When does it make sense to establish a private limited company and how to make all the right steps? Adam Rang, the Communications Director at Unicount, a top company formation agent in Estonia, shares recommendations on this topic.
When choosing a legal form for conducting business in Estonia, you have to think rationally and make things clear, for example, in Excel spreadsheets. If a private person provides services or sells hand-made items to other private customers, the cost of materials is low and the expected income for the calendar year is less than 25,000 euros, we do not recommend registering as a sole proprietor. Life is much easier when you just open a Entrepreneur account with LHV Bank, where all the national taxes are automatically withheld on a monthly basis without any accounting obligation.
To register as a sole proprietor, one must also make fixed advance payments for national insurance and personal income tax, which can be a problem in difficult times.
The tax rate of Entrepreneur Account increases dramatically when the threshold of 25,000 euros of turnover per calendar year is exceeded. Then it is time for you to consider registering as a sole proprietor or starting a limited company.
The Entrepreneur Account is not suitable for offering services to business clients. In this case it is more reasonable to register a limited company immediately. The Entrepreneur Account solution allows an annual turnover of up to 40,000 euros, after which you need to register for VAT as a sole proprietor or establish a company.
A private limited company can be established in Estonia in five minutes. What’s in that time?
To establish a private limited company through Unicount in five minutes, enter your contact information and residential address in the web form, select the company’s field of activity, add company’s public contact information and registered office address, sign the application and pay the formation fee.
We have also made a video showing all these steps in three minutes.
When you choose to submit an application in the government portal, some mandatory choices must also be made related to certain clauses of the articles of association.
Nowadays incorporation documents are no longer needed to establish a company. Unicount prepares incorporation application automatically based on the information you entered and uses standard articles of association that are perfectly good for a solo company.
If the number of shareholders is more than one, it may be more important to regulate the relationship between shareholders and voting rules more precisely. An commented version of the standard articles of association can be found here.
What changes when one of the founders is a non-resident?
If the foreign founder is an Estonian e-resident, there is nothing to worry about. E-residents are issued digital ID and Estonian personal identification code. They can be appointed to be founders and members of the management board in the government portal.
However, if the person does not have Estonian e-resident card, they can also sign applications in the government portal using Latvian and Belgian ID card or Lithuanian mobile ID. These options will probably improve in the future. At the moment, applications cannot be signed with a Finnish ID card, as the signatures given with this card do not have the highest qualified electronic signature (QES) status.
What makes a good company name and how to choose one?
Regarding a good company name, we usually give three recommendations to founders.
First, the name must be unique and clearly distinguishable from other business names registered in Estonia. A similar name proposal may result in a request to change the name of the company before it can be registered. The name query service allows you to quickly check the matching and similar names on the Unicount website.
Second, the name must be easy to understand, written in the Latin alphabet, without numbers and symbols. Imagine a situation where a customer or partner calls and asks you for details to make a transfer. The more complicated the name, the more difficult it is to explain over the phone.
Third, the name should not be registered as a trademark in Estonia or the European Union. Trademark disputes can even arise after your company has been successfully registered in the Business Register. You can find more information on the website of the Estonian Patent Office.
In addition to these three tips, always think about how your customers will find you online when choosing a name. That’s why we always recommend that you buy a domain name for your company website and set up the most crucial social media accounts right away before starting business.
How can a company be established if I have no money for share capital?
From 2011, it is possible to establish a private limited company without share capital contribution. Shareholders simply need to pay the missing share capital from their private accounts to the company business account before the first distribution of dividends. This also needs to be registered with the Business Register and tax office.
The state has not set a deadline for the payment of share capital. Instructions for the share capital contribution can be found here.
What are the next steps after registration?
The first thing to do after establishing a private limited company, is open a business account for the company. This needs to be done in order to be able to clearly distinguish between your own and company’s money.
The next step is to find a competent accountant. A good accountant will save you money in the long run and allows you to focus on your business. The rules should be agreed with your accountant at the start so that you do not have to search for missing expense documents or pay interest on payments made to shareholders and employees but not declared to the tax authorities.
Third, you need to deal with finding and keeping your first paying customers. Try not to be carried away with creating the perfect logo, writing long business plans or designing the perfect website. To grow your business, you need to start talking to your existing and potential customers to better meet their expectations today and tomorrow. If you have one satisfied customer, it’s always easier to get more, especially if you can display the customer as someone recommending you. This is the most important thing that should reach the website of the company as soon as possible, with a clear overview of who are the company’s founders and managers. Be as transparent and clear as possible when presenting your company and what you offer. Many potential customers want to know who you are and what you have done before when visiting your site.
Don’t feel bad if it takes a long time to find your first customer. The hint is that the first customers of your company are probably people who already use similar products and services. Start interacting with these people as soon as possible to clarify their expectations as well as concerns about what the competing businesses have to offer.
How to choose a domain name for your private limited company?
We recommend that you use your company name as a domain name to make it easier for everyone to find your company. In Estonia, it is customary to register a company name first and then look for a free domain. Registering a company called Onlymeathome OÜ is fun at first, but as the company grows, a new name should be chosen when you want to create a solid looking website.
Start-ups and online businesses register a domain before the company, the reason being that domains are cheap and starting a business is expensive. Changing the company name in Estonia is also cumbersome for 90% of entrepreneurs who get into trouble with the required documents.
The article was originally published on the Veebimajutus.ee blog.
