ESTABLISHING BUSSINESS PRESENCE ESTABLISHING BUSINESS PRESENCE BUSINESS ENTITIES

In terms of the different types of business entities, foreign investors in Slovakia favour to establish a limited liability company (s.r.o.) because of the ease of incorporation and regulation in regards to corporate governance. A joint stock company (a.s.) is predominantly used when the transaction includes joint ventures or external financing.

Alternatively, an investor may choose only to set up a branch office which is not a separate legal entity and acts on behalf of its founder. Below is a high-level summary of the previously mentioned business entities, outlining their basic characteristics, capital requirements as well as some of their main advantages and disadvantages.

Type of business entity Details Capital requirements Pros Cons

Limited liability company (s.r.o.)

- Most popular form

- 1 to 50 members, each holding one share in the amount (usually) corresponding to its share on capital of the company

- Transferability of share can be limited with approval of general meeting or totally excluded

- Managed by Managing Director(s)

- Statutory Board is not mandatory

Joint stock company (a.s.)

- Public or private

- Unlimited number of shareholders (if founded by a single founder, it must be a legal entity)

- Managed by Board of Directors

- Statutory Board is mandatory

- Transferability of shares can not be excluded (only limited for certain grounds)

Branch office

- Not a separate legal entity

- Acting in the name and on behalf of its founder

EUR 5,000 minimum

- Flexibility, less regulation (simple creation and administration)

- Lower capital and reserve requirements

- Reserve fund has to be created only once LLC makes a profit

- Not publicly tradable, cannot be listed

- Shareholder structure is publicly available

- Shareholders are liable up to the amount of unpaid contributions

- The (parent) company being LLC with a single shareholder may not be the only founder or the only shareholder of another LLC.

Simple Joint Stock Company (j.s.a.)

-Ideal for start-ups,

- Managed by Managing Director(s)

- Transferability of shares can be excluded

- Shares with special rights can be issued

EUR 25 000 minimum - Shares can be publicly traded

- More regulation

- Shareholders hold no liability

- Shareholder structure is confidential (not publicly available), unless company has only one shareholder

- Obligatory supervisory board comprising of at least 3 members

- Higher registered capital,

- Reserve fund must be created upon incorporation none

- Liability remains with the parent company

- No withholding tax and audit requirements

- Fully dependent on its parent company

EUR 1 minimum

- Supervisory board is not mandatory

- Company may be wound up from reasons as stated in its articles

- Symbolic amount of registered capital

- Shares can not be publicly traded

- Shareholders structure is publicly available

- Only book entry shares possible

X In addition to the three main business entities, the following legal forms are also present in Slovakia:

– Limited partnership (k.s.)

– General partnership (v.o.s.)

– Cooperative

X All of the previously mentioned entities except for a branch office constitute Slovak legal entities. Additionally, the Slovak Republic recognises the following entities, in line with the European Community law:

– European company (SE)

– European economic interest group (EEIG)

– European cooperative society (SCE)

FDI screening

New full-fledged foreign direct investment legislation (FDI Act) is effective as of March 1, 2023. The aim of the FDI Act is to ensure that foreign investments may be reviewed in order to assess, whether a foreign investment might have a negative impact on security and public order in Slovakia or in the EU.

Any person outside the EU will be considered as foreign investor (even EU persons if controlled by a person outside the EU or by a public authority of a third country, such person is their ultimate beneficial owner or such person finances the transaction). Investors will have to carefully consider whether their investments might fall under the ambit of the FDI Act and in such case, whether they constitute regular foreign investment (RFI) or critical foreign investment (CFI), in which case different processes will apply:

– Mandatory pre-closing screening/approval shall only apply to the CFIs that cover transactions above a threshold percentage concerning target companies/assets in certain specific sectors.

– As for RFIs, they do not require mandatory pre-closing screening, but the Slovak government reserves the right to perform any ex post screening (voluntary screening based on the request of the investor is possible to asses the respective issues in advance).