There are several reasons for dissolving an existing limited liability company. Read an overview of the various ways to dissolve a limited liability company (or to terminate a shareholder's participation in the company without the company itself ceasing to exist) according to Slovak law.
DISSOLUTION OF A COMPANY THROUGH LIQUIDATION
Dissolution of a company through liquidation is the most commonly used method of terminating the existence of a limited liability company. It is the fastest and, at the same time, the most transparent way to dissolve a company. In the case of liquidation, not only does the shareholder’s participation in the company end, but the company itself ceases to exist (unlike in the case of transfer of a business share).
A necessary condition for a successful liquidation is that the company must not have more debts than assets. Otherwise, the company would have to file for bankruptcy instead of undergoing liquidation.
The liquidation process is regulated by the Business Code and involves several consecutive steps that must be carried out within legally prescribed timeframes, along with fulfilling several conditions requiring professional legal expertise. After successfully completing the process, the company’s liabilities are settled, its assets legally disposed of, and the company is dissolved and subsequently deleted from the Business Register, thereby ceasing to exist permanently.
On average, this process can be completed approximately eight months after the company enters into liquidation (but never earlier than six months, due to mandatory notification requirements).
Since effective liquidation of a company requires the preparation of multiple legal documents and the fulfillment of various statutory obligations within precisely defined deadlines, it is highly advisable to consult an attorney and be guided through the entire process by a true professional who will ensure a successful outcome.
A seeming disadvantage of liquidation is the requirement that, in connection with the liquidation process, the shareholder must deposit an advance payment for the liquidator’s fee in the amount of €1,500 with any notary. However, the law allows the shareholder to appoint themselves as the company’s liquidator, in which case the notary may return this deposit in full to the shareholder after the liquidation is completed. Therefore, this does not necessarily represent an actual cost to the shareholder for the liquidation of the company.
What are the approximate costs of liquidating a limited liability company? In addition to the attorney’s fee (which varies depending on the agreement), the shareholder must account for a court fee for registering the liquidator in the Business Register (currently €50), accounting costs for preparing the company’s financial statements (starting at around €75 per statement), fees for signature authentication on the required documents (approximately €20), notarial escrow fees for the advance payment for the liquidator’s remuneration (starting from €65). A specific cost of liquidation is the liquidator’s fee, for which the shareholder deposits an advance of €1,500 into a notarial escrow. However, as mentioned above, this amount may be refunded to the shareholder if they choose to act as the liquidator themselves.
A major advantage is that, from the moment a company enters into liquidation, it is no longer required to pay the so-called tax licence, which legal entities are otherwise obliged to pay starting from 1 January 2024.
In summary, dissolution of a company through liquidation is a legally transparent and relatively fast process (especially when compared to adissolution without liquidation ex officio), which, with the assistance of a qualified advisor, allows for the effective dissolution and permanent cessationof an existing limited liability company.
Our firm has extensive experience in the liquidation of limited liability companies. We offer comprehensive legal services,including representation before the court in connection with the liquidation and deletion of the company from the Business Register, starting from €400.
DISSOLUTION OF A COMPANY BY COURT WITHOUT LIQUIDATION (so-called ex officio dissolution)
This method of dissolving a limited liability company is mainly applicable in the case of long-term inactive companies that do not carry on any business activities and fail to fulfill their legal obligations. The Business Code allows a court to order the dissolution of a company if at least one of the following conditions is met (§ 68b of the Business Code):
- The legal prerequisites for the company’s existence have ceased to exist (e.g. the company’s share capital falls below the legally required minimum of € 5,000),
- The company’s bodies are not constituted in accordance with the memorandum of association, deed of incorporation, articles of association, or the law for more than three months (e.g. the company has been without a statutory representative for an extended period),
- The company does not meet the condition under §2 (3) of the Business Code, i.e. it cannot prove ownership or rights of use to the real estate where its registered office is located,
- The company fails to create or replenish its reserve fund as required,
- The company is in default of its obligation under § 40 (2) of the Business Code for more than six months (i.e. the company fails to file its regular individual financial statements or extraordinary financial statements in the Collection of Deeds within nine months from their preparation),
- In other cases as stipulated by the Business Code or a special law.
In such cases, the court may decide to dissolve the company either on its own initiative or based on a submitted petition. In practice, this means that a company shareholder or another interested party may submit a petition to the court stating that one of the above-mentioned conditions for dissolving a limited liability company has been met. The court then initiates ex officio proceedings (by official duty), dissolves the company, and subsequently removes it from the Business Register. At first glance, this may seem like a very advantageous method of dissolving a company, as the shareholder does not have to go through the liquidation process or incur the associated effort and costs. However, it is important to emphasize that courts are not bound by any deadline to issue a decision on the dissolution of a company, and the entire process can take several years—which unfortunately happens quite often in practice.
