Financial assistance is no longer prohibited: the rules from 1 March 2024 and implications for ESOPs

Financial assistance means a company provides an advance, loan, credit or security to enable a third party to acquire its shares. Slovak joint-stock companies were prohibited from doing so for years, with narrow exceptions for ordinary banking operations and transactions connected with employee share acquisitions. Act No. 309/2023 Z. z. on transformations of companies and cooperatives reversed this regime from 1 March 2024: § 161e of the Commercial Code now permits financial assistance if the articles allow it and the statutory conditions are met.

What the new wording requires

The conditions are cumulative: assistance must be provided on fair market terms, including interest and security; the board must assess the recipient’s financial capacity; it must not reduce equity below the statutory threshold; and the company must create a special reserve fund equal to the assistance. The third party must acquire or subscribe for the shares concerned at a reasonable price. The board submits a written report to the general meeting explaining reasons, terms and risks. If a board member, a controlling person, a member of its statutory body or someone acting for their account will receive assistance, the supervisory board also submits its own report. The general meeting approves the decision by a two-thirds majority of the votes of shareholders present, and the reports are filed in the collection of documents.

The employee exception remains, but has moved

Transactions connected with the acquisition of shares by or for employees of the company remain outside the regime of paragraphs 1 to 6, as do ordinary banking operations, provided equity does not fall below registered capital plus the mandatory reserve fund. The exception is now in § 161e(7). Older texts and templates cite it from when it was an exception to the prohibition in § 161e(2). For a simple joint-stock company, the articles may also extend the exception to self-employed individuals whose work for the company is the subject of intellectual property rights (§ 220s(3)).

Practical implications

For ESOPs, helping employees buy shares through a loan or security was already permitted by the employee exception before the amendment. What is new is that, under the conditions of § 161e(1) to (6), programme participants who are not employees can also be helped. For company sales and purchases, financial assistance ceases to be an automatic obstacle to structures in which the target company lends or provides security to finance the purchase of its own shares; compliance and approval procedures replace the prohibition. Finally, documents drafted before 2024 deserve another read: a reference to the “prohibition of financial assistance under § 161e(1)” now points to text with a completely different meaning.

What to watch for

The new wording applies to joint-stock companies and correspondingly to simple joint-stock companies; financial assistance is not expressly regulated in this way for an s.r.o. For every form, including under the employee exception, the prohibition on returning contributions applies: performance without adequate consideration (including performance under security) in favour of a person who becomes a shareholder within two years is treated as a return of contribution (§ 67j(2) and (3)). Nor is the permission unlimited. Without the reserve fund, a verified credit assessment or any other statutory condition, it does not cover the transaction. We recommend structuring financial assistance, whether for an employee programme or a company sale or purchase, before the first document is signed.