Limited Liability Companies
Joint Stock Companies
The commercial laws of Slovakia are found in Act 513/1991 (as amended) - otherwise known as the Commercial Code. Forms of enterprise and their laws derive from the German and Austrian models adopted by the Czech and Slovak Federative Republic after the Velvet Revolution in 1989. After the split of the two republics in 1993, the Slovak Republic adopted all laws of the former federative republic that were not specifically abrogated or changed.
The Commercial Code sets forth the rules of establishment for the following forms of commercial establishment:
- commercial partnerships;
- limited partnerships;
- limited liability companies;
- joint stock companies;
- cooperatives; and
- branch offices.
The most common forms of commercial establishments are the limited liability company, the joint stock company and the branch office.
Provisions of the Commercial Code extend the same rights to foreign enterprises as to Slovak entities, including the protection of business property and investment, and the right to form or participate in the aforementioned business forms.
Foreign individuals are not yet permitted to own real property in the Slovak Republic (except for branch offices in the banking sector). However, enterprises established under the laws of the republic may freely own real property and enjoy the same protection as Slovakians, regardless of the owner's nationality.
Establishment of a limited liability company, which applies to companies with up to 50 participants, requires initial registered capital of SIKr200,000. Each participant (assuming that there is more than one) must invest at least SIKr30,000 in cash or in-kind contribution. With in-kind contributions worth more than SIKr1 million, two expert appraisals in support of the valuation must be undertaken. In the case of a sole founder, the registered capital must be paid in full before the company will be registered in the Commercial Registry.
Upon incorporation, a limited liability company is required either (i) to establish a reserve fund of at least 5% of the capital investment or (ii) to set aside 5% of yearly profits until the level of the reserve fund reaches the amount set in the relevant documentation (but not less than 10% of the capital investment). The reserve fund must be kept in a blocked account, to be used only in cases of financial difficulty (eg, to pay debts and avert insolvency situations). The fund is controlled by executives charged with the daily running of the business.
A founder's agreement or memorandum of association must then be developed, stating the steps for formation, capital contributions and other relevant issues. Then the founders must secure a trade licence to operate as they wish, and enter their business into the appropriate commercial register.
The supreme body of a limited liability company is its general meeting of shareholders although an executive represents the company before third parties and acts as the statutory representative.
Joint stock companies may be established by a founder's deed in the case of a single shareholder, or by a memorandum of association in the case of two or more founders. The founders or subscribers hold a general meeting during which they establish the company, approve the articles of association and elect the company bodies. The minimum capital requirement for a joint stock company is SIKr1 million.
Unlike limited liability companies whose participants have an ownership interest based on the formative corporate documents, ownership interests in joint stock companies are represented by shares. The liability of a joint stock company is generally limited to the property that is invested therein (including pledged but unpaid portions of a subscription). Shares may be named shares or bearer shares. Changes in the Commercial Code and Slovakia's Securities Act (Act 600/1992) now require that publicly-tradable shares of joint stock companies be registered with the Securities Centre.
The corporate bodies of a joint stock company are as follows:
- the board of directors, which is the statutory representative, responsible for the delegable daily activities of the company;
- the supervisory board, responsible for ensuring that the company complies with the law;
- the articles of association,
- the shareholder resolutions; and
- the general meeting, which is the supreme body comprised of the shareholders.
A quorum for a general meeting is attendance or representation by 30% of shareholders. A vote is carried by a quorum's majority unless (i) the articles of association provide for a qualified majority or (ii) the issue involves one of the following, which requires at least a two-thirds vote:
- amendments to the articles of association;
- increase or reduction of the stock capital; and
- the winding-up of the company.
Joint stock companies may provide for up to 5% of share capital in the form of employee shares, which may be allotted according to the articles of association. Where there are 50 or more employees, at least one-third of the members of the supervisory board must be designated by the employees.
Branch offices may be established by registering in the Commercial Register and may operate under the same conditions as limited liability and joint stock companies. However, branch offices are generally allowed to operate under the laws of the jurisdiction where the parent office is based, although certain laws of the Slovak Republic must be applied including the Labour Code and laws on tax and health insurance.
The following issues need to be addressed by foreign entities wishing to establish a business in the Slovak Republic, or wishing to establish foreign individuals in key positions of businesses located there.
