Change of Legal Form
A joint-stock company is often considered a more lucrative and anonymous form of business, and more stable in the eyes of investors. For selected types of business activities, the applicable law may directly require the existence of a joint-stock company (e.g. an asset management company under Section 27(1) of the Collective Investment Act, or a bank under Section 2(1) of the Banks Act).
The basic way to own a joint-stock company is to establish one. Another way is to change the legal form to a joint-stock company. Let us describe an example of changing an LLC into a joint-stock company
What are the benefits of changing the legal form?
- the company does not cease to exist as a result of the change of legal form; its existence continuously transitions into another legal form
- loans, financing and overdrafts do not cease to exist (banks may reserve the right to require notification from the company changing its legal form towards the bank, the bank’s consent, etc. – however, these are internal bank rules and agreements relating to specific banking products)
- employees continue working within the joint-stock company; their employment relationships are not terminated
- based on an agreement among the shareholders, some shareholders may cease to participate in the company as of the effective date of the change of legal form, and the company will pay them a settlement share
What are the basic steps for changing an LLC into a joint-stock company?
- Preparation of a draft decision on changing the legal form to a joint-stock company
- Preparation of a report on the legal and economic reasons for the proposed change of the legal form of an LLC into a joint-stock company (requirements of the Commercial Code)
- Expert opinion determining the general value of the LLC’s equity
- Increase in registered capital – an LLC has a lower statutory minimum registered capital (minimum EUR 5,000) than a joint-stock company (minimum EUR 25,000, plus mandatory creation of a reserve fund)
- Discussion of the change with employees / employee representatives (if any)
- Decision of the LLC’s general meeting on conversion into a joint-stock company
- Preparation of documentation for the joint-stock company (articles of association, etc.)
- Notification obligations towards creditors
- Preparation of documentation by an attorney, including the application for registration in the Commercial Register
What expert opinion is required (point 3 above)?
It is a mandatory annex to the application for registration of the change in the Commercial Register. It demonstrates that the value of the company’s equity AS OF THE DATE OF PREPARATION OF THE DRAFT decision on the change of legal form (point 1 above) corresponds to the amount of the shareholders’ contributions after the change of legal form.
Which companies does this apply to?
An expert opinion must be prepared for companies that are changing their legal form into a company / cooperative whose formation requires the shareholders’ contributions to be contributed to the company.
Is it sufficient to have the expert opinion prepared at the time when the decision on the change of legal form is adopted?
No. The Decree specifies the point in time as of which the expert opinion must be prepared – as of the date of preparation of the draft decision on the change of legal form. This is the point in time when the statutory body prepares the draft wording of the decision on the change.
What comes next?
Every change of legal form requires an individual legal assessment of the procedure, and the timing of the steps is equally crucial. How, and especially at what point, can shares first be issued, what are your obligations towards the Central Securities Depository, and what is a company’s list of shareholders? We will be happy to advise you on this and more.
Do you need legal advice? Write to: skypalova@skylex.sk
