Management

§ 168. Competence of shareholders

(1)

The shareholders are competent to:

1)

amend the articles of association;

2)

increase and reduce share capital;

3)

elect and remove members of the supervisory board;

4)

if the private limited company does not have a supervisory board, elect and remove members of the management board, and decide on the conclusion of transactions with members of the management board and on the appointment of a representative of the private limited company for such transactions;

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

5)

approve the annual report and distribute profit;

6)

divide shares;

7)

elect an auditor;

8)

designate a special audit;

9)

if the private limited company does not have a supervisory board, appoint and remove procurators;

10)

decide on assertion of a claim against a member of the management board or supervisory board, or a shareholder and on conclusion and terms and conditions of a transaction with a member of the management board or the supervisory board, and appoint a representative of the private limited company in such claim or transaction;

(22.03.2000 entered into force 17.04.2000 - RT I 2000, 29, 172)

11)

decide on dissolution, merger, division or transformation of the private limited company;

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

12)

decide on other matters placed in the competence of the shareholders by law or the articles of association.

(2)

The shareholders may also adopt resolutions on matters within the competence of the management board or supervisory board. The shareholders shall be solidarily liable in the same manner as members of the management board or supervisory board for damage wrongfully caused by making a resolution in such circumstances.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

§ 169. Number of votes of shareholder

(1)

The number of votes of a shareholder shall be proportional to the amount of the shareholders share.

(2)

Each 100 kroons of a share shall grant one vote unless the articles of association prescribe otherwise.

§ 170. Meeting of shareholders

(1)

The shareholders shall adopt resolutions at a meeting or pursuant to the procedure provided for in § 173 of this Code. In the cases provided by law, the shareholders may only adopt resolutions at a meeting of shareholders.

(2)

A meeting of shareholders is competent to adopt resolutions if the represented votes represent over one-half of the shares unless the articles of association prescribe a greater representation requirement.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(3)

A shareholder may participate in a meeting personally or through a representative. An authorisation document granted to a representative shall be in writing.

§ 171. Calling meeting of shareholders

(1)

A meeting of shareholders shall be called by the management board.

(2)

The management board shall call a meeting of shareholders for approval of the annual report and distribution of profits or if:

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

1)

the net assets (total assets minus total obligations shown under liabilities on a balance sheet) of the private limited company are less than one-half of the share capital or less than the amount of share capital specified in § 136 of this Code or other minimum amount of share capital provided by law, and more than two months remain before the meeting of shareholders which will decide on approval of the annual report; or

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773; 17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

2)

this is demanded by the supervisory board or auditor; or

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

3)

this is demanded by shareholders whose shares represent at least one-tenth of the share capital.

(3)

If the management board does not call a meeting of shareholders within one month after receipt of a demand from the supervisory board, auditor or shareholders, the supervisory board, auditor or shareholders have the right to call the meeting themselves.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(4)

A list of the shareholders participating in a meeting of shareholders shall be compiled at the meeting of shareholders, which shall set out the names of the shareholders participating in the meeting, the number of votes arising from their shares and the names of the representatives of shareholders. The list shall be signed by the chair of the meeting and the recording secretary, and by the shareholders participating in the meeting or their representatives. The authorisation documents of representatives shall be appended to the minutes of the meeting.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(5)

Minutes shall be taken of the meetings of shareholders. The provisions of subsections 304 (1)(6), respectively, apply to the minutes of the meetings of shareholders.

(22.03.2000 entered into force 17.04.2000 - RT I 2000, 29, 172)

(6)

If the votes specified in subsection 170 (2) are not represented at a meeting of shareholders, the management board shall call a new meeting with the same agenda within one week but not earlier than after two days. The new meeting of shareholders is competent to adopt resolutions regardless of the number of votes represented at the meeting.

(22.03.2000 entered into force 17.04.2000 - RT I 2000, 29, 172)

§ 172. Notice calling meeting of shareholders

(1)

The management board shall send a notice of a meeting of shareholders to all shareholders at least one week before holding the meeting. The notice shall be sent to the address entered in the list of shareholders. A different procedure for notification may be prescribed by the articles of association.

(2)

A notice shall indicate the time, place and agenda for the meeting of shareholders and other important circumstances related to the meeting.

§ 173. Adoption of resolution without calling meeting

(1)

Shareholders have the right to adopt resolutions without calling a meeting of shareholders.

