However, every company needs financing to develop its products further, to concur with new client segments or expand the number of employees. If your product is something that investors believe in, the shares of your company are your “golden ticket” to get the funding from investors who believe in you. Therefore, at one point in time, you might also need to make transactions with your company’s shares. Although there are various ways to raise capital, including through increasing the share capital of the company, then in this article we consider a few practical issues that arise in connection with the sale of shares.

Unless you have registered your shares in the central depository of securities (see below if you should do it), the transactions made with shares must be made in the presence of the Estonian notary. This means that whenever you want to sell your share or a part of it, you should turn to a notary. The list of notaries can be found on the internet and you can turn to any notary you wish. You can also ask your legal adviser to help you with finding a suitable notary. The notary will then draft the sales agreement and eventually you will be able to sign the agreement.

If you have found the suitable notary, there are few other things you should take care of besides the sales agreement itself: 

• To conclude the sales agreement, the parties of the transaction must be present at the notary’s office at the same time. If that is not possible, the party might also procure a power of attorney to someone (for example its legal advisor), however, in such case, the power of attorney itself must also be in a notarized form.

• Notaries have an obligation to determine the ultimate beneficial owners of the parties of the transaction and the source of money used in the transaction. If the buyer is an Estonian company, the KYC procedures are relatively easy because the notary can verify the ultimate beneficial owners from the public registers. However, if you have a foreign investor who wishes to purchase part of your company, you must be ready to explain to him/her that he must obtain the registry extracts of all the companies that lead up to the ultimate beneficial owner and have them notarized and attached with an apostille in the relevant country.

• When you hold the share of your company as a natural person and are married, you should also take this into account when making transactions with your share. If you have chosen the joint property regime, then half of your property created or obtained during the marriage belongs to your spouse. Therefore, if you wish to sell your share or a part of it, the notary will ask for your spouse’s consent for such a transaction.

• Note that notarial transaction involves notary fees and these are calculated on the basis of the transaction value. If the share capital of the company and/or the price to be paid for the shares is relatively low, then these are not significant. However, if the sale price is high, then the corresponding transaction fees could also be quite high and thus should be considered in advance.

If all the described bureaucracy seems too burdensome, you might think about registering your company’s shares in the central depository of shares which in Estonia is managed by Nasdaq CSD SE. This means that the shares will be held in securities account that can be opened in a bank. Here are a few reasons you might consider registering your shares with Nasdaq CSD:

• the transactions made with registered shares are automated meaning that no notary is needed and the transactions are concluded when the relevant parties give matching orders to their banks

• as the transactions are made via automated means, the parties to the transaction do not have to be in the same place

• the notary is not involved meaning that the notary’s fees do not apply

However, when at one point you want to involve foreign investors, you might realize that you are even in a worse situation. As said, in order to hold the shares registered with Nasdaq CSD, the shareholder must have a securities account in a bank. However, opening a bank account for a non-resident has in some cases become a mission impossible due to very strict KYC rules that Estonian banks apply.

There are some positive developments happening which hopefully will make your life a little bit easier. Currently, the Estonian government is considering, among other legal changes, relaxing certain rules regarding transactions with the shares, including revocation of the requirement to involve notaries in the process. 

If this materializes, the procedural aspects will be significantly simplified and essentially all you would need is a simple agreement for selling your shares without the need to involve the notary or the bank in the process. Therefore, we recommend keeping an eye on such developments, but until then, consider which option suits you and your company the best.

If you do need any help, then there are many professional legal advisers available. One such legal adviser is law firm TGS Baltic, who is also a partner of sTARTUp Day and we have extensive experience dealing with the great spectrum of legal matters relevant to startups.