Doing business in Slovakia: Conducting business

The Slovak constitution gives everyone the right to choose their occupation and training and to engage in commercial activities with a profit motive. Business activities are regulated by the Commercial Code. The Code applies to individuals engaged in a commercial enterprise (with a trading licence or some other authorisation) as well as to companies and partnerships.

Limited companies and partnerships are established by a written contract or deed of foundation and come into existence on the date of their incorporation into the Commercial Registry (or other prescribed registry). The Commercial Registry, including the Collection of Deeds containing company documents, is open to the public for inspection and copying (on payment of a fee).

The most common types of legally incorporated business are limited liability companies and joint stock companies. Other types include:

• General commercial partnerships
• Limited partnerships
• Limited liability company
• Co-operatives
• Branch offices of a foreign company
• European companies

Limited liability companies

A limited liability company exists independently of its members. It may have between one and 50 members, each of whose liability is limited to the amount specified in the Commercial Registry. An individual may be the sole member of up to three companies. Single-member companies may not be the sole member of another company.

The minimum registered capital is €5,000. This must be paid up in full before incorporation where the company is to have a sole member.

Each member holds a single business share but each share can have different rights, such as voting and distribution rights. In most cases, the size of the business share is proportionate to the member’s contribution to the registered capital.

The company must specify a reserve fund (of at least 10% of its registered capital) in its memorandum of association which must either be funded on incorporation or built up by transferring at least 5% of reported net profits (subject to a maximum of 10% of its registered capital) every financial year until the specified reserve is reached.

The company’s major decisions are taken by its members in general meeting, including the appointment of individuals to act as an executive board. It is not necessary to have a supervisory board.

Advantages

• Fewer regulations than a joint stock company
• Less registered capital and reserve fund than for a joint stock company
• One sole owner being either an individual or a legal entity

Disadvantages

• Ownership interests not publicly tradable, can’t be listed on the Stock Exchange
• Ownership interests less easy to transfer than joint stock company shares
• Sole founders must pay up capital in full before incorporation

Setting up a limited liability company

Investment

• no lower or upper limit
• no special permission or registration
• guaranteed repatriation of all profits
• minimum €5,000 registered capital

Contents of foundation deed

• business name
• headquarters
• definition and details of members
• business activity
• registered capital
• executive board (and supervisory board, if established)
• designated custodian of the contributions
• the amount of reserve fund created on foundation
• anticipated setting-up expenses
• benefits provided to the persons participating on the foundation of the company

Other formalities

• obtain trading certificate from the trades licensing office
• registration in commercial register at registry court
• obtain a registered number (ICO)
• register with the tax authorities within 30 days of registration
• register for VAT

Joint stock companies

A joint stock company has registered capital divided into shares with a specified nominal value. It can have any number of shareholders each of whose liability is limited to the nominal value of their shareholding. The list of shareholders is kept by the Central Securities Depository.

Joint stock companies can be public or private. Public joint-stock companies are those whose shares are traded on the Stock Exchange or have been issued (in whole or part) on a public offering.

Joint stock companies can have a sole corporate shareholder but otherwise must have two or more shareholders. The company must execute a memorandum of association (or founding deed, where there is a sole shareholder), which includes the company’s articles of association.

The registered capital must be at least €25,000. It must be fully issued and at least 30% paid on incorporation. It must be fully paid up within a year of incorporation or within the period specified in the articles of association.

Shares may be issued in either registered or bearer form. Registered shares may be issued in documentary form with a share certificate, or book-entered form, whereas bearer shares can only be issued in book-entered form.

The company’s major decisions are taken by its shareholders in general meeting. A supervisory board must be established with at least three members, to supervise the exercise of powers by the board of directors and the execution of business by the company. Responsibility for ensuring proper accounting and reporting procedures, and for general management of the company’s activities is undertaken by the board of directors, which has power to take decisions on all corporate matters except those reserved (by law or in the articles of association) for shareholders in general meeting or the supervisory board.

In its articles, the company must specify a reserve fund (of at least 20% of its registered capital) which may only be used to cover its losses. The articles also specify the amount to be contributed each financial year (at least 10% of net reported profits) until the reserve fund total is reached.

Advantages

• Shares can be publicly traded on the Stock Exchange
• Usually easier to transfer ownership of shares (depending on the type of shares)
• Exists independently of its shareholders who are not liable for its debts and obligations

Disadvantages

• More heavily regulated
• Needs both memorandum and articles of association
• Larger reserve fund needed
• Must have a board of directors
• Must have a supervisory board with some employee-elected members

Partnerships

General commercial partnerships are treated as separate legal entities from their partners but are transparent for tax purposes (i.e. partners are taxed individually on their share of any partnership profits)

Limited partnerships are partially transparent for tax purposes. They can be established by at least one general partner (a komplementar who is fully liable for the partnership debts) and at least one limited partner (a komanditista who has no general liability beyond his capital contribution). General partner profit shares are taxed as part of their (individual or corporate) income whereas the limited partner profit shares are taxed collectively at partnership level.

Branch office

The branch office of a foreign company does not have a separate legal identity from its parent company but has its own management, accounting and tax requirements. It must be registered in (and submit branch accounts to) the Commercial Registry although liability remains with the parent.

Distributions

The Commercial Code imposes restrictions on the distribution of profits to shareholders. Profit distributions are subject to approval by the members in general meeting. Interim dividends are not allowed. Funds which cannot be used for distribution include the registered capital, other capital funds and any profits designated for the company’s reserve fund. Distributions (and liquidation surplus) are only payable out of taxed profits and are not subject to any further (withholding or other) tax payable either by the company or the recipient.