All good things must come to an end, as the saying goes — and there may be various reasons that lead you to the decision to close down your Estonian e-resident company.
Why would you close down your e-resident business?
It can be a difficult decision, but the demand for services and products changes all the time.
Sometimes a previously successful business can cease to be viable for unexpected reasons. We are in a turbulent economic era, and this creates uncertainties, in things like markets and lines of credit. While it may be possible to pivot, merge, or acquire additional investment to support a suffering business, it sometimes makes more sense to cut your losses and liquidate instead.
Other reasons to dissolve a business include shifts in (or failure to plan for changes in) the regulatory compliance framework, or an unexpected competitive threat. There can also be breakdowns in the leadership and decision-making (such as conflict between shareholders.) For solopreneur businesses, the death or incapacitation of the only owner and director is also a possibility, which can be considered in advance in the making of a will.
External forces can close down a business as well, including compulsory dissolution orders from the courts (if you default on tax and filing requirements), or if a creditor forces you into insolvency. So it’s important to get out ahead of that and make your own choices.
Of course, there can also be positive reasons for closing down a business!
These include retirement (if you do not sell or pass on the company to somebody else), or if you just want to move on to something new. While the Estonian private limited company structure is flexible to an extent when it comes to updating activities, sometimes you need to change something fundamental and start over.
Also, plenty of solopreneurs close down their businesses if they decide to take employment instead — particularly if made an offer they cannot refuse, to let someone else take the business risks. Not everyone wants to be a freelancer forever.
Whatever happens, if the business is no longer active and trading, it needs to be liquidated. But don’t worry, as ever, Xolo has your back throughout this procedure.
Voluntary dissolution (liquidation) of your Estonian e-resident business
While any business can be forced into closure by creditors or regulators, it is obviously far better to actively trigger and manage the process yourself, via the traditional approach of voluntary dissolution.
So if your business is no longer viable, don’t wait for insolvency and bankruptcy procedures, which will have a lasting impact on your prospects. Compulsory dissolutions are visible on the Estonian business database, and could impact your future credit scoring and partnership opportunities.
Follow the simple steps outlined here, instead, to close down your business legally and correctly.
This procedure typically takes 7-8 months, but you won’t need to actively do very much during this time. Once the official process starts the appointed liquidator can complete most of the remaining tasks on your behalf.
How do I prepare my Estonian business for liquidation?
Before you can begin the voluntary dissolution process, you will need to cease all active business trading and settle your liabilities (though you are permitted to sell assets, settle debts, and satisfy claims during the liquidation.)
As such, you need to:
- Pay all outstanding tax obligations
- Collect any outstanding payments and debts that you can
- Settle any claims with creditors (including banks)
- Update your accounts and submit overdue annual reports (if applicable)
At this point, you will be ready to start closing down your Estonian e-resident company.
How to close down your Estonian e-resident company, step-by-step:
1. Appoint an official liquidator
You need to appoint an official liquidator to act for you in Estonia during this process, who will be named in the e-Business register (where your company will also be marked as “in liquidation” (Likvideerimisel).
The cost of this is included in Xolo’s one-time fee for the liquidation process, which is available to both existing clients and non-clients and is presently priced at €499 + VAT.
During the process of termination (which includes all the steps below unless otherwise specified), no monthly subscription will be charged. However, there is no obligation to contract with Xolo for this service; you are welcome to find an alternative provider to work with.
2. Draft the shareholder resolution to initiate liquidation
For many ‘Xolopreneurs’ the shareholder and owner are the same single e-resident natural person — so this is extremely straightforward.
If further shareholders are involved in the business, then the resolution to liquidate must be approved by at least 2/3 of the shareholders. To remotely liquidate a company, all shareholders must be current Estonian e-Residents.
3. Registering the official liquidation
Your liquidator will prepare the petition, which can be submitted via the Estonian Commercial Register’s web portal, and signed with your e-Residency ID card.
The Estonian Commercial Register will make an entry in five working days after the petition is submitted, and publish a liquidation note in the Official Announcement (Ametlikud Teadaanded),
The notice of liquidation shall indicate that creditors are to submit their claims within four months after publication of the notice, and they will attempt to notify any known creditors.
4. Preparation and submission of the liquidation report
The next stage is that your liquidator will prepare the opening balance sheet of the liquidation and the annual report. This provides a snapshot of the state of the business at this point, to be approved by the shareholders and submitted to the Business Register.
After that the business enters the four-month period for any claims to be submitted and satisfied, during which company’s assets and investments need to be sold and any outstanding debts collected.
This period is required in order that any unknown or non-contactable creditors can put their hands up and claim anything the business owes to them. The delay is required, even if everything is apparently paid up and straightforward.
5. Preparation of the final balance sheet and distribution of assets
Once this time has passed, the liquidators can prepare the final balance sheet of the company, and distribute any remaining assets among the owner(s) as they are due.
The final balance sheet describes the final outcome (profit/loss) for the company. If the company ended up in profit then it is taxed with corporate income tax in Estonia (rate 20%). If the share capital has been paid by the shareholder(s), then now is the time to get it refunded (tax-free) if there are any funds left on the business account(s). If the company ended up in loss, then no taxes apply.
6. Close the company’s bank account
Assuming all final settlements and sales of assets have been completed as described above and the balance sheet finalized, this is the next step. The account may no longer be used for active business transactions during the dissolution process (and this will save you some fees too!).
7. Submission to delete the business from the Commercial Registry
After a further three months has elapsed, and so long as the company isn’t involved in any ongoing claims or court proceedings in Estonia, then it’s time to terminate.
