Finland: Removal of Minimum Share Capital Requirement
The Finnish Limited Liability Companies Act (LLC Act) will be amended and effective on July 1, 2019 when the requirement of minimum share capital will be removed in Private Limited Companies.
Ever since 1978 the LLC Act has included provisions on minimum share capital the company is required to have. The minimum capital has been amended over the years and in the currently applicable law the minimum requirement is set to 2,500 euros for Private Limited Companies and to 80,000 euros for Public Limited Companies.
The amendments to the LLC Act effective in the beginning of July 2019 remove the requirement of 2,500 euro minimum share capital from the Private Limited Companies. This means that from that date on a Private Limited Company can be incorporated without any share capital. Also, Private Limited Companies incorporated before the amendment is effective are able to reduce their share capital as per LLC Act chapter 14 provisions. In terms of Public Limited Companies the law will not be amended, thus the 80,000 euro minimum share capital requirement will remain unchanged. The amendments have no effect on the minimum share capital requirements set in special enactments (lex specialis) either.
As the effect of the amendment a Private Limited Company may be incorporated without any share capital, or the subscription price (the payment into the company for each share) of the shares may be credited directly to the unrestricted equity of the company, should a share of the company have no nominal value. However, if a share has a nominal value the amount must be credited to the share capital for each of the shares when incorporating, as per the provisions in the LLC Act chapter 3, section 5. Should no payment for the shares be made to the company the price paid for each share shall be marked as zero in the Memorandum of Association. The share capital will be zero in the Notification to the Finnish Trade Register as well. The notification is required whenever a new LLC is incorporated.
The removal of the share capital requirement makes it easier to manage the company, for requirements for registering the share capital will be reduced. For example, when a company is incorporated and a Notification to the Finnish Trade Register is made there is no longer need to provide account of the payment of the share capital. In general, the amendments are meant to affect automated processing of registrations and ease making such notifications electronically.
Despite the change a private limited company is nevertheless able to possess share capital. In such a case the share capital is restricted equity of the company as per provisions set in LLC ACT chapter 8, section 1.
According to the Government Bill on LLC Act the amendments have no great effect in terms of protecting debtors’ interests, a protection which is seen to be better fulfilled by up-to-date financial statements and other requirements of openness, requirements for distribution of assets as well as liability of shareholders and the board.
The purpose of changing the law is to make entrepreneurship is to practise. The change of law offers a new option to incorporate a business to those who plan on taking up small scale business activities. Incorporating an LLC rather than practicing solo proprietorship might become more usual, as the change lowers the threshold to start an LLC instead of becoming a solo proprietor (solo proprietorship means in Finland acquiring a legal name, while not forming a separate legal entity. The solo proprietor is fully liable and is the party with whom all the contracts are made instead of the business). Conducting business via a limited liability company as the name tells limits a shareholder’s liability to only the sum they have paid to the company. Thus, the purpose of the change is to make it easier to conduct business without having personal liability, which is clearly the most remarkable goal of the change.
The removal of share capital requirement is expanded to affect housing co-operatives as well. (Housing co-operatives in Finland are a certain type of Limited Liability Company instead of being an actual co-operative, which also exist in Finland.) In pursuance of the LLC change the Co-operatives Act requirement to accumulate reserve fund until 2,500 euros is removed as well. (Formerly when a co-operative conducts its operations any excess wealth it accumulated must be credited to the reserve fund until it had 2,500 euros)
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