Estonian political and legal system

The citizens of Estonia have the right to elect the Parliament (Riigikogu) and to vote in referenda. Estonia also has a President and well-developed judicial system, which help to ensure the balance of power under the Republic of Estonia’s fourth Constitution of 1992.

The Estonian Parliament has 101 members who are elected according to proportional voting, based on percentages that each party receives in the election. Elections are required by the Estonian Constitution to take place at least every four years. The President of the Republic is elected by the Parliament for a five-year term. The current President is Mr. Arnold Rüütel. Laws are passed by the Parliament but the President may use a veto to suspend the effect of these laws. The laws of the Estonian Republic are all published in the Riigi Teataja (The State Gazette).

The legal system of Estonia is a civil law system based on the German legal system. This type of legal system has a tendency towards detailed codification of most legal issues rather than relying as much on judge-made law as common-law countries do.

Foreign investment

To encourage foreign investors to invest in Estonia, the Foreign Investment Act (in force since September 1991) was adopted immediately following re-independence. The aim of the law was to provide foreign investors with advantages, especially regarding taxation. At the present moment, the aim of the Estonian economic policy is to provide foreign and local investors with equally favourable conditions. Therefore, although the advantages given to foreign investors have been removed, no special restrictions have been enforced against foreigners. There are no limits on import and export. All companies may have foreign currency accounts or accounts in foreign banks.

Foreign investments are protected by both local and international legislation. On the international level Estonia has concluded treaties for the protection of investments with several countries including Germany, the UK, the US, France, Austria, Finland and Sweden. It is well worth note that there are no restrictions on repatriation of profits; investors are free to take their capital from the country.

Business organizations

When local or foreign investors choose to set up a new enterprise in Estonia, the law provides them with many options as to the form that enterprise may take. These forms of organization include partnerships (both general and limited), private limited companies, public limited companies, and branches. The law of forming an enterprise and changing an enterprise between one form and another in Estonia is fairly detailed. This brochure only intends to provide a basic introduction to the different forms of enterprise that Estonian law permits.

Partnerships

The Estonian Commercial Code includes a sound foundation for the formation of a partnership. Estonian partnership law is drafted in accordance with international standards. A general partnership allows business people to form an enterprise in which the profits and losses are shared equally or according to a specified formula. The general partners have no limitations on their liabilities for losses of the partnership.

Concerning limited partners, their liabilities are limited to the amount invested in the partnership as long as the limited partner has made a full contribution to the partnership as required by the partnership agreement. In fact, limited partners are particularly well insulated from liability under Estonian law, in that limited partners may exercise management control if the partnership agreement so provides, while at the same time maintaining limited liability. In other jurisdictions, such an exercise of management control coiuld threaten the limited liability of that partner.

Presumably, most foreign investors would prefer to use one of the other three types of business organizations allowed under Estonian law, all of which provide for limited liability. They are set out immediately below.

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