A major reform of the Companies Act of 1978 has been in preparation since 2001. The new Act finally came into force on 1 September, 2006. It is, overall, more flexible than its predecessor.

The new Act contains several modernisations, the most important of which include:

. liberalised regulations for the organisation of a limited company;

. elimination of the nominal value of shares;

. adjusted solvency requirements; and

. review of the provisions on directors'/ shareholders' liability.

Liberalised regulations for setting up and operating a limited company

Under the new Companies Act, the setting up of limited liability companies is more flexible and less formal than under the old legislation. For example, the articles of association of a limited company need only contain the articles regarding the name, domicile and objects of the company. Other matters, such as the financial period, the auditing of the company and the convening of the general meeting of shareholders, is covered by standard provisions laid down in the new Companies Act. Any deviations from the standard provisions will have to be included in the articles of association. Procedural regulations for convening the general meeting of shareholders have been relaxed as well. The meetings need no longer to be held in Finland and the provisions relating to notices to convene the meetings are more flexible.

In addition to the above amendments, the process of setting up a private limited liability company is further facilitated by a lowered share capital requirement. Under the new Companies Act, private limited liability companies are required to have a share capital of only €2,500 (£1,680) (in comparison with €8,000 (£5,380) required previously). However, the requirement for a share capital of €80,000 (£53,800) for public companies has remained unchanged.

Elimination of the nominal value of shares The new Companies Act introduces a significant reform of the previous capital structure by eliminating the nominal value of shares. Pursuant to the old Companies Act, the nominal value of shares could be determined in the company's articles as a fixed amount or be calculated by dividing the fully paid-up share capital by the number of shares issued (book counter-value).

Under the new Act, the connection between the share capital and the rights related to shares has been abolished and a share neither has a nominal value or a book counter-value nor does it represent a specific portion of a company's share capital.

Therefore, it is possible to increase the share capital of a company without issuing new shares and, correspond-ingly, new shares may be issued without increasing the share capital. In addition, the elimination of the nominal value/ book counter-value has also eliminated the minimum subscription price per share to be observed in connection with a new issue of shares.

Adjusted solvency requirements

Under the new Companies Act, the previous categorical minimum equity ratio requirements have been replaced by a general provision limiting the distribution of company funds if it is known, or ought to be known, that the company is insolvent or that it will, as a result of the distribution, become insolvent.

According to the travaux preparatories of the new Companies Act, the provision is aimed at securing the operations of the company and thereby enhancing the protection of the creditors.

In connection with the above amendments, the strict regulation of loans granted to persons close to the company (the so-called inner circle), designed to prevent possible abuses of the distribution of assets, has been abolished.

Furthermore, the provisions concerning the purchase of own shares under the old Companies Act have been liberalised.

Review of the provisions on directors' and shareholders' liability Much-debated amendments have been made to the regulation of directors' and shareholders' liability for financial loss/damages suffered by the company under the new Companies Act. According to the Act, a director of a Finnish limited liability company committing an unlawful act, an act contrary to the articles of association or an act unfairly favouring someone close to the company will, with respect to financial loss caused by such actions, be presumed to have acted negligently unless proven otherwise.

Furthermore, under the new Act the shareholders are granted a right to bring actions against apparently unlawful resolutions of the board of directors, even where the resolution in the matter is based upon authorisation by the general meeting of the shareholders.

Shareholders' liability for damages is more stringent under the new Companies Act, since simple negligence, as opposed to gross negligence, is enough to create liability.

The new Companies Act is a welcomed reform that introduces new possibilities with regard to mergers and acquisitions as well as to other transactions. However, taxation issues have not yet been updated to correspond with the amendments to the Companies Act and therefore may, to some extent, restrict the possibilities of the new Companies Act.

Time will tell how the most radical reforms, such as the amendments to directors' liability, will work in practice.

Tarja Wist is a partner and Sami Martola an associate at Waselius & Wist in Helsinki.