a resolution on conditional increase of share capital before the conditional increase of share capital has been entered in the commercial register.

 (3) Based on a resolution on conditional increase of share capital, the recipient of a share acquires the share in the same manner as in the event of share subscription, based on a declaration of intention. The management board shall issue the shares only based on a resolution of the general meeting and for compliance with such resolution, and not before the issue price of a share has been paid.

 (4) In the event of the conditional increase of share capital, the share capital and number of shares is deemed to be increased as of the issue of the share.

 (5) Not later than within one month after the end of the financial year of the public limited company, the management board shall submit a petition to the registrar of the commercial register for entry in the register the number of shares issued based on a resolution on conditional increase of share capital and the corresponding increase of the share capital during the financial year. The members of the management board shall confirm in the petition that the shares were issued only based on a resolution on conditional increase of share capital and that they have been paid for in full.

§ 3512. Conditional increase of share capital in case of issuing shares admitted for trading on regulated securities market and admittance of shares for trading on such market

 (1) The general meeting may decide on the conditional increase of the share capital to the extent of the performance of the subscription rights also in case the shares issued upon the increase of the share capital are admitted for trading on a regulated securities market or an application for the admittance for trading on such market has been filed in respect to the shares.

 (2) In the case specified in subsection (1) of this section the general meeting may decide on the conditional increase of the share capital to a greater extent than one third of the share capital at the time of the making of the decision if at least three-fourths of the votes represented at the general meeting are in favour.

 (3) Based on the resolution on the conditional increase of the share capital specified in subsection (1) of this section, the shares may be issued within two months following the adoption of the resolution of the general meeting and on the condition that the conditional increase of the share capital is entered in the commercial register and the issue price of the share is paid.

 (4) Upon the conditional increase of the share capital in the case specified in subsection (1) of this section, the management board shall submit within 10 days following the issue of the shares to the registrar of the commercial register a petition for entry regarding the fact to what extent the shares have been issued and the share capital has increased on the basis of the resolution on the conditional increase of the share capital. The members of the management board shall confirm in the petition that the shares were issued only based on a resolution on conditional increase of share capital and that they have been paid for in full.

 (5) In this section, the regulated securities market shall denote the regulated securities market and multilateral trading facility for the purposes of the Securities Market Act.
[RT I 2009, 12, 71 - entry into force 27.02.2009]

Division 2 Reduction of Share Capital  

§ 352. Methods of reduction of share capital

 (1) Share capital may be reduced by a reduction of the nominal value or book value of shares or by the cancellation of shares.

 (11) If share capital is reduced by a reduction of the book value of shares, the book value of shares shall be reduced proportionately to the reduction of the share capital.

 (2) The provisions of subsections 223 (1) and (2) of this Code shall be observed in a reduction of the nominal value or book value of shares.

§ 353. Extent of share capital reduction

 (1) Share capital shall not be reduced below the amount of share capital specified in § 222 of this Code or any other minimum amount of share capital provided by law.

 (2) Share capital shall first be reduced by way of the public limited company’s own shares.

 (3) Share capital may be reduced by way of preferred shares only if dividends are paid in full to the holders of such shares. The provisions of the previous sentence shall not apply in case of shares without nominal value.

 (4) The provisions of subsection (1) of this section shall not apply if an increase of share capital at least to the amount of share capital specified in § 222 of this Code is decided concurrently with a reduction of share capital. The provisions of § 358 shall also not apply if an increase of share capital at least to the current size of the share capital is decided concurrently with a reduction of share capital. Shares which are issued concurrently with a decrease of the share capital shall only be paid for in money. A resolution on increase or reduction of share capital shall be entered in the commercial register.

§ 354. Notice calling general meeting

  In order to reduce share capital, the notice calling the general meeting shall set out:
 1) the reason and method for reduction of share capital;
 2) the extent of the reduction of share capital;
 3) in case of the cancellation of shares, the number and class of shares to be cancelled, and in case of the reduction of the nominal value of shares, the extent of the reduction of the nominal value of shares.

§ 355. Documents presented to special general meeting

  If reduction of share capital is decided by a special general meeting, the management board shall present the preceding annual report, approved by the general meeting, and an overview of the economic activities of the public limited company for the current year to the special general meeting.

