Changes in Legal Form

Hello, A change of the legal form of a business company is possible on the basis of Act No. 309/2023 Coll. on Transformations of Business Companies and Cooperatives (hereinafter as “Act No. 309/2023 Coll.”).

According to Section 105, Paragraph 3 of Act No. 309/2023 Coll.: “A limited liability company may change its legal form into a joint-stock company, a simple company for shares, or a cooperative.”

Draft Project of Change of Legal Form

First, it is necessary to prepare a so-called draft project of change of legal form. According to Section 106 of Act No. 309/2023 Coll.:

• To change the legal form, it is necessary to prepare a draft project of change of legal form.

• The draft project of change of legal form is prepared by the statutory body of the company.

• The draft project of change of legal form contains, in particular:

  • the business name, registered office, and identification number of the company before the change of legal form,

  • the legal form and business name of the company after the change of legal form,

  • the shares of the partners in the company, or the amount of the partners’ contributions to the company after the change of legal form; if the legal form changes to a joint-stock company or a simple company for shares, also the form, kind, type, nominal value, and number of shares of the partners after the change of legal form,

  • the designation of persons who will be the statutory body or members of the statutory body; the designation of members of the board of directors of a joint-stock company is not required if the company changes its legal form to a joint-stock company and if the board of directors is elected by the supervisory board according to the articles of association,

  • the designation of persons who will be members of the supervisory board, if one is established after the change of legal form.

• An annex to the draft project of change of legal form is the draft memorandum of association and the draft articles of association of the company after the change of legal form.

• The provisions of Section 14 apply accordingly to the cancellation of an approved project of change of legal form.

Statutory Body Report

In accordance with Section 107 of Act No. 309/2023 Coll., if a limited liability company changes its legal form, the statutory body of the company is obliged to prepare a written report in which it explains and justifies the change of legal form from a legal and economic perspective. The statutory body report must be provided to the partners for inspection at the company’s registered office at least 30 days before the day of approval of the draft project of change of legal form, unless the memorandum of association or articles of association provide otherwise.

With the appropriate application of Section 40, Paragraphs 1 and 4 [via] Section 107 of Act No. 309/2023 Coll., every partner of the company has the right to request a copy of the statutory body report or a part thereof, or to request it be sent to an address provided by them, and the company is obliged to provide this document to the partner free of charge. Partners must be informed of this right in the invitation to the general meeting or in the notice of the holding of the general meeting, unless the company’s articles of association specify another method of making the document available.

According to Section 108 of Act No. 309/2023 Coll., if a supervisory board is established, it shall examine the statutory body report and submit its statement on the intended change of legal form to the partners.

Approval of the Draft Project of Legal Form

According to Section 109, Paragraph 1 of Act No. 309/2023 Coll.: “The approval of the draft project of change of legal form requires the consent of a two-thirds majority of the votes of all partners, unless Paragraph 2 or the memorandum of association establish stricter criteria.”

Protection of Partners

According to Section 110, Paragraph 1 of Act No. 309/2023 Coll.: “In the draft project of change of legal form, it may be agreed that the participation of certain partners in the company will terminate as of the effective date of the change of legal form and the company will pay them a settlement share. The consent of the affected partners is required for the validity of such an agreement.”

According to Section 110, Paragraph 2, if the consent of all partners is not required for the change of legal form (as is the case for a limited liability company), the provisions of Sections 47 and 48 of Act No. 309/2023 Coll. also apply accordingly, which give partners who voted against the change of legal form and were outvoted the right to have the successor company (in this case, the cooperative) buy out their business shares for adequate monetary consideration. In such a case, the cooperative is obliged to send the entitled partner a draft contract for the buyout of the business share within 30 days of the registration of the transformation in the Commercial Register (Section 48, Paragraph 1 of Act No. 309/2023 Coll.).

Protection of Creditors

According to Section 111, Paragraph 1 of Act No. 309/2023 Coll.: “If a limited liability company changes its legal form and if, after the change of legal form, the company does not create registered capital or creates a lower registered capital than before the change of legal form, the statutory body of the company is obliged to notify the known creditors of the company of the change of legal form within 30 days of the effective date of the change… and publish it in the Commercial Gazette twice in a row with at least a 30-day interval together with a call for creditors to register their claims…”

According to Section 111, Paragraph 2: “No performance may be provided to partners in connection with the change of legal form, nor may a share of the profit be paid out before the expiration of the periods… unless sufficient security has been provided to all creditors of the company who timely exercised their rights.”

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