Business transfers in the Czech Republic are regulated by the Commercial Code. Limited liability and joint stock companies are the types of company most commonly transferred by foreigners doing business in the Czech Republic.
Types of transfer
There are four basic ways of transferring a business:
- A "transfer of a share in a company" is the transfer of a business share in a limited liability company or the transfer of stock or of other participatory securities in a joint stock company;
- the de facto transfer by contract of a certain part of a company's business without changing its ownership structure, for the purposes of transferring the company.
Transferring a business share in a limited liability company
This is the most frequent type of participation in a company. The current partner transfers his/her business share to another partner and/or a person outside of the company by means of a contract on the transfer of a business share.
Transfer of a business share in a joint stock company
The terms for participating in joint stock companies are laid down in the contracts on the transfer of stock or other participatory securities (if the shares have not yet been issued). The specific transfer conditions depend on the type of share involved.
Act No 591/1992 on securities, together with the Commercial Code, provides the rules on this type of transfer.
De facto transfer
This involves the transfer of a business as a functional economic unit and it has no effect on who owns the company It is a paid transfer of a set of tangible, personal, and non-tangible parts of a business that, as a whole, serve the business.
A business also consists of items, rights, and other asset values that belong to the entrepreneur and serve for the running of the business.
The legally binding rules for a company's transfer are set out in the contract on the sale of a business.
Transfer: a step-by-step guide
Transfer of a share in a company
In the case of companies with limited liability the procedure for transferring a business share is as follows:
- It is necessary for the AGM to express consent to the transfer of the business share. The Articles of Association, however, may specify that consent is not necessary.
- It is necessary to conclude a contract on the transfer of the business share, which must be in writing. The signatures on such a contract must be officially verified. An acquiring party who is not a partner must declare in the contract on the transfer of a business share that he accepts the Articles of Association.
- The contract must then be delivered to the company. Only at the point of delivery of the contract to the company does the contract come into effect for the company.
In the case of a joint stock company the shares represent a business share.
In the case of bearer shares, it is not possible to restrict transferability at all and the shares are freely tradable.
In the case of registered stock :
- the articles may restrict their transferability, but they cannot exclude it entirely. However, if the articles say nothing the registered shares shall be freely tradable and their transferability shall be unrestricted.
- The articles may also make the transferability of registered shares conditional on the consent of some of the organs of the company. If the company refuses to give its consent, it must buy back the shares in question from the shareholder for a price that adequately reflects their value.
De facto transfer
A de facto transfer operates on the basis of a contract on the sale of a business. Contracts on the sale of a business are regulated in Section 476 and following of the Commercial Code. The basic rules for the transfer of a business are as follows:
- The contract must be concluded in writing.
- The buyer must notify the creditors of the assumption of liabilities and the seller must notify the debtors of the transfer of debts to the buyer.
- The seller guarantees the creditors in respect of the transferred debts.
- Ownership rights to the items that are included in the sale transfer to the buyer on the day the contract takes effect. The ownership rights to fixed assets are written into the land register and transfer to the buyer through entry in the register.
- It is necessary to draw up a record of the takeover, which is signed by both parties.
The selling of a business may be a relatively complex operation and it is therefore sensible to approach a local lawyer or other legal expert. The taxation aspects should be assessed by the Ministry of Finance.
In the Czech Republic, the CzechInvest agency offers foreign investors extensive support with their projects. The support extends across a whole range of programmes.
Taking over an existing company is a worthwhile alternative to setting up a new business.
Selling a business share
The procedure when selling a business share is as follows:
- verifying the terms under which a contract may be concluded,
- signing the contract;
- delivering the Articles of Association, in the case of a company with limited liability.
De facto sale
With a de facto sale the procedure is as follows:
- signing the contract;
- notifying the creditors of the transfer of liabilities and the transfer of receivables;
- drawing up a transfer record;
- submitting an application for entry in the land register if the subject of the purchase is a item of real estate recorded in a land register;
- submitting an application for the sale of the company to be recorded in the Commercial Register.
Changes to the structure of a company that take place while a share in the company is being acquired are recorded in the Commercial Register.
In view of the fact that transferring a business may be a relatively complex task it is sensible in certain cases to approach a local lawyer:
The following governmental and non-governmental web portals offer further information and useful services related to business transfers.