November 2016 - From 2017, Slovakia will bring into life a brand new corporate form, which will be a very attractive investment vehicle that will introduce the most modern legal framework in the EU. The new form, called ‘simple (or simplified) joint-stock company’ (in Slovak: jednoduchá spoločnosť na akcie) (''Investment Company"), will be best for venture capital deals and for PE investments involving less than 100% equity (both minority and majority buy outs). We expect this may become frequently used in Slovakia and CEE region.
If you are considering investing into a company (whether it is a start up, venture capital or standard PE investment), you might wish considering to choose the new Investment Company instead of the more traditional forms of limited liability company or joint stock company. Here are several reasons why.
As its most significant advantage, all internal relations between shareholders, stakeholders and business owners can be set with unparalleled freedom. Mainly, this can be achieved through company’s shares which the shareholders are free to issue in various classes, entitling to a wide range of rights. There are no explicit limitations on rights that can be attached to shares in the Investment Company; thus, shareholders can create various shareholder classes that reflect their position or time when they entered the Investment Company. Also, unlike the other forms of capital companies in Slovakia, the Investment Company will make it possible to issue “employee shares” which can prove to be very efficient for employee motivation and reward.
The new law also brings an explicit acknowledgement and use of standard investor tools, in particular, (i) drag-along right, (ii) tag-along right and (iii) deadlock mechanism (shoot-out). All of these (and other) mechanisms can be agreed in shareholders’ agreement and will enjoy a strong legal protection. In addition, these contractual rights can be registered in a special public register, in a way similar to registration of pledge. Upon registration, such rights can be then enforced very quickly – within few weeks or months, as opposed to substantially longer periods that court or arbitration proceedings (that are now standardly used to exercise such rights) may take. This significantly increases enforceability of the entire shareholders’ agreement and leaves almost no space for its non-compliance.