Corporate governance contains an element of risk for investors, so it is vital for foreign investors to be informed of pertinent regulations while making investment decisions.In Estonia corporate governance issues are regulated mainly by the Commercial Code. In addition, in the beginning of 2006, corporate governance recommendations elaborated by the Financial Supervision Authority and Tallinn Stock Exchange took effect. But the recommendations are not obligatory 's to be complied with by all companies 's but only by companies whose shares have been admitted to trading on a regulated market operating in Estonia, OMX Tallinn Stock Exchange in particular.
The main types of companies in Estonia are public limited and private limited (both are limited liability companies). There are three main bodies governing the company 's general shareholders' meeting, the supervisory board and the management board. For private limited companies establishment of a supervisory board is optional except if the share capital exceeds 400,000 kroons (25,000 euros) and the management board has less than three members.
The supervisory board of the company consists of at least three members. The management board might consist of one or several members. Neither members of the management board nor members of the supervisory board can be shareholders of the company.
The general meeting of shareholders is the highest governing body of the company competent for adopting most fundamental resolutions for the company. The general meeting is inter alia competent to amend the articles of association, increase and reduce share capital, designate a special audit, distribute profits and decide on dissolution, merger or division of the company. The general meeting also elects and removes members of the supervisory or management boards.
The general meeting of shareholders shall be held at least once a year. It is the duty of the management board to call the general meeting of shareholders. Shareholders whose shares represent at least one-tenth of the share capital might demand calling the general meeting. In case the management board does not call it within one month after receipt of a demand from the shareholders, the general meeting can be called by shareholders themselves.
The main duties of the supervisory board are to plan the activities of the company and to organize company management. The supervisory board also manages internal control of the management board activities; regularly assesses the activities of the management board and its implementation of the company's strategy, financial condition, risk management system and lawfulness of the activities. The supervisory board shall act in the best interests of the company. Based on its duties, the supervisory board could be described as a link between shareholders and the management board.
Meetings of the supervisory board shall be held at least once every three months. Generally the chairman of the supervisory board calls the meeting. Shareholders whose shareholdings represent at least one-tenth of the share capital might also demand a meeting. Again, if the meeting is not called within two weeks as of demanding, shareholders could call it themselves.
The management board represents and directs the company and organizes the accounting. Thus the management board is a body executing the day-to-day business of the company. For engaging in transactions beyond day-to-day business (e.g., acquisition of shareholdings and enterprises, incorporation of subsidiaries and branches, making of large investments etc.), the consent on the supervisory board is required.
The management board must act in the best interests of the company without favoring personal or controlling shareholder's interests. It must also ensure that it undertakes proper risk management and internal controls in the company's activities. The articles of association or a resolution of the supervisory board might prescribe a precise work procedure of the management board. Therefore the general meeting of shareholders, as well as the supervisory board, can shape work procedure of the management board.
Andres Siigur is an associate of Teder, Glikman & Partnerid, a leading Estonian law firm and a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania.