Legal Q&A · 05

Company sale & M&A — questions and answers.

13 answered questions on a subject we work on. Find related services in the catalogue: Company sale & M&A.

Answered by , Czech and Slovak attorney, admitted to the Slovak and Czech Bars (SAK 300422 · ČAK 19654).

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Questions about Company sale & M&A

  1. I am selling my company and stepping down as managing director. Can the company contractually waive all claims against me? The law does not permit a blanket waiver of all claims on the sale of a company. In Slovakia, agreements that exclude or limit a managing director's liability in advance are prohibited. A company may waive or settle existing damages claims only once 3 years have elapsed since they arose, with the approval of the general meeting and provided that a qualifying minority does not object. In Czechia, limitations of liability are disregarded, but a company may settle harm already suffered by an agreement approved by a two-thirds majority of the votes of all shareholders. A Slovak company cannot eliminate claims of creditors or the bankruptcy trustee through such an agreement.
  2. We bought a company and, after taking it over, discovered problems the seller had not disclosed. Can we claim a price reduction? It depends on the law governing the share transfer agreement and on the representations the seller made in it. In Czechia, the sale of a share for a price is a sale and purchase contract, and where there is a defect—which, under the contract, may include an untrue representation about the company's condition—the buyer may claim a reasonable price reduction. In Slovakia, the provisions on price reductions are drafted for goods, so the claim rests primarily on the contract and on damages. In both countries, it helps if the contract specifies in advance how the reduction will be calculated and which part of the price will be used to satisfy it.
  3. An investor from outside the EU wants to buy our Czech company. Does it need ministerial approval? Approval is mandatory only where the Czech company manufactures, develops or supplies military material, is a critical infrastructure entity, provides a regulated service under the regime of higher obligations under the Cybersecurity Act, or develops or manufactures specified dual-use goods. In those cases, approval from the Ministry of Industry and Trade is required before the investment is made, even for a holding of 10 % of voting rights or membership of a corporate body. The Ministry may screen other investments on its own initiative within 5 years of completion unless the investor requests a consultation in advance.
  4. Can I, as a customer, be liable for VAT my supplier has not paid? Yes. A VAT payer receiving goods or services is liable for tax at the preceding stage if the supplier has not paid it and, when the tax liability arose, the customer knew or should and could have known that it would remain unpaid. The Act lists three sufficient grounds for such knowledge: an unreasonable price, shared personnel or ownership between the parties, and payment to a bank account other than the supplier's published account.
  5. Is VAT payable on the sale of an enterprise or part of one? Generally not. The sale of an enterprise, or part forming an independent organisational unit, is not treated as a supply of goods or services if the buyer is a VAT payer or becomes one by law. However, the buyer becomes the seller's legal successor for the assets transferred. If the seller does not provide information about VAT deducted on capital goods, the Act presumes a full deduction.
  6. Does a new company created by a merger pay minimum tax in its first year? Yes. The minimum tax exemption for a newly formed taxpayer expressly excludes a taxpayer that is the legal successor of one dissolved without liquidation. A successor company created by a merger into a new company or a division therefore pays minimum tax for the period covered by its first tax return. For a period shorter than twelve months, the amount is calculated proportionately.
  7. A company that owns real estate has been deleted from the Commercial Register. Can anything still be done? Yes, but only through the court. If assets that should have been dealt with in liquidation or bankruptcy are discovered after a company is deleted without a legal successor, the court, on an application by a person with a legal interest, orders supplementary liquidation, appoints a liquidator and restores the company's Commercial Register entry. Timing matters: if nobody applies within four years of deletion, the company's assets pass into state ownership.
  8. We are merging companies. Is the property automatically registered in the successor's name? Ownership passes automatically, but the land register entry does not change automatically. On the effective date of a merger, meaning the date the transformation is entered in the Commercial Register, the disappearing company's entire assets and liabilities pass to the successor by law. The land register does not learn of this itself and makes no automatic amendment. The change must be pursued through a separate application for a declaratory entry. Until then, the title deed names a company that no longer exists.
  9. We are buying property from a joint-stock company. What additional checks are needed? In addition to ordinary property due diligence, check whether the transfer falls under a special Commercial Code regime. If a joint-stock company transfers assets to a board member, a procuration holder, another person authorised to act for it or persons close to them, prior supervisory board consent is required. Conversely, if the company acquires assets from a founder or member for at least 10% of its registered capital, an expert valuation and filing of the agreement in the Collection of Deeds are required before the land registration application is submitted.
  10. How does lawyer escrow protect the purchase price when a company is sold? The buyer deposits the purchase price in a separate account held by the lawyer, and the seller receives it only once the agreed conditions are met, usually after the change of member is entered in the Commercial Register. Escrow money is separate from the lawyer's assets. The lawyer may not use it and is professionally obliged to release it to the entitled person. Release conditions should be drafted so they can be verified by documents, rather than interpretation.
  11. We are selling one division of the company. When is this a sale of part of an enterprise and when merely a sale of assets? It depends on whether the division forms an independent organisational unit, that is, a self-contained, separately managed part of the enterprise carrying on a relatively independent activity. If it does, it is sold by a contract for the sale of part of an enterprise and the rights and obligations belonging to it pass to the buyer by operation of law, in the case of debts even without the creditors’ consent, although the seller continues to act as surety for them. If it does not, the regime for the sale of part of an enterprise does not apply and the assets, contracts, receivables and debts must be transferred separately.
  12. We are selling part of the company. Do the employees pass to the buyer automatically? Yes. Where a part of the employer that retains its identity is transferred, the rights and obligations under the employment relationships pass to the buyer by operation of law and the employees do not sign new employment contracts. Both the seller and the buyer must inform the employees’ representatives, or the employees directly, in writing in advance, in Slovakia at the latest one month before the transfer. The same principle applies in the Czech Republic, with an information period of 30 days; an employee who gives notice because of the transfer within 15 days of being informed in time ends the employment no later than the day before the transfer.
  13. We want to hive a division off into a new subsidiary s.r.o. Should we contribute it to the subsidiary or sell it to it? Both routes are possible and both as a rule require an expert valuation. On a contribution, the division is credited against the parent company’s contribution to the subsidiary’s registered capital, the rules on the sale of an enterprise apply as appropriate to the passing of rights and obligations, and the subsidiary does not need money for a purchase price. On a sale to a new subsidiary, the rules on the acquisition of assets from a shareholder must also be observed: the contract must be filed with the expert valuation in the collection of documents, and during the first two years the draft contract must be approved in advance by the subsidiary’s general meeting.

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