§ 356. Decision to reduce share capital

 (1) A resolution on reduction of share capital shall be adopted if at least two-thirds of the votes represented at the general meeting are in favour. The articles of association may prescribe a greater majority requirement.

 (2) If the public limited company has several classes of shares, a resolution on reduction of share capital shall be adopted if, in addition to the provisions of subsection (1) of this section, at least two-thirds of the votes represented of each class of shares at the general meeting are in favour. The articles of association may prescribe a greater majority requirement.

 (21) If there is a wish to reduce the nominal values of shares or cancel shares other than proportionally from each class of shares in the course of a reduction of share capital, such a resolution shall be adopted if, in addition to the provisions of subsections (1) and (2) of this section, the shareholders whose shares are disproportionately cancelled or the nominal values of which are disproportionately reduced vote in favour of the resolution.

 (3) If the articles of association must be amended due to the reduction of share capital, amendment of the articles of association shall be decided before the reduction of share capital, except if the share capital is reduced in the case specified in subsection 353 (4) of this Code.

§ 357. Resolution on reduction of share capital

  A resolution on reduction of share capital shall set out:
 1) the reason for the reduction of share capital;
 2) the extent and method of reduction of share capital;
 3) the number and class of shares to be cancelled or, in case of shares with nominal value, the extent of the reduction of the nominal value of shares;

 (4)

§ 358. Notification of creditors

 (1) The management board shall, within fifteen days after adoption of the resolution on reduction of share capital, send notice concerning the new amount of share capital to the known creditors of the public limited company who have claims against the public limited company which predate the adoption of the resolution on reduction of share capital.

 (2) The management board shall publish a resolution on reduction of share capital in the publication Ametlikud Teadaanded and invite all creditors to submit their claims. The notice shall indicate that creditors are to submit their claims within two months.

 (3) The public limited company shall guarantee the claims of creditors if they are submitted within two months after publication of the notice. If the due date for fulfilment of a claim has arrived or if a claim is not sufficiently secured, the creditor may demand satisfaction or guarantee of the claim. The creditor may demand a guarantee of the claim if the creditor provides proof that decrease in the share capital endangers the satisfaction of the claim.

§ 359. Submission of petition to commercial register

 (1) The management board shall submit a petition for entry of the reduction of share capital in the commercial register not earlier than three months after publication of the second reduction of share capital notice, except if the notice on reduction of share capital need not be published.. The following shall be appended to the petition:
 1) the resolution of the general meeting;
 21) a notice from the registrar of the Estonian Central Register of Securities confirming that the management board has notified the Register of the reduction of share capital;
 22) reference to the dates on which notices to the creditors were published in Ametlikud Teadaanded;
 3) other documents provided by law.

 (2) In the petition, the members of the management board shall confirm that the claims of creditors who submitted their claims during the term or who opposed the reduction are guaranteed or satisfied.

 (3) The share capital shall be deemed to be reduced as of the making of such entry in the commercial register.

§ 360. 

§ 361. Payment to shareholders

 (1) Payments may be made to the shareholders upon a reduction of share capital if prescribed in the resolution on reduction of share capital.

 (2) The payments specified in subsection (1) of this section may be made no earlier than three months after entry of the reduction of share capital in the commercial register and on the condition that the claims of creditors submitted during the term are guaranteed or satisfied.

§ 362. Simplified reduction of share capital

 (1) Share capital may be reduced in order to cover a loss of the public limited company without applying the provisions of § 358 of this Code (simplified reduction of share capital).

 (2) A simplified reduction of share capital may be conducted if the reserve fund of the public limited company is insufficient to cover the loss and if the public limited company also does not have other reserves.

 (3) The resolution on reduction of share capital shall indicate the loss for the coverage of which the share capital is being reduced.

 (4) Available capital which arises upon a simplified reduction of share capital may only be used to cover the loss of the public limited company. If the amount of available capital which arises is greater than the loss, the amount exceeding the loss shall be transferred to the legal reserve.

§ 363. Restriction on profit distribution

 (1) In the case of simplified reduction of the share capital, no payments shall be made to the shareholders and no dividends shall be paid to the shareholders during the financial year on which the decrease of the share capital was decided and for the two subsequent financial years.

 (2) The restriction specified in subsection (1) of this section shall not apply to preferred shares.

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