New Finnish Companies Act to enter into force at the beginning of September

Special attention has been paid to the position of small limited companies. The clarification of the regulation will improve their possibilities to familiarise themselves with the provisions of the Act.

Minimum share capital to be 2,500 euros

Under the new Companies Act, the share capital of a private limited company shall be at least 2,500 euros. Existing small companies need not raise their share capital upon the entry into force of the Act.

Regulation on company management to be lightened

Under the new Act, the Articles of Association of a limited company can be very short. It only has to contain provisions on the trade name, domicile and branch of the company. With regard to other matters laid down by the Articles of Association, the Act contains presumption provisions, which will be applied unless differing provisions are included in the Articles of Association.

The procedure of the General Meeting of the Shareholders will be somewhat simplified. According to the Articles of Association, the General Meeting of the Shareholders can also be held outside Finland and certain provisions relating to notices to convene the meetings are made easier.

There shall be no specific provisions on the size of a company that has to have a Managing Director or which can have a Supervisory Board. For the sake of clarity, the starting point in the election of management bodies will be for the General Meeting of the Shareholders to elect the company Board of Directors and the Board of Directors in turn to elect the Managing Director. However, the Articles of Association can order that the Supervisory Board has the right to elect the members of Board of Directors.

The provisions on the audit of a limited company shall be essentially unchanged for the time being. The company has to have at least one auditor who, in small companies, need not be an authorised auditor. The amendment of the Audit Act is at present pending in the Ministry of Trade and Industry, which may result in amendments of the Companies Act as well.

The publicity of shareholdings to remain as it is

Information on holdings in limited companies will be public in the same way as at present. The company’s Share Register and Shareholder Register have to be available for inspection in the head office. Like at present, foreign holders can have their shares nominee registered, in which case their holdings shall not be public.

The par value of shares to be given up

Shares have traditionally had a par value laid down in the Articles of Association, meaning the minimum value to be paid for each share. In the future, there will no longer be a par value unless the Articles of Association so order.

The reform will mean an elimination of the connection between a share and share capital. This will facilitate the procedure in share issues and other arrangements. The share capital can be raised without issuing shares and shares can be issued without raising the share capital. A bonus issue will be possible without reserve fund transfers and for example the division of shares can be implemented by issuing new shares without payment.

The reform will not affect the position of creditors or minority shareholders. For example the payment of the share capital and the permanency of the capital will have the same guarantees as at present.

Investments made in the unrestricted equity of the company will be entered in a separate fund, so that they will be significantly more transparent than at present. This means that profit funds and invested equity will thus be kept separate.

A bonus issue without pre-emptive rights will be allowed in the case of an exceptionally weighty economic reason taking into account the interests of the company and all the shareholders. An opinion of the auditor has to be issued of this information. A reason referred to in the Act could be an incentive system of the personnel or the need to pay compensation to the holders of a more valuable class of shares when combining share classes.

The company can also issue bonus shares to itself.

Solvency requirement for the distribution of funds

The provisions on the distribution of the company’s profits and other funds will be supplemented by a provision to the effect that no funds may be distributed if, when making the decision on the distribution, the persons knew or should have known that the company was insolvent of that it would become insolvent due to the distribution of the funds. This aims at ensuring that the company maintains its operating requirements and at enhancing the protection of creditors.

Reserves formed of unrealised asset appreciation, such as the fair value reserve and revaluation reserve formed in financial statement complying with international financial statement standards (IFRS standards), will belong to restricted equity. This means that this type of unrealised appreciation cannot be distributed for example as dividends.

The present Companies Act restricts the giving of a loan to a person belonging to the so-called inner circle of the company. The restrictions aim at preventing going around the provisions on the distribution of assets and at preventing possible abuse. The restrictions on inner circle loans will be eliminated, because they have not been functional. Inner circle loans will, however, still be governed by the general principles of the Act.

The mergers and divisions of companies to be speeded up

The merger procedure of companies will be speeded up. The procedure to protect creditors relating to a merger can be started already when registering the draft term of merger. This will make it possible to complete a merger procedure in slightly over three months. Corresponding reforms will also relate to division.

What is new is the provisions on so called tri partite merger, in which another party than the acquiring company, usually its parent company, pays the shareholders of the merging company the merger consideration. The proposal also contains provisions on division into an operating company, i.e., company established earlier.

A limited company can be transformed into a co-operative, a partnership or limited partnership or its operations can be continued by a private entrepreneur. According to the present Act, it is possible to transform a co-operative or a partnership into a limited company but not vice versa.

Review of provisions on liability for damages

The new Act will contain provisions on the presumption of negligence in cases where damage has been caused by procedure against the law or the Articles of Association or by an act favouring someone in the inner circle of the company. In these cases the damage has to be compensated unless the party responsible for the procedure proves that he has acted with care.

The liability of a shareholder for damages for breach of the Companies Act or the Articles of Association will not require gross negligence like at present; instead, negligence alone will suffice to create the liability. However, the liability for damages cannot in practice concern a small shareholder, because he cannot be presumed to be especially active or to have special knowledge of the matters of the company.

The right of an individual shareholder to compensation for his indirect damage, i.e., for damage caused to the company will be removed. However, a special minority of the shareholders and, under certain conditions, an individual shareholder will have the right to bring an action for damages in favour of the company.

All actions for damages referred to in the Companies Act will be subject to a special limitation period of five years. At present, the period of limitation is either a specific two or three year set period or the general period of limitations.

A shareholder dissatisfied with the decision of the General Meeting of the Shareholders will, like at present, have to bring action against the decision usually within a period of three months. What is new is that the Act will also make it possible to bring action against a clearly illegal decision of the Board of Directors when the Board of Directors decides on a matter belonging to the General Meeting of the Shareholders upon authorisation of the General Meeting of the Shareholders.

Disputes to be solved by certain District Courts

The handling of civil disputes relating to limited companies will be concentrated in eight District Courts, that is the District Courts of the Åland Islands, Helsinki, Kuopio, Lahti, Oulu, Tampere, Turku and Vaasa. At present these matters are handled by all District Courts in Finland. The concentration of the cases will allow the judges better to specialise in company matters. Lately, the number of cases decided has been about one hundred a year.

Additional information: Senior Adviser, Legislative Affairs Pekka Pulkkinen, tel. (09) 1606 7702, email: first name.t.last [email protected]