The new Finnish Companies Act (the "Act") entered into force on 1 September 2006. The operating freedom of companies increases with the removal of different restrictions and formal requirements as well as the introduction of new operating methods. The new Act allows more flexibility for structuring investments into Finnish portfolio companies by enabling more flexible valuation adjustments and anti-dilution structures, by increasing possibilities to create new classes of shares and other equity instruments, by allowing a more flexible distribution of funds, and by abolishing many of the rather detailed procedural rules.
The completely revised regulation of shares and share capital under the Act aims to increase the possibilities to choose different methods of financing limited companies. The new Act is based on the idea of completely separating shares from share capital. Shares do not hold any nominal value unless otherwise stipulated in the Articles of Association. Therefore, shares no longer represent a proportion of the share capital, which makes it possible to increase share capital without issuing new shares. Similarly issuing new shares becomes easier, as a share issue can be carried out without a simultaneous increase of the share capital.
One of the main changes with respect to the funding of limited companies is the introduction of a fund for invested unrestricted (distributable) equity. The new Act makes it possible to note the subscription price of a new share as unrestricted equity instead of share capital. The new provisions enable more flexible distribution of capital in most situations.
In addition to increased flexibility, the provisions on the legal protection of creditors and minority shareholders have also been enhanced. The provisions on distribution of the company’s profits and other funds have been supplemented by a provision to the effect that no funds may be distributed if, when a decision on distribution is made, it is known or it should have been known that the company is insolvent or that it will become insolvent. This aims at ensuring that the company maintains a necessary level of liquidity. The new Act allows, in accordance with international practice, the payment of interim dividends based on approved (interim) financial statements.
The merger procedure has been speeded up. The procedure for the protection of creditors relating to a merger can be commenced already when registering the merger plan. This makes it possible to complete a merger procedure in approximately three and a half months time. A new addition in the Act is the so-called tripartite merger. In a tripartite merger a party other than the acquiring company, usually its parent company, pays the merger consideration to the shareholders of the merging company. In addition to provisions on demerger contained in the previous Companies Act, the new Act also contains provisions on demerger into an already operating company.
There are additionally some other important changes that have been made to the Act. The minimum share capital of private limited companies has been lowered to 2 500 EUR, which makes it somewhat easier to establish new limited companies. The requirement to initiate a compulsory liquidation of companies when the company’s equity falls below half of its share capital has been abolished and replaced by a two-phase procedure, which is better suited for the funding of companies by shareholders and third parties in order to avoid liquidation. The restrictions concerning loans given by the company to persons closely related to the company have been abolished, however such loans are still governed by the general principles of the Act now also included as statutory provisions of the Act.
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