Estonia is well-known among foreign founders for its limited liability company (Osaühing or OÜ) – the most popular business structure used by e-residents and entrepreneurs. However, there’s another, often overlooked option that can be a perfect fit for certain ventures: the Limited Partnership (Usaldusühing or UÜ in Estonian).
LPs in Estonia: Flexible, Capital-Free, and Built for Growth
An LP comes with unique advantages – from zero share capital requirements to flexible internal arrangements – that foreign entrepreneurs should not ignore. In this article, we explore the benefits of choosing an LP as your Estonian business vehicle, how it compares to the ubiquitous OÜ, and the general perks of doing business in Estonia’s digitally advanced, business-friendly environment.
What is a Limited Partnership (LP) in Estonia?
A Limited Partnership in Estonia is a type of business entity that requires at least two partners: one general partner (GP) and one limited partner (LP). The general partner manages the business and bears full, unlimited liability for the partnership’s obligations, whereas the limited partner contributes capital but has liability only up to the amount of their contribution.
Clear Division of Risk and Responsibility – That’s the LP Advantage
In other words, the limited partner’s personal assets are protected beyond what they invest, while the general partner assumes the full risk. This structure is formalized through a partnership agreement between the partners, which can outline each partner’s contributions (money, assets, or even services), profit-sharing terms, and management roles.
Minimum Two Partners, Maximum Flexibility
Importantly, there is no minimum capital requirement to establish an LP – the partners are free to agree on any amount of contribution, unlike companies that require share capital. Also unlike an OÜ (which can be started by a single founder), an LP by definition must have at least two persons or entities involved, making it a truly collaborative business form.
👉 Note: While the general partner’s unlimited liability may seem daunting, in practice this risk can be managed. For example, the general partner can be a legal entity (such as a limited company itself) to limit any one individual’s personal exposure. The key is that an LP offers a clear separation between an active managing partner and passive investor-partners.
LP vs. LLC (OÜ): Which Form Fits Your Needs?
The LLC (OÜ) is Estonia’s go-to entity for most entrepreneurs, including virtually 99% of e-resident founded businesses. It’s fast to set up online, allows a single owner, and provides full limited liability to its shareholder(s). So in what cases might an LP be a better choice? Below is a quick comparison of key features:
- Founders: An OÜ can have a single founder, whereas an LP requires a minimum of two partners (at least one GP and one LP). If you’re starting a business alone, an OÜ is the obvious fit. But if you already have a co-founder or an investor lined up, an LP could leverage that partnership structure from the start.
- Liability: In an OÜ, owners are not personally liable for the company’s debts – their risk is limited to their share capital. In an LP, the general partner has unlimited liability (similar to a sole proprietor in that sense), while limited partners have liability only up to their agreed contribution. This means an LP can protect passive investors (limited partners) from personal risk, but the general partner must be comfortable with the responsibility of full liability.
- Share Capital: An OÜ formally has share capital (the law sets a minimum of €0.01, though entrepreneurs commonly use €2,500 as a practical capital for an OÜ). In contrast, an LP has no required share capital – you don’t need to deposit any fixed amount to register it. This makes the LP attractive if you want to avoid tying up funds just to meet a capital requirement. The partnership agreement will specify whatever contributions the partners make, which can be money or non-monetary assets, without a legal minimum.
- Management Structure: An OÜ is managed by a management board (which can be just one director for a small company). A limited partnership is managed directly by the general partner, and there’s no mandatory board or corporate governance bureaucracy by default. The limited partner is typically a passive investor and not involved in daily management, unless the partnership agreement grants them some management rights. This flexibility allows an LP to be run in a simpler, more internal way compared to the formal structure of an OÜ’s board meetings and shareholder resolution.
- Popularity & Use Cases: An OÜ is the default choice for most businesses due to its simplicity and single-owner capability. LPs are less common and tend to be used in specific scenarios – for example, when you have a venture with an outside investor or silent partner, or a project where one partner will contribute financially but not be active in management. In such cases, the LP structure shines by clearly delineating roles: the active partner as GP, and the investor as an LP with capped liability. It’s also a structure commonly seen in investment funds and certain startups where bringing in limited partners (who might be angel investors or family members) is preferable to giving them shareholder status.
Key Benefits of an Estonian LP (Limited Partnership)
If your situation matches the profile for an LP, here are some unique advantages you’ll enjoy by choosing a Limited Partnership in Estonia:
- No Share Capital Required: Unlike an LLC (OÜ), a limited partnership has no minimum share capital obligation – you don’t need to deposit €2,500 (or any set amount) to start the business. Partners contribute whatever amount (money or assets) they agree on in the partnership agreement, and officially the minimum capital is €0. This lowers the barrier to entry and keeps your funds free for actual business needs rather than locked as statutory capital.
- Limited Liability for Passive Partners: One of the biggest draws of an LP is that a limited partner’s liability is capped at their contribution. If you bring on an investor as an LP, their personal assets are shielded beyond the amount they invested in the partnership. They cannot lose more than what they put in, which makes it safer and more attractive for people to invest or participate without full risk. (Meanwhile, the general partner still has unlimited liability, which is the trade-off for this benefit.)
