Our s.r.o. has registered capital of EUR 5,000. What do we do with it if we want to convert it into a joint-stock company?

A Slovak s.r.o. may have registered capital of as little as EUR 5,000; a joint-stock company needs five times that. When a conversion into a joint-stock company is being considered, capital is therefore the first practical question. A change of legal form is not the formation of a new company, but the result is a joint-stock company, and it must meet the requirements applicable to that form.

Why the existing capital is not enough

The Act on Transformations contains no special rule on the minimum amount of capital for a change of legal form; capital is addressed only by the protection of creditors in case it would be lower after the change than before (Section 111 of Act No. 309/2023 Coll.). The project for the change of legal form must, however, specify the members’ shares after the change, including their nominal value and number, and the articles of association of the company as it will exist after the change are annexed to it (Section 106(3)(c) and (4) of the same Act). The articles must state the amount of the registered capital (Section 173(1)(c) of the Commercial Code), and for every joint-stock company:

The value of the company’s registered capital must be at least EUR 25,000.

— Section 162(3) of Act No. 513/1991 Coll. (unofficial English translation)

An s.r.o. with lower capital must therefore increase it. The clearest approach is to do so while the company is still an s.r.o. and to apply for the change of legal form only once the company meets the threshold. A change of legal form takes effect on entry in the Commercial Register (Section 4(1) of the Act on Transformations), so the two steps must be coordinated in time.

Increase by new contributions

The increase is decided by the general meeting (Section 125(1)(e) of the Commercial Code) by a two-thirds majority of all the members’ votes (Section 127(4)). The capital may be increased by new monetary contributions only if the existing monetary contributions have been fully paid up (Section 142). Existing members have a pre-emptive right to take up the new contributions in proportion to their existing contributions, unless the memorandum of association or the decision on the increase provides otherwise (Section 143(1)). The undertaking to make a new contribution is assumed by a written declaration bearing the officially certified signature of the person concerned, and anyone who is not yet a member also accedes to the memorandum of association in that declaration (Section 143(3)). In the case of a contribution in kind, the general meeting also approves the amount credited towards it (Section 143(2)).

The form of the minutes matters. Where the increase changes the ratio of ownership interests, the course of the general meeting must be certified by a notarial deed (Section 127a(4)(b)). Otherwise, minutes bearing the officially certified signature of the chair of the general meeting will suffice (Section 127a(3)).

Increase out of the company’s own funds

Where the company has retained earnings or other own funds reported within equity, the general meeting may use them to increase the capital, subject to the restrictions applicable to the distribution of profit (Section 144(1)). The decisive rule, however, is this:

The registered capital may be increased under paragraph 1 only on the basis of approved ordinary individual financial statements, provided that no more than six months have elapsed, as at the date of the general meeting, from the date as at which those financial statements are drawn up. An audit of the financial statements is not required where the increase in registered capital uses retained earnings that could otherwise be distributed to the members and the amount of the increase does not exceed the amount of the registered capital before the increase.

— Section 144(2) of Act No. 513/1991 Coll. (unofficial English translation)

If the entire gap between the statutory minimum for an s.r.o. and that for a joint-stock company is to be covered out of own funds, the increase is four times the existing capital. The audit exemption then does not apply, and the financial statements must be audited. The exemption moreover concerns only retained earnings; for other own funds the Act does not rule out an audit. In timing terms, the increase is tied to financial statements no more than six months old as at the date of the general meeting, which has to be reflected in the timetable for the whole transformation.

When higher capital is not the objective

If what the members are really after is shares, for an investor or for employees for instance, rather than a form with higher capital, the Act also permits an s.r.o. to be converted into a simple joint-stock company (Section 105(3) of the Act on Transformations). How that differs from a joint-stock company is explained in our answer on what a simple joint-stock company is.

We prepare the increase of capital and the change of legal form as a single plan with a single timetable. The increase itself we handle under changes of registered capital, and the project, articles and registration under change of legal form from an s.r.o. to an a.s.. Increasing capital in an s.r.o. generally is covered in our answer on how to increase the registered capital of an s.r.o., and voting by members in our answer on converting an s.r.o. into an a.s. where a member disagrees.