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2 APRIL 2024

Moving a company abroad from A to Z

 

Author of the article

Lucia Jószayová

JUNIOR ASSOCIATE

Štefan Bašista

ASSOCIATE

A few days ago, Act no. 309/2023 Coll. on the conversions of commercial companies and cooperatives and on amendments to certain acts (hereinafter referred to as the "Conversion Act") entered into force. The following article summarises the news it brings in the field of “moving” a company abroad, including issues related to the change of a registered seat of a company and the related necessary change of the legal form.

Cross-border change of legal form

The cross-border change of legal form changes the legal form of a company to the legal form of the state to which the company relocates its registered seat.

For this topic, the following terms will be useful:

  • Slovak company - a company with its registered office in the Slovak Republic;
  • Slovak converted company - a company which, after a cross-border change of legal form, has its registered office in the Slovak Republic;
  • a foreign company - a company that has its registered office in another EU member state;
  • a foreign converted company – an originally Slovak company which, after a cross-border change of legal form, has its registered office in an EU member state other than the Slovak Republic; and
  • the destination state is the EU member state to which the converted company will relocate its registered office.

 

Mobility of companies within the EU

The legal regulation of the cross-border change of legal form in the Conversion Act is transposed from Directive (EU) 2017/1132 concerning certain aspects of company law (hereinafter referred to as the "Directive") in its consolidated version (in particular, as amended by directive 2019/2121 dated 27 November 2019 amending directive (EU) 2017/1132 with regard to cross-border conversions, mergers, acquisitions and divisions). Thus, we now have a more specific regulation which contains uniform procedures and conditions at the European Union level.

The adoption of the Directive leads to a general unification of the legislation in individual member states. From the point of view of business practice, this step is welcomed, as previously, the freedom of legal entities to establish themselves in member states was based only on the EU Founding Agreements (in particular, articles 49 and 54 of the Treaty on the Functioning of the European Union) and its actual application was mainly ensured by several pioneers and the following case law of the Court of Justice of the EU (specifically, the decisions of the CJEU in case C-210/06 Cartesio Oktató és Szolgáltató bt. and case C-378/10 VALE Építségi Kft).

Only LLCs and joint-stock companies

A cross-border change of the legal form of companies is only possible for limited liability companies (“LLC”) and joint-stock companies (“JSC”). The change can only be performed if:

  • the company is not in liquidation;
  • the company is not subject to the effects of the declaration of bankruptcy;
  • the company is not subject to the effects of the initiation of restructuring proceedings or the authorization of restructuring; and
  • the court is not conducting dissolution proceedings against the company.

Another condition is a company’s eligibility for a cross-border change of legal form. A Slovak company can only carry out its cross-border conversion into a foreign converted company that has a similar legal form to the respective LLC or JSC in Slovakia.

However, a similar legal form does not necessarily mean an identical legal form. For the sake of simplicity, in Annex II of the directive, the European legislator summarizes all commercial companies that are considered to be similar and therefore eligible for a cross-border change of legal form. A consolidated version of the directive, including its annexes, is available HERE.

Moving a company abroad from A to Z

1.      Report of the statutory body. If a Slovak company decides on a cross-border change of its legal form, its statutory body must first prepare the "report of the company's statutory body". This is a fundamental document explaining the reasons for and implications of the conversion for shareholders and company employees, who may then comment on the report.

The Conversion Act also stipulates the cases in which the report does not need to be drawn up. These are cases where the shareholders have waived the right to submit a report and there are no employees in the company or if the company has a sole shareholder.

2.     Project proposal for a cross-border change of legal form. The most important document for a planned cross-border conversion is the project proposal for a cross-border change of legal form, upon which the entire conversion process is based.

In addition to the identification of the participating entities and the proposed business name, the new registered office and the proposed legal form, the project proposal for a cross-border change of legal form must contain the following:

  • an indicative timetable;
  • information on guarantees for creditors;
  • information on incentives obtained in the original state; and
  • information on monetary compensation for shareholders who vote against its approval.

A draft of the new Memorandum of Association and Articles of Association of the converted company must be attached to the project proposal.

3.     Review of the project proposal by the supervisory board and auditor. The project proposal is also reviewed by the supervisory board (if established) and the auditor, unless the shareholders agree otherwise. They shall prepare a written report containing the results of their review.