At this point the liquidators can submit an application to the commercial register for deletion of the private limited company. The final balance sheet and asset distribution plan need to be attached with this application.
The extra three month pause following the liquidation proceedings is again a buffer to ensure that any unknown activities or interested parties have due opportunity to come to light, and this explains why it takes so long to close down even simple private limited companies. Most of this time is just waiting, while statutory notices are posted. It’s all part of the transparent and fair process of the Estonian commercial register.
And even then, new information might come up, which changes everything - such as someone who pops up with good evidence that the business owes them a debt.
So, the court can at their request reopen the liquidation proceedings, and even appoint new liquidators if necessary.
For this reason, again all about transparency and fairness, it is required that the deleted limited company holds on to copies of all its documents for 10 years.
The documents are generally held by the liquidator, especially for e-residents without a presence within Estonia. A notation is made to the register indicating the depositary of the documents.
What if you are no longer an Estonian e-Resident?
If you wish to dissolve your business operations in Estonia but your e-Residency digital ID card is no longer valid, the only other alternative is to appoint a natural person to represent you by giving them a Power of Attorney.
Xolo can recommend a legal company to assist you with this, but cannot act in this capacity, being a legal person rather than a natural person, Allocating Power of Attorney is complex and expensive - several times more costly than renewing an e-Residency card - because it involves the Power of Attorney to be officially translated, apostilled, and posted to Estonia.
As such, it’s very much in your interest to conclude your business in Estonia while still in possession of a valid e-Residency card — which means applying for renewal before liquidation if necessary. However once the liquidation petition is approved by the Business Register and Xolo’s representative is appointed as the sole liquidator, no further digital signatures are required from the client to complete the outstanding steps.So, it is not required to maintain the status of e-resident throughout the liquidation process, if your card is close to expiry.
As you can see, liquidating a company is a time-consuming and precise legal procedure, designed to protect all possible parties involved, and it involves time and money.
So, before you rush into it, it’s worth exploring other avenues:
Alternatives to liquidation of an Estonian e-resident business
While Xolo can at this point only help with a voluntary dissolution of your company, some other alternatives exist. Particularly as the affairs of many ‘xolopreneur’ businesses are very straightforward, one important alternative to consider is…
Merging the assets with those of a natural person
An Estonian private limited company with a single shareholder can be dissolved by merging the assets of the company with the assets of the company’s shareholder. After this, the company is dissolved without liquidation proceedings.
The assets of the company are transferred to a natural person (who is the owner,) in accordance with universal succession - which means that all the assets of the company are transferred as a single pool of assets. Job done.
This is also permitted if the shares are held in joint ownership by spouses.
If there are multiple shareholders involved, then this process can still be used, so long as the shares are first transferred to the ownership of a single person — following the procedures to change or remove shareholders in your Estonian e-resident business.
This sounds so simple, and can be concluded in a couple of months, even with multiple shareholders... So you might be wondering, why would anyone bother to go through the protracted liquidation process described above?
The answer is simply that when assets are merged in this way, all protections of limited liability from the former company are lost. The process confers unlimited personal liability on the natural person, for the obligations of the company being merged.
Bearing in mind the 10-year documentation process above, many people will not want that liability hanging over them for this time, and find that by comparison the costs and timeframes of voluntary dissolution look more attractive instead.
Draw a line, move on, and focus on your next enterprise!
However, if you want to find out more and see detailed instructions for merging a private limited company with the assets of a natural person, see the relevant entry in the Commercial Code. Please note that Xolo cannot assist with this process.
Selling your e-resident Estonian business
If your company is a going concern but you simply no longer wish to operate it, then another option is to find a buyer for it.
If you are an e-resident selling to another e-resident, the share sale process is very easy, and done entirely remotely via online e-notary.
Otherwise one or more parties may need to grant a power of attorney to a third party to act for you on your behalf. Since an amendment to the commercial code in August 2020, companies with a share capital of €10,000 euros or more may transfer shares without a notary, provided this option is provided for in the Articles of Association.
As your service provider, Xolo can prepare the sale for you, ensuring that:
- Accounting is in order and up to date
- Annuals reports are submitted
- Applicable corporate taxes are declared and paid
- A confirmation of balances has been obtained from all debtors
- Liabilities have been settled
- Due diligence by an auditor or lawyer has been conducted as required.
However, please note that Xolo cannot act as a buyer or assist with finding a buyer for your company.
Xolo Leap, by your side for the lifetime of your business
Because the dissolution of a limited liability company has specific legal procedures and consequences, it might sound daunting and complicated, especially if you want to cease trading due to lack of activity or a reason like ill-health. To ensure there are no loose ends or comeback, and all liabilities are accounted for, these processes must be followed to the letter.
But don’t worry.
Just as when you constituted your business in the first place, Xolo has your back.
What is new and complex for you, is known and straightforward for us, and our fixed fee service includes everything you need to safely and effectively liquidate your Estonian e-resident company.
About Maya
Maya Middlemiss is a freelance journalist and author, excited about the future of work, business, money, and technology. She operates her e-resident business through Xolo Leap, so that she can work frictionlessly with brands and publications all over the world, and she is the host of the Future is Freelance podcast. Exploring the social impact of technology on our changing world, and bringing those stories to life in an accessible and inclusive way, is her passion — because all of this is far too exciting to leave it to the geeks. Maya is a 'digital slowmad', originally from London, presently living with her family in Eastern Spain.