Finland is in a process to amend its Companies Act to correspond with EC legislation. The Finnish government has, after several years of preparation, submitted a proposal to the Parliament for an extensive revision of the current Companies Act. The following text describes the most important changes in the proposal compared to the current legislation.

1. DISTINCTION BETWEEN PUBLIC AND PRIVATE COMPANY

 One of the most significant changes is the introduction of two different types of limited liability companies. A private limited liability company has a minimum share capital of fifty thousand (50,000) marks (approximately 10,000 USD). A public limited liability company has a minimum share capital of five hundred thousand (500,000) marks (approximately 100,000 USD). Only securities of a public company may be offered to the public and be publicly traded on stock markets. The development of the securities' market and the new demands on the protection of investors are the main reasons behind this division.

As a general rule all existing limited liability companies are considered private companies when the changes come into force, with the exception of companies whose issued securities are currently publicly traded.

2. PAYMENT OF SHARE CAPITAL

 Rules concerning the payment and the registration of the share capital will be changed. Under the current system only half of the share capital has to be paid when the company is registered with the Trade Register. Under the new rules all of the share capital that is to be registered has to be paid at the time of the registration. If property, other than cash, is given as payment of shares a statement from an certified public accountant must be obtained.

3. GROUP ASPECTS

 According to the proposal the definition of a group is to be changed. The decisive factor for a formation of a group is to be actual authority. In addition other corporations under the parent company's authority than limited liability companies also belong to the group. This is a significant expansion of the group definition compared to the current legislation.

4. NEW FINANCIAL INSTRUMENTS

 The proposal includes rules whereby certain commonly used financial instruments are defined. The reforms are proposed in order to meet national and international demands of corporate finance, and after the reforms especially mezzanine financing will become easier.

4.1 Preference Share

 An introduction of an preference share is proposed. The preference share would give a right to vote only in matters defined either in the law or in the Articles of Association. According to the proposal a preference share would give a right to vote only when a company's general meeting would vote on changing the Articles of Association, if the proposed change would change the preference share's right compared to other shares.

A preference share has a better right to the company's profit than normal shares. It may be prescribed in the Articles of Association of a company that dividend may be paid retroactively. In an liquidation, however, only the nominal value of the preference share is returned, unless otherwise prescribed in the Articles of Association.

4.2 Preferred Capital Loan

 The proposal includes rules governing a preferred capital loan. The loan is defined as a liability but can be marked as an equity item in the balance sheet of the company.

The loan can be repaid only under certain preconditions. During the company's activities the loan equity can be returned only if full coverage for the company's restricted equity capital and other undistributive capital can be secured. Further, the loan has the lowest priority not including the share capital of a company in an liquidation or bankruptcy. No collateral security can be issued for a preferred capital loan.

The preferred capital loan is expected to be a widely used tool in Finnish corporate finance.

4.3 Options

 According to the proposal options can be issued without any loan, a possibility not allowed under the current legislation.

4.4 Acquiring Own Shares

 According to the proposal a company may acquire its own shares with its equity. However, a public company cannot normally own more than 5% of its shares or votes. In addition, a public company can only acquire or sell its own shares in the stock markets one week after having issued an official announcement thereof.

5. CHANGING OF COMPANY FORM

 5.1 Mergers

 The rules governing merger compensation are to be amended. According to the proposal in cases when the merger compensation consists of other than shares in the receiving company the merging company's shareholders have a right to get part of the compensation in cash.

Further, the merger agreement is to be replaced with a merger plan, in which the economic situation of the parties and the merger compensation are to be defined.

5.2 Divisions

 Division of companies is to be eased through new rules allowing a company to divide its businesses into several companies without liquidation, as the current legislation demands. According to the proposal a division can be carried out either by forming two or more new companies or by forming one or more companies of a part of the old company.

5.3 Redemption Of Shares

 The right and the duty to redemption of shares will apply to anyone owning directly or through a group, controlling while the dividing company is liquidated over ninety per cent of a company's shares and its total number of votes. However, shares that do not give a right to attend a company's general meeting are not taken into consideration.

6. CHANGING OF ARTICLES OF ASSOCIATION

 The procedure to change the rights of a share class in relation to other share class is to be simplified. The current rule of a approval of nine tenths of the share class at a company's general meeting is proposed to be lowered to two thirds. However, the approval also has to be obtained from owners representing more than fifty per cent of a share class.

Certain company restructurings including mergers, divisions and purchase of the company's own shares require a qualified voting majority in each class of shares.

7. OBLIGATION TO DISCLOSE

 When the new law is enacted, each company is obliged each year to file its financial statements with the Trade register. In addition, public companies are required to prepare semi-annual financial statements. A detail worth mentioning is that all companies are obliged to mention its registered business name, domicile, address and its trade register number in the letters and blank-forms that the company uses. Furthermore, if the company is in liquidation the company has to mention that as well.

8. COMING INTO FORCE OF THE CHANGES

 As the EC treaty of accession does not stipulate any transfer time for the implementation of the company law directives the changes are proposed to come into force as soon as possible, although at earliest in 1997.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.