(2)

The management board shall send a written draft of the resolution specified in subsection (1) of this section to all shareholders, specifying the term during which the shareholder must present the shareholders written position on it. If a shareholder does not give notice of whether the shareholder is in favour of or opposed to the resolution during this term, it shall be deemed that the shareholder votes against the resolution.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(3)

The management board shall prepare a record of voting concerning the voting results and shall promptly send it to the shareholders. A record of voting shall set out:

1)

the business name and seat of the private limited company;

2)

the name of the recording secretary;

3)

the adopted resolution together with the voting results (including the shareholders who voted for the resolutions by name);

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

4)

at the request of a shareholder who maintains a dissenting opinion with regard to a resolution, the content of the shareholders dissenting opinion;

5)

other circumstances of importance with regard to the vote.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

(4)

The written positions of shareholders specified in subsection (2) of this section shall be an integral part of the record of voting.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(5)

If the record of voting is submitted to the registrar of the commercial register, it shall include a list of shareholders and the number of votes belonging to each shareholder.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(6)

If a private limited company has a single shareholder, the shareholder may adopt resolutions without observing the provisions of § 170, 172 and 173.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

§ 174. Resolution of shareholders

(1)

A resolution of the shareholders shall be adopted if over one-half of the votes represented at the meeting of shareholders are in favour unless the law or the articles of association prescribe a greater majority requirement.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(2)

If a resolution is made pursuant to the procedure provided for in § 173 of this Code, the resolution shall be adopted if over one-half of the votes of the shareholders are in favour unless the law or the articles of association prescribe a greater majority requirement.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(3)

In the election of a person, the candidate who receives more votes than the others shall be deemed to be elected. Upon an equal division of votes, lots shall be drawn unless the articles of association prescribe otherwise.

(4)

If the minutes of a meeting of shareholders are submitted to the commercial register, the minutes shall include a complete list of shareholders which sets out the number of votes of each shareholder.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941; 22.03.2000 entered into force 17.04.2000 - RT I 2000, 29, 172)

§ 175. Resolution on amendment of articles of association

(1)

A resolution on amendment of the articles of association shall be adopted if at least two-thirds of the votes of the shareholders who participate in the meeting or, in the case specified in subsection 174 (2) of this Code, at least two-thirds of the votes of the shareholders are in favour, unless the articles of association prescribe a greater majority requirement.

(2)

A resolution on amendment of the articles of association shall enter into force as of the making of a corresponding entry in the commercial register. The resolution of the shareholders on amendment of the articles of association, the minutes of the meeting of shareholders or the record of voting, and the new text of the articles of association shall be appended to the petition submitted to the commercial register.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

§ 176. Decrease of assets

If the net assets of a private limited company are less than one-half of the share capital, or less than the amount of share capital specified in § 136 of this Code or another minimum amount of share capital provided by law, the shareholders shall decide on:

1)

a reduction or increase of share capital on the condition that the net assets would thereby form at least one-half of the share capital and at least the share capital specified in § 136 of this Code or other minimum capital provided by law; or

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

11)

the implementation of other measures as a result of which the net assets of the private limited company would form at least one-half of the share capital specified in § 136 of this Code or other minimum capital provided by law;

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

2)

dissolution, merger, division or transformation of the private limited company; or

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

3)

submission of a bankruptcy petition.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

§ 177. Restriction on right to vote

(1)

A shareholder shall not vote if release of the shareholder from obligations or liabilities, assertion of a claim against the shareholder or conclusion of a transaction between the shareholder and the private limited company, or appointment of a representative of the private limited company in such claim or transaction, is being decided. The votes of the shareholder shall not be taken into account in the determination of representation.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(2)

The provisions of subsection (1) of this section shall not apply to the conclusion of a transaction if the private limited company has a single shareholder. In such case agreements concluded between the private limited company and the single shareholder shall be in writing.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

§ 178. Contestation of resolution of shareholders

(1)

At the request of a shareholder, the management board or supervisory board, a court may declare invalid a resolution of the shareholders which is in conflict with the law or the articles of association if the request is submitted within three months after adoption of the resolution.

(2)

If the adoption procedure is violated in the adoption of a resolution of the shareholders, the resolution shall not be contested on this basis if the resolution is approved by all the shareholders.

§ 179. Approval of reports

(1)

After the end of the financial year, the management board shall prepare the annual accounts and activity report pursuant to the procedure provided for in the Accounting Act (RT I 1994, 48, 790; 1995, 26-28, 355; 92, 1604; 1996, 40, 773; 42, 811; 49, 953; 1998, 59, 941; 1999, 55, 584; 101, 903; 2001, 11, 49).

(2)

The management board shall present the annual accounts, activity report and profit distribution proposal (annual report) to the shareholders. If the private limited company has an auditor or a supervisory board, the conclusion of the auditor and the opinion of the supervisory board shall be appended to the reports.

(3)

Approval of the annual report shall be decided by the shareholders.

