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Thanks for touching on some of the things I was expecting to read in the article. > you need to have half of your capital available always What does this mean

Thanks for touching on some of the things I was expecting to read in the article. > you need to have half of your capital available always What does this mean, in a bank account?

edwin01 9y ago
Yes. If your balance at the end of the year isn't half of your starting capital, you need to tell estonian government officials how you are planning to recover from this horrible failure. I didn't know this on my first year and we just made a small investment at the end of the year that made the balance to drop at horrific 40% level which triggered alarms in the government. If you fail to satisfy them with your plan, (if I understood right estonian-only materials), they can declare your company bankrupt. I know it sounds ridiculous but welcome to Estonia I guess. Though I do doubt that the officials would close your business unless you actually go bankrupt but it's still a hassle and feels very controlling to explain your business to a government at this level.
- pavlov 9y ago
  I realize it’s annoying, but the requirement to register “lost” share capital is a common one in Europe. Think of it as a warning flag to potential lenders. The default assumption in society is that limited liability corporations have enough assets that it’s safe to sell them something on credit, i.e. invoicing rather than cash. Forcing companies to register the fact that their equity is negative provides an easy way for vendors to look up this warning flag. I’m not directly familiar with Estonian law, but I’ve run a couple of Finnish companies. If the law is similar, it’s not that the government registry would be actively filing for bankruptcy if you have negative equity, but it does create potential liability for board members if the company goes bankrupt and the board failed to register negative equity when the information was available to them.
  - edwin01 9y ago
    This is a good point. However for me the annoyance is not about reporting the decrease, it's the fact that if capital drops below 50%, government is now in control whether they exercise that control or not. I would understand something like 10% but 50% is just ridiculous to me.
    - ProblemFactory 9y ago
      I think the confusion here might be "starting capital" vs "registered share capital". You should set the registered share capital to the minimum allowed 2500 eur. Even companies making hundreds of millions of euros in revenue set usually set it to 25000 eur. You can then invest any amount over that as your actual starting funds without increasing the registered share value. That way the company is only required to own at least 2500 eur in assets, which should not be a problem for any serious business.
      - edwin01 9y ago
        Solid advice. I was stupid enough to follow the process estonian gov had laid out and it really didn't make this distinction at any point so I registered our full capital as share capital.
      - jessaustin 8y ago
        If one didn't have this background knowledge, one might hesitate to enter a totally fictitious number on this form.
        pavlov 8y ago
        What's the fictitious number? You do need to show proof that you have the 2500 € in a bank account.
        jessaustin 8y ago
        If the actual number is 100000, then 2500 seems fictitious?
- skeletal88 9y ago
  No, it doesn't have to be cash in your bank account, as martkaru explained in the other comment. I can start a company and declare a really expensive couch as it's assets in the balance and it would be ok.
  - kriro 8y ago
    This is not necessarily the case everywhere and for all legal forms. In Germany there's a "Unternehmergesellschaft" which only requires assets of 1 Euro. It is supposed to turn into a GmbH eventually by accumulating 25k in assets. However it is illegal to simply add an expensive couch as this would be a "verdeckte Sacheinlage" which I believe also exists elsewhere as "concealed/hidden contribution in kind" (IANAL)
martkaru 9y ago
No. Basic bookkeeping. Equity = Assets - Liabilities. Assets can be "cash in a bank account", tangible stuff you buy to your company, intangible things (product you are building, ip, patents, etc). The "below 2500" rule kicks in as a safeguard when your equity (assets-liabilities) have dropped below 2500, to avoid approaching 0 "soon".

Thanks for touching on some of the things I was expecting to read in the article. > you need to have half of your capital available always What does this mean, in a bank account?

edwin01 9y ago

Yes. If your balance at the end of the year isn't half of your starting capital, you need to tell estonian government officials how you are planning to recover from this horrible failure. I didn't know this on my first year and we just made a small investment at the end of the year that made the balance to drop at horrific 40% level which triggered alarms in the government. If you fail to satisfy them with your plan, (if I understood right estonian-only materials), they can declare your company bankrupt. I know it sounds ridiculous but welcome to Estonia I guess. Though I do doubt that the officials would close your business unless you actually go bankrupt but it's still a hassle and feels very controlling to explain your business to a government at this level.

pavlov 9y ago
I realize it’s annoying, but the requirement to register “lost” share capital is a common one in Europe. Think of it as a warning flag to potential lenders. The default assumption in society is that limited liability corporations have enough assets that it’s safe to sell them something on credit, i.e. invoicing rather than cash. Forcing companies to register the fact that their equity is negative provides an easy way for vendors to look up this warning flag. I’m not directly familiar with Estonian law, but I’ve run a couple of Finnish companies. If the law is similar, it’s not that the government registry would be actively filing for bankruptcy if you have negative equity, but it does create potential liability for board members if the company goes bankrupt and the board failed to register negative equity when the information was available to them.
- edwin01 9y ago
  This is a good point. However for me the annoyance is not about reporting the decrease, it's the fact that if capital drops below 50%, government is now in control whether they exercise that control or not. I would understand something like 10% but 50% is just ridiculous to me.
  - ProblemFactory 9y ago
    I think the confusion here might be "starting capital" vs "registered share capital". You should set the registered share capital to the minimum allowed 2500 eur. Even companies making hundreds of millions of euros in revenue set usually set it to 25000 eur. You can then invest any amount over that as your actual starting funds without increasing the registered share value. That way the company is only required to own at least 2500 eur in assets, which should not be a problem for any serious business.
    - edwin01 9y ago
      Solid advice. I was stupid enough to follow the process estonian gov had laid out and it really didn't make this distinction at any point so I registered our full capital as share capital.
    - jessaustin 8y ago
      If one didn't have this background knowledge, one might hesitate to enter a totally fictitious number on this form.
      - pavlov 8y ago
        What's the fictitious number? You do need to show proof that you have the 2500 € in a bank account.
        jessaustin 8y ago
        If the actual number is 100000, then 2500 seems fictitious?
skeletal88 9y ago
No, it doesn't have to be cash in your bank account, as martkaru explained in the other comment. I can start a company and declare a really expensive couch as it's assets in the balance and it would be ok.
- kriro 8y ago
  This is not necessarily the case everywhere and for all legal forms. In Germany there's a "Unternehmergesellschaft" which only requires assets of 1 Euro. It is supposed to turn into a GmbH eventually by accumulating 25k in assets. However it is illegal to simply add an expensive couch as this would be a "verdeckte Sacheinlage" which I believe also exists elsewhere as "concealed/hidden contribution in kind" (IANAL)

martkaru 9y ago

No. Basic bookkeeping. Equity = Assets - Liabilities. Assets can be "cash in a bank account", tangible stuff you buy to your company, intangible things (product you are building, ip, patents, etc). The "below 2500" rule kicks in as a safeguard when your equity (assets-liabilities) have dropped below 2500, to avoid approaching 0 "soon".