4.     Notification of the tax authority. The notification of the prepared cross-border conversion project must be delivered to the relevant tax authority (tax or customs office), no later than 60 days before the date of the General Meeting at which the cross-border change of legal form is to be approved.

5.     Making documentation available at the registered office. No later than six weeks before the General Meeting's vote on the project proposal for the cross-border conversion, the company is obliged to make the following documents available to the shareholders and employees at the company's registered office, as well as on its website (if one exists):

  • project proposal for the cross-border conversion;
  • report of the statutory body of the company, if drawn up;
  • financial statements for the last three consecutive years; if the company has existed for less than three years, financial statements for the entire period of its existence;
  • interim financial statements;
  • information about the notary (name, surname; office address) who will issue a certificate of fulfilment of the conditions for a cross-border change of legal form; and
  • the auditor's report (if prepared) at least one month before the vote of the General Meeting on the proposal project for the cross-border conversion.

6.    Disclosure. Before the General Meeting decides on a cross-border change of legal form, the project proposal together with the annexes must be published in the collection of documents of the relevant Commercial Register or in the Slovak Commercial Gazette. Information about the possibility to comment on this proposal must also be published for creditors, shareholders and other authorized entities ("authorized persons").

The notification together with the project proposal must be published at least one month before the General Meeting at which the decision on the cross-border change of legal form will be discussed. Authorized persons must submit their comments no later than five working days before the date of the General Meeting.

7.      Approval of the cross-border change of legal form by the General Meeting. Following the mentioned steps and the lapse of the mandatory time limits, the company's General Meeting can proceed with approving the cross-border change of legal form. The decision of the General Meeting must be approved by a two-thirds majority of all shareholders. In the case of a JSC in which several types of shares have been issued, the approval of a two-thirds majority of the shareholders present from each type of shares is required.

8.     The fulfilment of the conditions for a successful cross-border conversion is reviewed by a notary on the basis of an application. The attachments to the application include:

  • approved cross-border conversion project;
  • comments on the cross-border conversion proposal;
  • report of the statutory body;
  • employees' opinion on the report of the statutory body;
  • the auditor's report on the review of the cross-border conversion project proposal, if it is drawn up;
  • information on the approval of the proposal of the cross-border conversion project by the General Meeting; and
  • information on the initiation of the procedure in relation to the participation of employees in the cross-border conversion.

If all of the requirements have been met, the notary will issue a certificate of fulfilment of the conditions in the form of notarial minutes.  This must be issued within 3 months after the submission of the application.

Special rights of shareholders

The Directive provides shareholders with the possibility to withdraw from the company before the cross-border conversion takes place. This regime was also reflected in the Conversion Act. These are situations in which the converted company is to be governed by laws other than Slovak law, the shareholder voted against the approval of the project proposal for the cross-border change of legal form and thus requested the payment of a compensatory share/buyout of shares no later than 14 days before the holding of the General Meeting at which the decision on the conversion is to be approved.

Creditor protection regime

The new legislation provides creditors with protection against the possible failure to satisfy their payable claims. If the Creditors do not consider the security to protect their claims stated in the project proposal for the cross-border change of legal form to be sufficient, the new legislation provides them with the right to request an adequate security of these claims (e.g. by depositing the appropriate amount of cash in notary escrow).

If the company and the creditor do not reach an agreement on security, the court will decide on adequate security upon request of the creditor. However, the creditor must prove that due to the cross-border change of legal form, its claim is at risk. The creditor is entitled to exercise this right and petition the court within three months from the publication of the proposal of the cross-border conversion project.

 Irreversibility of cross-border conversion

Once a cross-border conversion of legal form has been registered in the relevant Commercial Register, it cannot be declared invalid. The validity of the cross-border conversion of legal form could possibly be challenged before the relevant Commercial Register has decided on the approval of the proposal of the registration of the cross border legal change of legal form; however, considering the standard duration of court proceedings, it remains questionable whether the court would be able to decide on the invalidity of the cross-border conversion of legal form before its registration in the relevant Commercial Register.


Lucia Jószayová 

Junior Associate specialising in civil law, employment law, real estate and litigation. 

Štefan Bašista 

Associate and our expert in corporate and M&A law.


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