(4)

The management board shall submit the approved annual report to the commercial register not later than six months after the end of the financial year. A list of shareholders as at approval of the annual report shall be submitted together with the annual report and shall be maintained in the business file. The information specified in subsection 182 (1) shall be indicated in the list.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773; 17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(5)

The information specified in subsection 332 (3) shall be indicated in the profit distribution proposal. The provisions of § 335 shall correspondingly apply to the resolution on profit distribution.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

§ 180. Management Board

(1)

The management board is a directing body of the private limited company which represents and directs the private limited company.

(2)

The management board may have one member (director) or several members. A member of the management board need not be a shareholder. A member of the management board must be a natural person with active legal capacity. The residence of at least one-half of the members of the management board must be in Estonia.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

(3)

A member of the supervisory board, a bankrupt or any other person from whom the right to engage in economic activity has been taken away pursuant to law shall not be a member of the management board. The articles of association may prescribe other persons who shall not be members of the management board.

(4)

If the private limited company has a supervisory board, the management board shall, in directing, adhere to the lawful orders of the supervisory board. Transactions which are beyond the scope of everyday economic activities may only be concluded by the management board with the consent of the supervisory board. Such restriction shall not apply with regard to third persons.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(5)

The management board shall present an overview of the economic activities and economic situation of the private limited company to the supervisory board at least once every four months and shall immediately give notice of any material deterioration of the economic condition of the private limited company or any other material circumstances related to the economic activities of the private limited company.

(51)

If a private limited company is insolvent and the insolvency, due to the company's financial situation, is not temporary, the management board shall immediately submit to a court a bankruptcy petition of the private limited company.

(06.06.2001 entered into force 07.07.2001 - RT I 2001, 56, 336)

(6)

If the management board has more than two members, the members of the management board shall elect a chairman of the management board from among themselves, who shall organise the activities of the management board. If the private limited company has a supervisory board, the articles of association of the private limited company may prescribe that the chairman of the management board shall be appointed by the supervisory board.

28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

(7)

Remuneration corresponding to the tasks of a member of the management board and to the economic situation of the private limited company may be paid to a member of the management board, the amount of and procedure for payment of which shall be determined by a resolution of the shareholders, but, if a supervisory board exists, by a resolution of the supervisory board.

(8)

The specific work procedure of the management board may be prescribed by the articles of association.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

§ 181. Right of representation of management board

(1)

Every member of the management board may represent the private limited company in all legal acts unless the articles of association prescribe that some or all of the members of the management board shall represent the private limited company jointly. Joint representation shall apply with regard to third persons only if it is entered in the commercial register.

(2)

The right of the management board to represent the private limited company may be restricted by the articles of association or by a resolution of the supervisory board or of the shareholders. A restriction on the right of representation shall not apply with regard to third persons.

§ 182. List of shareholders

(1)

The management board shall maintain a list of shareholders which shall indicate the names, addresses and personal identification codes or, in the absence of the latter, the day, month and year of birth or, in the case of legal persons, the registry codes of the shareholders, and the nominal values of their shares.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773; 17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(2)

The shareholders, members of the management board and supervisory board, competent state agencies and other persons with a legitimate interest have the right to examine the list of shareholders.

(3)

If so decided by the shareholders, shares may be entered in the Estonian Central Register of Securities. In such case, the list of shareholders shall be maintained by the registrar of the Estonian Central Register of Securities. The management board of a private limited company shall ensure timely submission of correct information provided by law to the person maintaining the list of the shareholders.

(14.06.2000 entered into force 01.01.2001 - RT I 2000, 57, 373)

(4)

Upon entry of shares in the Estonian Central Register of Securities, the management board of the private limited company shall promptly submit a notice from the registrar of the Estonian Central Register of Securities concerning registration of the shares to the registrar of the commercial register.

(14.06.2000 entered into force 01.01.2001 - RT I 2000, 57, 373)

§ 183. Accounting

The management board shall organise the accounting of the private limited company.

§ 184. Election and removal of members of management board

(1)

The members of the management board shall be elected and removed by the shareholders. If the private limited company has a supervisory board, the members of the management board shall be elected and removed by the supervisory board. The resolution of the supervisory board and minutes of the meeting or, if no supervisory board exists, the resolution of the meeting of shareholders and the minutes of the meeting or record of voting shall be appended to a petition for entry of the termination of the authority of a member of the management board, or for entry of a new member of the management board in the register. In order to elect a member of the management board, his or her written consent is required, which shall also be appended to a petition for entry of the member of the management board submitted to the registrar.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773; 17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(2)

A member of the management board shall be elected for a term of three years unless the articles of association prescribe a shorter term.

(3)

A member of the management board may be removed upon a resolution of the shareholders regardless of the reason. Rights and obligations arising from a contract concluded with a member of the management board shall terminate pursuant to the contract. If the private limited company has a supervisory board, the supervisory board may also remove a member of the management board.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773; 17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(4)

(Repealed - 17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(5)

If the private limited company does not have a supervisory board, shareholders whose shares represent at least one-tenth of the share capital may, with good reason, request the removal of a member of the management board by a court.

