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Conversions of companies and cooperatives have new rules

We bring you an overview of several changes resulting from the new Act on Company Conversions. The new legislation also introduces significant changes in the tax area.

On 1 August 2023, the first part of Act No. 309/2023 Coll. on conversions of companies and cooperatives and on amendments to certain acts ("Act") entered into force. We informed you about the planned changes in this Act in our January edition.

New framework for conversions and changes of legal form

The first part of the Act introduces the institute of the insolvency register into the insolvency legislation.

With the effect from 1 March 2024, the Act introduces a comprehensive regulation of company conversions, when the legal regulation of company and cooperative conversions ("conversions") will be definitely excluded from the Commercial Code.

The aim of the new Act is to create a unified, coherent and clear legal regulation of the process of conversions and changes of legal form.

From 1 March 2024, the Act will regulate in particularly:

  • national conversions (mergers, amalgamations and divisions)
  • cross-border conversions (cross-border mergers, amalgamations and cross-border divisions)
  • changes of legal form (change of legal form and cross-border change of legal form); and
  • other relationships related to conversions and changes of legal form.

The adoption of the Act introduces a completely new terminology of terms related to the conversions and introduces new institutes, such as:

  1. spin-off;
  2. cross-border division; and
  3. cross-border change of legal form.

A conversion project will now replace the merger agreement. Just like the merger agreement, the conversion project will be subject to the approval of the bodies of the company concerned. The approval of the conversion project may also be revoked before the application for registration of the conversion in the commercial register is submitted.

Note that under the transitional provisions of the Act, the current legislation will apply if a draft merger agreement or a draft division project was adopted before 1 March 2024 and the application for registration of the merger, division of the company was submitted to the Commercial Register by 30 June 2024. The same applies in the case of a change in the legal form of the company.

The Act also defines the situations when national and cross-border conversions are not allowed.

In general, a conversion is only possible if the companies involved in the conversion have the same legal form or between a limited liability company and a joint stock company.

Companies involved in a cross-border conversion must have the same or similar legal form. In principle, cross-border conversions are only possible between capital companies, i.e. joint stock companies and limited liability companies and their similar forms abroad.

Tax-related amendments

The Act also amends the Income Tax Act, which adds a provision regarding spin-off with effect from 1 March 2024. Effective from 1 January 2024, an exemption from income tax from the sale of shares is introduced after three years from its acquisition (if acquired after 31 December 2023) as well as other provisions related to financial investments by individuals.

With effect from 1 March 2024, the VAT Act will be amended accordingly to reflect the possibility of company conversion by spin-off.

The Financial Administration has issued a material in this respect, more information can be found here (available only in Slovak language).

If you are interested in this topic or consider realization of Conversion or change of legal form do not hesitate to contact us.

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