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Financial Participation

At the moment, there are no special legal regulations regarding employee ownership or profit-sharing in Estonian companies. The existing employee ownership structures are mainly a result of the privatization process in the 1990s.

The principal laws regulating privatization in Estonia are still in effect, though with important amendments. They are the 17 June 1993 Privatization Law (PL), the 13 June 1991 Law on Ownership Reform (LOR) and the 17 October 1991 Law on Land Reform (LLR).1 Employee ownership in Estonia was only able to emerge at a very early stage of privatization. All employee privileges in connection with privatization were abolished after the new Privatization Law was adopted on 17 June 1993.

The first stage of privatization involved the privatization of small and middle-sized enterprises in accordance with the 29 December 1990 Law on Privatization of State-Owned Service, Trade and Catering Enterprises which granted employees the pre-emptive right to buy the enterprise at a fixed price. These employee rights were subsequently cut back in 1992 and eventually abolished with the 1993 Privatization Law regulating all privatization procedures including small privatizations. The privatization of large enterprises started in 1993, with privatization vouchers also being introduced in 1993. Every permanent resident was entitled to a privatization voucher according to his length of employment, and this could be used as a cash substitute in auctions and tenders of enterprises. It could also be used for the public offerings of shares in the 39 large companies where the majority of shares were sold to a core investor. However, they were mostly used for privatization of land and housing. Only 39% were used by the population to purchase company shares. Privatization vouchers could be used for payment in privatizations up to 1 December 2000 (§ 29.2 PL). Another type of voucher were the “compensation vouchers”. The March 1992 Law on Agricultural Reform, gave these vouchers to former owners entitled to restitution, which they could use to purchase shares or housing and land.

The basic concept of privatization in Estonia is the direct sale to the highest bidder via public tender, supplemented by restitution (see § 36.1 LOR). This is the fundamental concept behind the PL and LOR. It was first introduced in 1993 and is still in effect. The PL contains no privileges for employees or any other groups of potential buyers. The only pre-emptive right in the PL concerns private shareholders who hold shares in partly state-owned enterprises: they have the pre-emptive right to purchase shares from the state at a price determined by the organiser of privatization, i.e. the respective state or municipal agency (§ 2.4PL). This might apply to employees if they are minority shareholders in enterprises still partly owned by the state.

Regarding private companies, Estonian law does not contain any special regulations on employee share ownership or profit-sharing. The valid regulations are to be found in the Company Law laid down in the 15 February 1995 Commercial Code and the Securities Law laid down in the 17 October 2001 Securities Market Law.

For those employees still holding shares purchased during the, pre-1st September 1995 privatization process, the rights attached to those shares (in accordance with company and securities law) are still valid, as in §§ 515 (1) and (2) CC. According to the same law, rights not attached to shares are void. Another important aspect is that if shares issued by a company are offered solely to the employees or managers of that company, the prospectus need not be made public and registered (§ 17 (1) 2) SML). Together with § 25 SML this means that employees and management are not entitled to compensation as a result of any volatility of acquired securities. Another aspect in the law is that, if a company provides investment services solely to its employees and management, it does not have to be registered as an investment company (§ 42 (1) SML). It can thus conduct investment activities without a licence (§§ 48 ff., SML) and it is not obliged to report transactions (§ 91 SML) or to have additional reserve and risk funds (§§ 93 ff., SML).2

Cooperatives

The new Law on Cooperatives dates from 19th December 2001. The division of existing cooperatives into commercial and non-profit associations, as well as the reorganisation of some of the cooperatives and the creation of new organizations in accordance with the new law, makes a comparison of statistical data before and after 2001 impossible.

According to the new law, there are commercial and non-profit associations. Commercial associations are an association of physical persons or legal entities not owned by the state, with each member having one vote. Liability can be limited (in this case the association capital must be at least 40,000 kroons) and profit distributed to members. As mentioned in “The PEPPER III Report: Estonia”(2006), the number of commercial associations is not very large and in decline. Probable reasons for this trend are the organizational and administrative expenses and the additional requirements for management. Agricultural commercial associations receive support to cover their administrative and organisational costs, as stated in §§ 59-61 of the 11 October 2000 Law on Rural Development and Agricultural Market Regulation .

Profit-sharing

There are no special regulations on profit-sharing in Estonia and, as a consequence, there are neither legal incentives nor disincentives for company profit-sharing schemes . However, legal issues regarding the taxation of different income components make profit-sharing schemes look disadvantageous for employees.

Employee financial participation schemes were never really on the parliament’s agenda. The Social Democratic Party was the only party advocating an improvement in the terms for supporting participation schemes. No political initiatives in this direction can be expected in the short to middle term.3

Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.