Registration of an enterprise
The following information must be entered into the Commercial Registry for all forms of commercial enterprise:
- business name, registered office (for legal entities) or residence (for individuals);
- tax identification number;
- scope of permitted business activities;
- details of shares and members of the supervisory board (for joint stock companies);
- details of the statutory representative (eg, the president or executive of a limited liability company, or members of the board of directors of a joint stock company);
- details of type of business including name and address of the director for a branch office;
- details of any persons authorized to bind the company by power of attorney;
- date of birth of partners, shareholders and/or members of the legal entity; or identification number if the member is a legal entity; and
- any other facts required by law.
The following information must also be included in the Commercial Registry for limited liability companies:
- names and addresses of members (or, if appropriate, the business name and registered office of a legal entity participant);
- the amount of registered capital;
- the individual amount of each member's investment contribution and how much of each contribution has been paid; and
- names and addresses of the members of the supervisory board.
The following additional information must be included in the registry for joint stock companies:
- the amount of registered capital;
- number, class and type of shares including nominal value;
- names and addresses of supervisory board members; and
- the location of the office in the Slovak Republic, and the name and local address of its director.
Any person engaging in business activities in the Slovak Republic must first obtain licences from the Trade Licensing Office. The two types of trade licences are notification licences and concession licences.
The Trade Office grants a notification licence to any applicant who fulfills the prerequisites for the trade licence in question. The applicant may begin conducting business activities immediately after submitting the completed application to the Trade Licensing Office. Where the business entity has not yet been established, activities may relate only to proper formation and registration in the Commercial Register.
Notification trade licences are divided into three sub-categories:
- regulated trades; and
- unregulated trades.
The subcategories vary based on professional qualifications. A licence for craft and regulated trades may only be gained if the applicant has professional qualifications (whether earned through an apprenticeship programme or otherwise). Examples of craft trades are metalworking, motor vehicle repair, and production of chemical goods. For an unregulated trade the applicant need not have any specific professional qualifications.
For a concession trade licence, the Trade Licensing Office may grant the licence but place special limitations on where, when, and how business activities may be undertaken. The applicant is not authorized to begin conducting the relevant business until the concession trade licence has been issued.
Examples of concession-licenced trades include:
- manufacture, repair, and/or sale of radiation sources, weapons and ammunition, poisons and medical equipment,
- geological work and excavation;
- pesticide use;
- operation of a travel agency or exchange office; and
- catering activities.
This form of licence requires the appointment of a responsible person who satisfies specific professional qualifications.
Long-term residency permits are necessary for high-level foreign employees to work in Slovakia and/or represent any of the aforementioned business forms.
In order to obtain a long-term residency permit an application must be filed with the Consular Department of the Embassy of the Slovak Republic in the state of the applicant's permanent address.
The Commercial Code contains general provisions regarding the running of businesses. The provisions are not particularly comprehensive and, as a country following the continental code system, it is difficult to find precedents to interpret these provisions. The judiciary therefore has fairly wide discretion. The first provision on unfair competition, proscribes activities such as false advertising, deceitful description of products, bribery and endangerment of consumers' health. Prohibitions on deceitful description of goods and services, mistaken identity, bribery, discrediting a competitor's products or services, violation of business secrets, and endangerment of consumer health or environment are vague, although other laws do supplement them, such as the law on product liability and certain criminal laws.
The last set of amendments and supplementations to the laws on corporate forms occurred in 1998. Changes incorporated rules on the following:
- joint stock companies and the prohibition against pure bearer shares that need not be registered;
- re-definition of persons related to a company to tighten loopholes in corporate legal requirements and stock ownership; and
- an increase in the required registered capital of limited liability and joint stock companies.
From a commercial viewpoint, recent amendments in Slovak law have focused on issues such as bankruptcy and collection of debts. There have also been significant changes to the law on privatization of companies and most of the formerly state-controlled industries have either been privatized or are authorized to be privatized. In the near future, privatization is expected for several of the state-controlled banks and restructuring of the energy generation, transmission and distribution sector is presently being considered.
Areas where progress is required include:
- protection of security interests in movable property;
- corporate governance; and
- minority shareholder protection for joint stock companies.
Another shortfall is that practice and enforcement are not progressing as quickly as improvement of commercial laws. However, the Slovak Republic has recently been invited to join the Organization for Economic Cooperation and Development and is also reviewing its laws with the intention of joining the European Union at the same time as neighbours such as Hungary, Poland, and the Czech Republic. Accordingly, there is every indication that commercial establishment and the operational framework for business will undergo significant improvements in the near future.
For further information on this topic please contact Kevin T Connor or Paul J Carrier at
Squire Sanders & Dempsey by telephone (+421 7 5930 3411) or by fax (+421 7 5930 3415) or by e-mail ([email protected] or [email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.