Business transformation

Transformation of companies are the ways of winding up a company without liquidation. All rights and obligations of the dissolved company, including rights and obligations arising from labor relations and also property and companions of the original company are transferred to the legal successor or successors.

Transformation can be or a legal merger into one or more legal entities - the successor company or companies, or the distribution of existing businesses, or combinations of these processes. The term transformation is also used to change the legal status of companies, as it is to change a limited liability company into a joint stock company, etc.

Transformation within the meaning of the act on transformation of commercial companies and cooperatives are mergers of companies or cooperatives, division of companies or cooperatives, transfer of assets, change of legal form and the cross-border transfer of registered office.

Legislation:

Act No. 125/2008 Coll., The transformation of commercial companies and cooperatives, as amended

The main types of transformations of companies

Mergers

A merger is simply a combination of two or more existing companies.

Mergers of companies may be by acquisitions or by merger of equals.

The acquisitions means that the merged company cancels and then terminates and its assets, rights and obligations are transferred to another existing company, the acquiring company, whose members also become companions of the repealed company. The acquired company or cooperative is dissolved and its assets are transferred to the acquiring company or cooperative. The successor company or team enters the legal status of the company or association, unless a special law provides otherwise.

Under the acquisition shall also be considered if the dissolving corporation or limited liability company mergers with a successor corporation, or limited liability company, which is its sole shareholder. Both, acquired and acquiring companies or cooperatives, are participating parties.

The merger of equals means that two or more companies cancel and then terminate to form a completely new company. Two or more companies or cooperatives transfer their assets to a successor company resulting from the merger. The acquiring company enters the legal status of the company or cooperative, unless a special law provides otherwise.

Participating parties are only acquired companies or cooperatives.

The legal status of the founders of the acquiring company have only the acquired companies or cooperatives.

Acquired and acquiring companies must have the same legal form. Cooperatives may merge only with the cooperative.

Mergers may be domestic or cross-border.

The legal effects of the merger occur on the date of registration of the merger in the commercial register.

If a successor company or cooperative has a registered seat in another EU Member State than in the Czech Republic, the legal effects of the cross-border mergers in the Czech Republic occur on the date on which occurs the effects of cross-border merger abroad.

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Split-up

The split-up means that the distributed company shall be revoked and terminated. Its property and rights and obligations, including the rights and obligations arising from employment relationships are transferred to the new successor companies. The shareholders of the company being divided become shareholders of the successor companies. The split-up can have different forms: the existing company is divided with the establishment of new successor companies created as new legal entities, spin-off merger, in which a portion of the existing company merges with an existing company, there may be even a combination of both forms, or a part of existing company splits from it and continues as a new legal entity.

The distributed company and the acquiring company must have an identical legal form, the law provides exceptions for various forms of commercial companies.

The legal effects of the distribution, i.e. the disappearance of the company being divided and the emergence of new companies arise on the day the division is registered in the Commercial Register.

The forms of distribution provided by the Act on the Transformation of Companies and Cooperatives

a) split, as a result a company or association shall cease and its assets shall be transferred

1. to more emerging companies or cooperatives (hereinafter referred to as "split with the emergence of new companies or cooperatives")
2. to more existing companies or cooperatives (hereinafter referred to as "split by merging"), or
3. a combination of the forms referred to in paragraphs 1 and 2, or

b) spin-off, as a result a company or cooperative does not cease and a portion of its assets shall be transferred

1. to one or more emerging companies or cooperatives (hereinafter referred to as "spin-off with the emergence of new or new companies or cooperatives")
2. to one or more existing companies or cooperatives (hereinafter referred to as "spin-off merger"), or
3. a combination of the forms referred to in paragraphs 1 and 2

Split with the emergence of new companies or cooperatives means splitting with the emergence of new companies or cooperatives and also the creation of new spin-off companies or cooperatives.

Distribution by merging means split merger and also the spin-off merger.

When splitting, a company or a cooperative ceases to exist. The assets of the company or cooperative when splitting including the rights and obligations arising from employment relationship shall be transferred to one or more successor companies or cooperatives. Its members also become partners or members of one or more successor companies or cooperatives.

Spin-off company or cooperative do not expire, but the allocated portion of its assets, including any rights and obligations arising from employment relationships, is transferred to an existing or emerging one or more successor companies or cooperatives by cleavage of the project and the members of the company or cooperative also become shareholders or members of a or more successor companies or cooperatives.

Participating companies or cooperatives

Split with the emergence of new companies or cooperatives: the participating companies are only acquired companies or cooperatives.

Split by merging: the participating companies are both acquired company or cooperative and successor companies or cooperatives.

Spin-off merger: the participating companies or cooperative are both acquired company or cooperative and the acquiring companies or cooperatives.

The legal status of the founder of the successor company or cooperative, or successor companies or cooperatives, in a division with the formation of new companies or cooperatives, has the dissolving company or cooperative.

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Transfer of assets to a partner

The transfer of assets to a partner is the decision of the partners or of the competent authority that the company is dissolved without liquidation and its assets and rights and obligations, including the rights and obligations of labor relations are taken by one of the partners. This partner can be either a legal or a natural person, and must be a resident or have a registered office in the Czech Republic.

Legal effects of the transfer of assets occur on the date of the registration of the transfer of assets in the Commercial Register.

Under the conditions set by law for various types of companies, partners or a competent authority may decide that the company will be dissolved without liquidation and the company‘s assets, including the rights and obligations of labor relations assumes a receiving partner.

