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Nove Lawyers Analyze Cross-Border Mobility of Companies for Estonian Government

Nove Lawyers Analyze Cross-Border Mobility of Companies for Estonian Government

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According to Estonia's Nove law office, a study conducted by two of its lawyers that was commissioned by Estonia's Ministry of Justice and the Government Office and carried out in cooperation with the Estonian Center for Applied Research (CENTAR) has revealed that in order to better protect the interests of creditors and shareholders, cross-border mobility of companies should be easier and more expressly regulated.

Nove Partner Urmas Volens — one of the two Nove lawyers who worked on the study — reports that the authors were tasked with identifying reasons why entrepreneurs choose to transfer their registered offices and the legal problems that may arise from poor regulation of company movement across borders. According to Volens, "as noted in 2016 by the European Commission in the framework of the European Semester, the fact that Estonia and several other countries lack rules governing the transfer of company seat weakens the business environment in these countries."

According to Kulliki Feldman, advisor in the Private Law Department of the Estonian Ministry of Justice, "easier cross-border movement of companies contributes to a better business environment. Although there is no EU-level legislation on the cross-border transfer of registered office and the cross-border division of companies, such operations are partly possible in several of the EU countries including Finland, Denmark, Portugal, Italy and Germany whereas for instance Estonia and many other countries lack possibilities for the cross-border mobility of companies."

To identify potential cases, the research team contacted business associations, embassies, chambers of commerce and industry, and major law offices dealing with mergers and acquisitions in Estonia as well as eight other EU Member States .Volens' research identified eight cases where companies had either wished to move their registered offices to or from Estonia or were considering doing so in the near future. In all these cases, what Volens describes as "legal side roads" were commonly taken, "such as cross-border merger in order to start business activity abroad or to move it into Estonia." According to Volens, "this, however, could involve extra costs or procedures, which lead some of the companies to abandon the idea of starting business in another member state."

“That would not be required if cross-border transfer of the registered seat was possible," Feldman explained."In some cases, this would allow to initiate economic activity or continue it in another member state more easily and quickly than possible at the moment."

"The task of preparing the study was quite a complicated one as the research phenomenon – cross-border movement of companies – is not too widespread at the moment due to lacking regulation," said Volens. "Additionally, businesses are used to planning their activities in the framework of existing rules. The study owes much of its success to the rarely constructive and close cooperation with the Ministry of Justice as the contracting authority."

The final report was drawn up by Epp Kallaste and Janno Jarve from CENTAR and Urmas Volens and Arsi Pavelts from the Nove law office. The study was funded by the European Social Fund.

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