Financial statements can now be filed with an optional date

Financial statements must be prepared on the form set out in the laws, and their preparation is compulsory for all entrepreneurs active in Estonia.

Duration of a company’s financial year

The financial year is usually deemed to be 12 months long and is normally set as lasting from 1 January to 31 December. The articles of association of a company may set out a different financial year. A financial year must not be longer than 18 months, but upon changing the start date of the financial year, founding a company or ending it, the financial year may be longer or shorter than 12 months.

Financial statements are prepared through the following stages:

1. preparing the annual accounts;
2. preparing the activity management report;
3. auditing (if required);
4. preparing a profit distribution proposal and adopting a decision to distribute the profit or to cover the loss;
5. presenting the financial statements for approval.

When are financial statements submitted?

Financial statements are submitted within 6 months after the end of the financial year. They are submitted to the Commercial Register, and the Company Registration Portal can be used for presenting them in electronic form.

While before, financial statements became public immediately after their submission to the Commercial Register, now companies can choose the date of submission of their financial statements. The relevant suggestion came from the Chamber of Commerce and Industry and the gist of the amendment is that when uploading the financial statements, you can now choose the date when the statements become publicly visible in the Register. If a date after the submission date was chosen, the financial statements will not be visible before that date to Statistics Estonia either, so Statistics Estonia cannot use the data presented in those financial statements until then.

A general meeting’s resolution can also be annulled by erroneous financial statements

Or, as the folk saying goes – measure twice, cut once.

Shareholders exercise their rights through general meeting, which is also the highest governing body of a public limited company (aktsiaselts – AS). The rules for summoning a general meeting and all its processes are precisely set out in the Commercial Code – shareholders do not participate directly in the company’s management.

But if those rules have been broken, it is possible to contest the resolutions of a general meeting, both to identify their original nullity and to apply for declaring them invalid. Here, the difference lies in the fact that a valid resolution remains in force until a court declares it invalid, but a void resolution is void from the start, i.e., it is like they never made that resolution.

A clear opinion in the Supreme Court

In its recent adjudication, the Supreme Court found that both resolutions of general meetings as well as financial statements approved by such resolutions could be discussed in that context. Therefore, under contesting a general meeting’s resolution, financial statements can also be contested. The reasoning is that the general meeting approving the year’s financial statements gets the content of the meeting precisely from those financial statements.

Financial statements for an economic year must provide fair and correct information about both the company’s economic results and its financial status, therefore any information that was left undisclosed in financial statements but which may have significance for economic decisions to be made on the basis of the financial statements is significant in this context.

The protection of debtors’ interests is important here and if the financial statements provide a significantly incorrect view of the enterprise’s financial status then the provisions protecting creditors are considered violated. It is for that reasoning that a general meeting’s resolution approving such financial statements is void. This rule is also set out in the Commercial Code, §301(1)1). The Court also considered it necessary to mention that minor shortcomings and deviations in the financial statements do not affect the validity of the resolution.

Did it badly – do it again

The nullity of a general meeting’s resolution approving financial statements must be identified by a court, but the law does not set out a specific time limit for protecting one’s rights. But as financial statements themselves must be presented compulsorily, not only the incorrect data of the financial statements must be corrected but also a new general meeting must be summoned. In that, the procedural rules set out in the Commercial Code must be followed, so that a deviation from the procedure to summon a general meeting would not become the grounds for nullity of the general meeting’s resolution in turn. All of the above is similarly valid to private limited companies (osaühing – OÜ).