(6)

With good reason, a court may appoint a new member to replace a removed member of the management board on the petition of the supervisory board, a shareholder or other interested person. The authority of the court-appointed member of the management board shall continue until appointment of a new member of the management board by the shareholders or the supervisory board.

§ 185. Prohibition on competition

(1)

Without the consent of the shareholders or, if a supervisory board exists, without the consent of the supervisory board, a member of the management board shall not:

1)

be a sole proprietor in the area of activity of the private limited company;

2)

be a partner of a general partnership or a general partner of a limited partnership which operates in the same area of activity as the private limited company;

3)

be a member of a directing body of a company which operates in the same area of activity as the private limited company, except if the companies belong to one group.

(2)

If the activities of a member of the management board are in conflict with the provisions of subsection (1) of this section, the private limited company may demand that the member of the management board terminate the prohibited activity, transfer the income received from the prohibited activity to the private limited company and compensate for damage to the extent exceeding the claimed income.

(3)

The limitation period for a claim to terminate a prohibited activity and to transfer the income received from the prohibited activity shall be three months from the date the private limited company becomes aware of the violation of the prohibition on competition but not longer than three years after the violation of the prohibition on competition. The general limitation period shall apply to a claim for compensation of damage.

§ 186. Preservation of business secrets

(1)

The members of the management board shall preserve the business secrets of the private limited company.

(2)

The private limited company shall not claim compensation for any damage caused by violation of the obligation specified in subsection (1) of this section if the members of the management board acted in accordance with a lawful resolution of the meeting of shareholders or of the supervisory board.

§ 187. Liability of members of management board

(1)

The members of the management board shall be solidarily liable for any damage wrongfully caused to the private limited company or to shareholders by violation of the requirements of law or of the articles of association, or by failure to perform their obligations.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

(2)

The members of the management board who wrongfully cause damage to a creditor of the private limited company by failure to perform their obligations or unsatisfactory performance of their obligations shall be solidarily liable with the private limited company to the creditor.

(3)

The limitation period for assertion of a claim against a member of the management board shall be five years from the occurrence of a violation or from the commencement of a violation.

§ 188. Liability of partners

(1)

A shareholder shall be liable for any damage intentionally caused or caused due to gross negligence to the private limited company, another shareholder or a third person, in the capacity of shareholder.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941)

(2)

A shareholder shall not be liable for any damage caused if the shareholder did not participate in the adoption of the resolution which was the basis for the cause of damage or if the shareholder voted against the resolution. In the case provided for in subsection 173 (2) of this Code, a shareholder who does not give notice of whether the shareholder is in favour of or opposed to a resolution shall be deemed to vote against the resolution.

§ 189. Supervisory Board

(1)

A private limited company shall have a supervisory board if the share capital is greater than 400000 kroons and the management board of the private limited company has less than three members, or if prescribed by the articles of association of the private limited company.

(2)

The provisions of this Code concerning the supervisory board of a public limited company shall correspondingly apply to the competence and activity of the supervisory board unless otherwise provided by law.

(17.06.98 entered into force 10.07.98 - RT I 1998, 59, 941; 28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

§ 190. Auditor

(1)

A private limited company shall have an auditor if the share capital of the private limited company is greater than 400000 kroons or if prescribed by law or the articles of association.

(28.05.96 entered into force 08.06.96 - RT I 1996, 40, 773)

(2)

The provisions of §§ 328 and 329 of this Code shall apply to the competence and activity of the auditor.

§ 191. Special audit

(1)

Shareholders whose shares represent at least one-tenth of the share capital may demand a resolution on conduct of a special audit on matters regarding the management or financial situation of the private limited company, and the appointment of an auditor for the special audit by a resolution of the shareholders.

(2)

If the shareholders do not decide on conduct of a special audit, shareholders whose shares represent at least one-quarter of the share capital may request that a special audit be conducted and that an auditor for the special audit be appointed by a court. The court shall decide on conduct of a special audit only with good reason.

(3)

Auditors may be the auditors for a special audit. If the auditors for a special audit are appointed by the shareholders, the shareholders shall also approve the procedure for their remuneration. The procedure for and amount of remuneration for court-appointed auditors for a special audit shall be specified by the court.

(4)

The members of the management board and supervisory board shall enable the auditors for the special audit to examine all documents necessary for conduct of the special audit and shall provide necessary information. The auditors for the special audit shall preserve the business secrets of the private limited company.

(5)

The auditors for the special audit shall prepare a report concerning the results of the special audit, which they shall present to a meeting of shareholders.

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