Cancellation of a cooperative with the transfer of assets to a member of the cooperative is prohibited by law.

The receiving partner must be an entrepreneur as of the date of project processing and as of the date of the application for registration of the transfer of assets in the Commercial Register.

The receiving partner must give the other shareholders of the acquired company a cash settlement.

The amount of the settlement provided to other shareholders of the dissolved company shall be proportionate to the fair value of their shares. The adequacy of the settlement must be confirmed by expert opinion.

Payment of reasonable settlement offered to other shareholders is made within one month from the date of registration of transfer of assets in the Commercial Register.

If the receiving partner is a Czech legal entity other than a corporation or cooperative, the tranfer of assets to the partner shall be approved by the company‘s highest authority. In case the legal entity does not have any higher authority the project of asset transfer is approved by its supervisory authority. If there is no supervisory authority, the project is not subject to approval.

Opening balance sheet and final accounts are drawn up by the successor shareholder and approved only if the entity is an accountning unit under the Accounting Act.

The obligation of the accepting shareholder to repay the outstanding deposit or part thereof or the issue price of shares of the company being acquired shall expire on the registration of the transfer of assets in the Commercial Register.

The obligation of other shareholders to repay the outstanding deposit or part of the issue price of the shares does not expire upon the registration of assets in the Commercial Register and a claim against the settlement payment is credited to claim repayment of the deposit or the unpaid portion of the issue price of shares.

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Change of legal form

A transformed company, as a legal person, does not cease to exist, nor do its assets transfer to a legal successor. Only its internal legal status and the legal status is changing. Companies can change to a different type of company or cooperative, or a cooperative may change its legal form to a company.

The exception are specific business entities governed by specific laws, such as banks, investment companies, investment funds or insurance companies.

The legal effects of the change, i.e. the company‘s transition to a different legal form, occures on the date of entry of the change in the Commercial Register.

Company or cooperative changing the legal form must allow shareholders, partners or members to become familiar with the following documents:

Project of change of the legal status
Report on the change of legal form, if required
Expert opinion for the valuation of assets, if required
Ordinary, extraordinary or interim financial statements

These documents may be submitted to shareholders, partners or members in paper or electronic form, for at least one month prior to the date of the decision on the change of legal form, and until one month after the decision, the documents may be published on the website.

In case of a change of legal form to a limited liability company or joint stock company, a company or coopeerative is obliged to value its assets by an expert as of the date on which the project of change of the legal form was drawn up.

If the share capital of the joint stock company, limited liability company or cooperative, after changing the legal status is lower than the capital in the opening balance sheet as of the date of registration of the change of legal form, shareholders are required to pay the difference without undue delay, after the entry of the change of legal form to the Commercial register, jointly and severally.

Housing association may change its legal form only if approved by all members of a housing cooperative; such consent can not be replaced by the consent of all the delegates.

Relocation of registered office to the Czech Republic

A foreign legal entity may transfer its registered office in the Czech Republic, without ceasing to exist and without the need of the establishment of a new legal entity, if not prohibited by the legislation of the Member State in which it is located, or the laws of the State governing its internal legal relations, if the transfer will change its legal form to a Czech company or Czech cooperative and if after changing the legal status of its internal legal relations will be governed by Czech law.

Relocation of the registered office to the Czech Republic shall take effect on the date of registration of the transfer in the Commercial Register, or its deletion from the foreign commercial register, if the international legal order in which the foreign business register is kept, combines legal effects of the change of legal form.

Relocation of registered office abroad

A Czech company or cooperative may transfer its registered office to another Member State other than the Czech Republic, without ceasing to exist and the without the need to establish a new legal entity. Personal status and legal form of the company or cooperative, even after the transfer abroad continue to be governed by Czech law, if not stipulated otherwise by the law of the State in which the company or team is relocating its registered office.

A Czech company or cooperative may transfer its registered office to another Member State other than the Czech Republic, without ceasing to exist and without the need to establish a new legal entity, and change its legal form to one that is admitted by the law of the Member State in which the Czech company or cooperative is to relocate its registered office, if not prohibited by the legislation of that Member State.

Moving the seat of Czech companies or cooperatives abroad and the related changes in their founding documents become effective on the date on which the transfer of the registered office of the Czech company or cooperative is registered in the foreign commercial register, unless the law of the State in which the registered office will be provides otherwise. In this case, the change becomes effective in accordance with the relevant law, otherwise by the deletion of the Czech company or cooperative from the Commercial Register.

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Conversion of a company is permitted even when the company went into liquidation, if this is done at the discretion of its members or its competent authority - the general meeting or meeting of members, or after the expiry of the period for which the company was established, or if the purpose for which the company was established has been acheved or by a court decision on the cancellation of the company or cooperative liquidation, if the court set aside its decision to cancel the operations of companies or cooperatives. If the company or cooperative in liquidation is being converted for any of the above listed reasons, the liquidation terminates as of the date, when the company or the competent authority of the company or cooperative approved the conversion.

It is necessary for the transformation of the company in liquidation that the companions or the competent authority canceled the decision to enter into liquidation at the latest, until they started with the distribution of the balance. The effective date of this decision shall also cancel the activity of a liquidator and statutory bodies may initiate procedural steps necessary to implement the chosen method of transformation of society.

Merger or transfer of assets are admissible even if the company is insolvent or that already a bankruptcy settlement was permitted.

The decision to transform the company can be canceled until a decision authorizing the registration of the transformation in the Commercial Register, with the agreement of all participating companies.

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