Alternatives to bring company’s net assets into compliance with legislation based on Estonian examples
¹Institute of Economic and Social Sciences, Estonian University of Life Sciences,Kreutzwaldi 1, 51014 Tartu Estonia; e-mail: peedu.zeiger@emu.ee
²Estonian University of Life Sciences, Kreutzwaldi 1, 51014 Tartu Estonia; e-mail:jyri.lehtsaar@emu.ee
³Institute of Economic and Social Sciences, Estonian University of Life Sciences,Kreutzwaldi 1, 51014 Tartu Estonia; e-mail: maire.nurmet@emu.ee
⁴The Estonian Information Technology College, Raja 4C, 12616 Tallinn Estonia; e-mail: taavi.zeiger@gmail.com
Abstract:
A situation may arise as a consequence of the realisation of the external and/or internal risks of a company in which the net assets of a company no longer comply with the requirements laid down by law. Net assets of a company that are not in compliance with legislation represent a situation where the liabilities of a company exceed its assets. Such a situation may threaten the sustainability of a company and its ability to meet the liabilities to its creditors.According to Estonian legislation, income tax is imposed on the refund of monetary contributions made to cover losses. Income tax is also imposed on the reconstitution of a proprietary loan as a company’s liability. Income tax is imposed on both described transactions because of the fact that in the case of these transactions, net assets are brought into compliance with requirements by means of an income statement and income tax is imposed on the later disbursement of any profit distributed.The purpose of the current paper is to compare different methods for bringing a company’s net assets into compliance with requirements laid down by law in the fastest and most cost effective way.The use of an additional reserve fund to comply with the requirements established by the company’s net assets allows for achieving the desired result within a minimum amount of time. Monetary payments made from additional reserve fund and/or reconversion of liabilities cannot be construed as profit allocations and, therefore, such payments are not subject to income tax.
Key words:
additional fund, agricultural entrepreneur, equity, financial innovation, net assets