Written by Richard Gürlich
of GÜRLICH, ODROBINA & spol.
It has not been long since we wrote about acquiring a company. We were concerned with a company in the sense of an enterprise or a firm, and how to form one. At the end of the article at that time we promised to get back to the theme “Do you need a company?” and to look at the whole issue from a different angle.
We are very happy to keep our promise and share more information with you.
The theme of this article is acquiring or buying shares in an existing company. In relation to the limited liability company, we would like to concentrate on, it is possible to identify two similar methods depending upon whether the acquired already existing company has been active for some time, or whether the company is inactive and was basically created for “re-sale” to a third party.
Generally the transfer of a business share or shares in an active company is a standard process where a simple change in ownership of an already existing company takes place by way of business share transfer and changes in the statutory bodies of a limited liability company.
For an illustration we will describe the individual steps of the standard procedure which are applicable to both similar methods mentioned above:
1. Business share transfer in a company with a sole member to a third party that shall at the same time become a new executive of the company
1.1. The conclusion of the contract on business share transfer.
1.2. The notarial record on the decision of the sole member executing the powers of the general meeting of the company, where the decision shall be the consent to the transfer of business shares in the company (in case there is more than one member in the company,) and the change of the executive of the company (a new member will almost certainly want to decide on the future of his/her company), and also the decision on the change of the founding document if, at the same time, e.g. the headquarters or the corporate name of a company. is changed.
1.3. Next to the above-mentioned documents (the contract and the notarial record) it is necessary to submit documents concerning the new executive of the company, especially the abstract of records, affidavit and specimen signature of an executive of the company and his/her consent with the entry into the Commercial Register.
1.4. Finally, a petition on the entry of changes in the company into the Commercial Register needs to be filed.
Now, we would like to mention the differences in relation to whether we discuss a business share transfer in an active or an inactive company:
1. As mentioned above, nowadays companies that provide for the formation of limited liability companies and their sale to “third” parties exist. Such companies are capable of rendering almost all services connected with this procedure, especially drafting contracts on the transfer of business shares and of organising the necessary general meeting of a company, in which changes are made. In such cases you are given the “guarantee” that the “purchased” company has never taken part in any economic activity in the past. Even though we have very good experience with this kind of acquisition of a company, we always highly recommend including a specific declaration of the seller into the contract on the transfer of business shares in the “purchased company”. The seller´s declaration concerns the fact that there must not be any obligations that would burden his/her new company or the purchased business shares.
2. If business shares of a company operating for some time are transferred, the procedure is generally the same. The only difference of the purchase of the company is that a member or the statutory body of the company will be contacted at the very beginning, rather than an intermediary providing for the formation of the company, and the current member of the company, in which the business share transfer takes place, won´t automatically provide for all related services as it was mentioned in the previous paragraph. The longer an active company´s existence, the greater the risk of the occurrence of obligation related to the company or his/her transferred business shares.
3. Another distinction rests in the costs connected with the purchase of a limited liability company. If a purchased company is formed only for the purpose of its sale to a third party (the first case) the price will correspond to the amount of the registered capital of such a company (generally 200,000.- CZK) plus the margin determined by the “purchase intermediary”, i.e. by the party that handled the formation of the company for the purpose of its resale. According to our experience this price is usually around 40,000,- CZK. On the other hand, the price of the business share of an already formed and active company depends to a substantial extent on the success of the company in its market.
If we summarize the above-mentioned, with reference to part I of this theme; with the formation of a new company, the business share transfer in an already existing company is a quicker and organizationally less demanding solution. On the other hand, there are risks connected with previous ongoing economic activities of the company. It is impossible to acquire a company without certain financial capital.
If you want to decide on any of the ways to acquire a company, we can give you further advice, and are ready to offer our assistance in representing you during the whole process, on the basis of a power of attorney or of sharing our experience and giving you guidance through the process.
In case you have any questions please do not hesitate to contact us.