Company formation and regulation compliance for SMEs (Estonia)

The purpose of this paper is to examine academic literature and business regulation for company formation in Estonia in relation to small to medium‐sized enterprises (SMEs). It is an example of a country which is a new member of the expanded European Union (EU) and its regulation.

This exploratory paper makes use of World Bank Surveys, primary business law sources together with an interview from a business within the country assessed giving a grass‐roots perspective.

The investigation reaffirms the importance of SMEs within transitional economies from a Soviet background such as Estonia because of the Socialist black hole. It also emphasizes the correlation between SME development and business law and the significance and key aspects of company formation for an SME. Furthermore, transition economies like Estonia have complied with EU directives for company formation and advanced within the regulation process quickly. However, it is still more difficult for a person or entity from another EU Member State to form a company in Estonia.

This research demonstrates that compliance on EU regulation for company formation by a new EU member has been provided for within the regulation of the wording. It also indicates that for an entity from another EU state (other than Estonia) it is slightly more difficult to form a company. Unofficial costs, a legacy from the Soviet period are almost non‐existent within the Estonian company registration system. Some of the gaps within the World Bank Surveys are filled by the interview, although further evaluation is needed from other academics.

The research highlights the importance of company formation for SMEs, the compliance of a new EU Member State with EU directives, and the reality of company formation regulation for an SME in Estonia.