At the same time, merely submitting a petition to initiate proceedings for the dissolution of a company does not result in the company being dissolved. Therefore, this action has no impact on the obligation to pay the so-called tax licence. The shareholder is exempt from paying the minimum tax only starting from the tax period in which the court issues a notice of the commencement of dissolution proceedings (§ 46b(7)(f) of Act No. 595/2003 Coll. on income tax). In other words, a few years may pass between the time the court receives the petition to initiate dissolution proceedings and the moment it actually issues the notice of the commencement of proceedings, during which the shareholder is still required to pay the tax licence.
Thus, the shareholder has virtually no control over the process of dissolution without liquidation and may ultimately end up paying more (e.g. in tax licence fees) than if they had opted to go through the standard liquidation process.
BANKRUPTCY OF THE COMPANY
Liquidation of a company is only possible in the case of financially sound companies — i.e. when the company has sufficient assets to fully settle all its liabilities, meaning its assets exceed its debts.
Conversely, if a company is over-indebted (i.e. the value of its liabilities exceeds the value of its assets), it is obliged, through its statutory body, to file a petition for bankruptcy over its assets.
If a petition for bankruptcy is not filed in a timely manner (within 30 days from the moment the company’s executive became aware — or with due professional care should have become aware — of the company’s over-indebtedness), the executive is at risk of being fined, being held liablefor damages, or even facing criminal liability.
The decision to declare bankruptcy over company’s assets is made by court, and the entire process is comprehensively regulated by Act No. 7/2005 Coll. on bankruptcy and restructuring. As the topic of bankruptcy is extremely broad and complex, it is not the aim of this article to address it in detail. However, our law firm has long-standing experience in the field of bankruptcy law and offers extensive expertise in this area.
TRANSFER OF A BUSINESS SHARE
If a shareholder wishes to terminate their ownership interest in a limited liability company without having to dissolve the company itself, the quickest and most cost-effective method is clearly the transfer of a business share.
This approach is applicable when the shareholder has an interested party willing to acquire their business share in the company. The acquirer of the business share becomes the new shareholder in place of the original shareholder (the transferor) and thus gains an ownership interest in the company (and depending on the size of the share, also control over the company).
The transfer of a business share is carried out based on a written share transfer agreement, the required elements of which are regulated by the Business Code. In addition to the share transfer agreement itself, it is also necessary to prepare specific documentation to ensure that the transfer is properly registered in the Business Register based on the concluded agreement.
Although in the past, the transfer of a business share was often used as a means to deliberately dispose of ownership in problematic or unwanted companies by transferring the share to so-called “straw men“, such dishonest transfers are now rare in practice. This change is the result of several legislative measures aimed specifically at eliminating this undesirable practice. For example, a new criminal offence of dishonest liquidation has been introduced into the legal system under § 251b of Act No. 300/2005 Coll. the Criminal Code.
MERGER OF COMPANIES
Similar to the transfer of a business share, the merger of a limited liability company can also result in the termination of the original shareholder’s ownership interest, while the company itself or its legal successor continues to exist.
This is a suitable solution when there is a genuine interested party willing to take over the existing company through its merger with another limited liability company. This procedure can also be used if a shareholder holds ownership interests in multiple limited liability companies and wishes to optimize their portfolio by reducing the number of companies.
The merger of companies is a rather complex process requiring multiple steps to be carried out in a precisely defined order. This process is comprehensively regulated by the relatively new Act No. 309/2023 Coll. on conversions of business companies and cooperatives, which, besides mergers, also governs other forms of conversions of business companies and cooperatives (various forms of mergers and divisions of companies and cooperatives).
It is important to emphasize that the reason for merging one company with another must not be an attempt to evade unpaid debts. According to the law, it is not possible to merge a company with another if, after the merger, the debts would exceed the company’s assets. Additionally, the controlling person is liable for any damage caused as a result of the merger.
Besides the strict conditions regulating the merger process, another measure against pretextual mergers is the introduction of the criminal offence of dishonest liquidation into the Criminal Code (§ 251b).
Pretextual mergers of dozens of “dead,” often over-indebted companies into one “collection” company, which were once popular among less reputable entrepreneurs, are now, hopefully, a thing of the past.
