Transformation of a civil partnership allows the transformed company to continue with the rights and obligations that constitute the common assets of the civil partnership’s partners. The decision to transform a civil partnership can result from the advantages of Estonian CIT taxation, as well as the limitation of personal liability for obligations arising from the activities conducted by the civil partnership’s partners.
What are the ways to transform a civil partnership?
A civil partnership is only an agreement between partners, but the Commercial Companies Code provides the possibility to transform it into a commercial company, such as a general partnership, limited partnership, or limited liability company (LLC).
How does the process of transforming a civil partnership work?
The course of the transformation process of a civil partnership depends on the type of company it will be transformed into. Different rules apply when transforming a civil partnership into a general partnership, as opposed to transforming it into a company other than a general partnership. For some types of transformations, additional simplifications of the procedure can be applied. The Commercial Companies Code provides the following transformation procedures for civil partnerships:
- Transformation of a civil partnership into a general partnership.
- Transformation of a civil partnership into a different company than a general partnership (without simplifications).
- Transformation of a civil partnership into a personal partnership (simplified).
- Transformation of a civil partnership into a capital company (simplified).
In practice, partners of civil partnerships most commonly choose to transform into a capital company, especially an LLC. This process typically takes around 3 months.
I. The first step is to prepare a transformation plan, along with attachments such as a draft resolution on transformation, a draft agreement/articles of association for the transformed company, and financial statements for transformation purposes. In the case of a transformation into a joint-stock company, the transformation plan must be audited by a certified auditor.
II. The next step, which can be skipped in some situations (e.g., for simplified transformations), is to notify the partners of the civil partnership twice about the intention to adopt a resolution on the transformation of the partnership. This is not required when all partners of the civil partnership have managed the affairs of the partnership. In the simplified procedure, there is no need to prepare a transformation plan.
III. In the simplified procedure, only a draft agreement and resolution need to be prepared, along with financial statements for transformation purposes in the case of transformation into a capital company.
IV. The partners must then adopt a resolution on the transformation, which should include the content of the agreement of the transformed company and specify the entities representing the company. After the resolution is adopted, it is necessary to submit an application for the registration of the transformation to the National Court Register (KRS). The transformed company is established upon registration in the KRS.
What should be considered when transforming a civil partnership?
During the transformation process, other elements arising from specific regulations, agreements to which the company is a party, or decisions issued on its behalf must also be taken into account. For example, it is worth analyzing whether, within the civil partnership, the partners are not owners of any agricultural properties in the understanding of relevant regulations, as well as whether they have licenses or permits, such as licenses for the transportation of goods or people.
The decision to transform should be preceded by an analysis of which legal form will be most advantageous in terms of financial burdens for the partners and will allow the realization of other objectives and plans of the partners.
In the transformation process, it is advisable to seek the assistance of professionals.