- Flexible Internal Structure: The internal governance of an LP is very flexible. The partners have wide freedom to set the terms in their partnership agreement – you can decide how profits are split (it might be equal, proportional to contributions, or any formula you agree on), how decisions are made, and even assign certain management roles to a limited partner if that makes sense for your business. There’s no rigid corporate hierarchy required by law; by default the general partner runs the day-to-day operations and there’s no requirement for a separate board or supervisory council. This flexibility can be a huge advantage if you want to structure the business in a custom way that suits your collaboration.
- Simple and Low-Cost Setup: Establishing a limited partnership in Estonia is straightforward and fast. In fact, the process is often as simple as filing a single application to the Commercial Register (usually done with a notary’s authentication, which can often be completed in one visit). The state fee for registering an LP is only around €20, which is significantly cheaper than the €265 state fee required to register an OÜ online. Ongoing compliance is also minimal – while you do need to keep accounts and submit annual reports like any company, there are no requirements for share capital audits or maintaining a supervisory board, etc. All of this means an LP can be set up quickly and with very little upfront cost or bureaucracy.
- Ideal for Certain Business Models: An LP can be the perfect solution for businesses involving passive investors or distinct partner roles. For example, if your venture has one partner who will actively run the company (as the general partner) and another partner who mainly wants to invest funds and not handle daily management, the LP structure was practically built for this scenario. The investing partner can come in as a limited partner, contribute capital, enjoy limited liability, and simply share in the profits, while the general partner retains management control. This setup is common in arrangements like venture capital funds, real estate investment projects, or even family businesses where, say, one family member contributes financing and another operates the business. The LP framework allows you to leverage outside capital and expertise without diluting control or exposing passive partners to full liability. In short, it aligns incentives for active vs. passive partners in a very clear way.
Business in Estonia: Digital, Efficient, and Tax-Friendly
Choosing the right legal form is one thing, but it’s also worth noting the general advantages of doing business in Estonia – a big part of why structures like the LP and OÜ are so appealing in the first place. Estonia offers an exceptionally conducive environment for entrepreneurs. The country is famous for its digital government, meaning nearly all business operations and bureaucratic procedures can be handled online with ease. From registering your company to signing contracts and filing taxes, everything can be done remotely with electronic identification and signatures. In 2014, Estonia pioneered the e-Residency program, which issues a digital ID to non-residents and enables foreign entrepreneurs to establish and run an EU-based company entirely online without ever having to set foot in the country. This level of digital convenience is a game-changer for location-independent business owners.
Estonia’s Unique Tax System: No Tax on Reinvested Profits
Estonia also boasts a very business-friendly climate. It consistently ranks among the top countries globally for ease of doing business, thanks to its transparent regulations, efficient e-services, and supportive startup ecosystem. There’s a strong innovation culture here – the government actively invests in digital infrastructure and policies that support startups and SMEs, making Estonia an attractive base for forward-thinking companies.
Perhaps one of the most lauded advantages is Estonia’s favorable tax system. Businesses in Estonia enjoy zero corporate income tax on retained and reinvested earnings. In other words, if your Estonian company (be it an OÜ or an LP) makes a profit, you don’t pay corporate tax on that profit until you distribute it as dividends to the owners. This allows entrepreneurs to reinvest profits into growth tax-free, a policy explicitly designed to reward business expansion and long-term development. When profits are distributed, the tax is applicable (20% at the time of writing, with even lower effective rates for regular distributions), but if you’re not taking money out, the government doesn’t take a cut. Additionally, the tax reporting is simple and fully online. This unique taxation model, combined with Estonia being part of the EU single market, gives companies here a competitive edge and is a big draw for foreign founders.
Conclusion
While the Limited Liability Company (OÜ) remains the go-to format for most entrepreneurs in Estonia (and for good reason), the Limited Partnership is a valuable alternative for those whose business setup involves multiple partners or investors with different roles. The LP’s no-capital requirement, flexible partnership agreement, limited liability for passive partners, and easy setup make it a compelling choice in the right circumstances. It essentially offers a “have your cake and eat it too” scenario – you can bring in investors or collaborators without sacrificing control or simplicity. And thanks to Estonia’s modern digital infrastructure and supportive legal environment, setting up an LP as a foreign entrepreneur is remarkably smooth and convenient.
Find the Right Fit: Estonia Offers Options for Every Founder
Before making a decision, consider your specific use case: if you’re a solo founder, an OÜ might serve you best; but if you’re looking to team up with others or raise capital from silent partners, an LP could be the optimal path. With Estonia’s pro-business policies and innovative e-Residency tools at your disposal, both options provide a gateway into a thriving European business environment. The key is to choose the structure that best aligns with your venture’s needs – and for certain partnership-driven businesses, the Estonian LP can be a real hidden gem waiting to be utilized.
