Simple joint-stock company
An amendment to the Commercial Code will enter into force on 1 January 2017, introducing a new type of business company into the legal system – the simple joint-stock company (hereinafter the “s.j.s.c.”). The amendment will thus broaden the range of options available to entrepreneurs when choosing the most suitable form of business company through which to conduct their business activities. The s.j.s.c. will expand the range of capital companies, since its operating features make it a kind of hybrid between a limited liability company and a joint-stock company. As the name of this business company itself suggests, its main purpose is to simplify business activities, including investment. A simple joint-stock company is a kind of simplified joint-stock company with features of a limited liability company. It cannot, however, be described as a new form of joint-stock company, since the s.j.s.c. is a new, independent type of business company. The legislator took care to make this distinction when naming this new form of business company: it is not called a simple joint-stock company, thereby emphasising that the s.j.s.c. is not merely a type of joint-stock company. Despite this distinction from a joint-stock company, the provisions of the Commercial Code concerning joint-stock companies apply on a subsidiary basis. The introduction of the s.j.s.c. into the legal system of the Slovak Republic addresses, to some extent, the problematic area of investment. In the following article, we will focus on the characteristics of the s.j.s.c. and also point out the advantages offered by this form of business company.
First of all, we consider it important to point out that, even after the amendment to the Commercial Code introducing the s.j.s.c. enters into force, it will not be possible to convert an existing business company or cooperative into an s.j.s.c.; moreover, an s.j.s.c. may subsequently be converted only into a joint-stock company.
The s.j.s.c. is a suitable form of business company particularly for small and medium-sized businesses, for which simplifying business operations is an important factor affecting their existence, as well as the potential development of the business environment itself. Since this form of business company is not tied to any specific industry, its potential uses are fairly extensive. An s.j.s.c. may be established by one or more persons. Its establishment requires a memorandum of association or a deed of foundation drawn up in the form of a notarial deed, which must also include the company’s articles of association. The primary objective of the amendment is to make this type of business company available particularly to start-ups, for which conducting business under the previous legislation was challenging, especially in terms of financing. The innovative nature of start-ups and their rapid growth potential justify the need to support them through this newly introduced form of business company. The existing forms of business companies present start-ups with a number of challenges, such as the amount of share capital and the company’s organisational structure.
The s.j.s.c. offers a more advantageous way of financing start-ups, particularly because potential investors secure their investment through an ownership interest in the company. This enables the company’s founders to obtain a sufficient financial base for developing their project while also making the investment more attractive to investors themselves.
The share capital of an s.j.s.c. is divided into a certain number of shares with a specified nominal value. One of the advantages of an s.j.s.c. is the amount of its share capital, which, under the Commercial Code, must not be less than EUR 1. By comparison, establishing a limited liability company requires share capital of at least EUR 5,000, while establishing a joint-stock company requires share capital of at least EUR 25,000. Given this minimum share capital, an s.j.s.c. is a significantly more accessible form of business company. The share capital must be paid up before the s.j.s.c. is formed; unlike a joint-stock company, therefore, it cannot be established by means of an invitation to subscribe for shares.
Given the very low minimum amount of share capital, the nominal value of shares may also be expressed in euro cents, meaning that the lowest nominal value of a share is one euro cent.
Shares take the form of book-entry securities and may be issued only in registered form. Such shares are recorded with the Central Securities Depository. A simple joint-stock company may issue ordinary shares or shares carrying special rights, which may confer benefits on the shareholders holding them. Such rights may include, for example, special arrangements for the distribution of a share of profits or liquidation proceeds, or a special allocation of voting rights other than in proportion to the number of shares held. These shares may be transferred to the company’s employees or to other persons directly involved in the company’s operations. The articles of association may restrict or entirely exclude the transferability of shares to third parties. Another advantage of an s.j.s.c. is the relatively flexible possibility of bringing capital into, and withdrawing it from, the company.
Liability for the company’s breach of obligations rests with the company, not its shareholders, since the shareholders are not liable for the company’s obligations. This liability regime reflects the characteristic features of capital companies. The relationships between shareholders may be regulated by a so-called shareholders’ agreement, a private agreement setting out the shareholders’ rights and obligations.
With regard to shareholders’ rights, it is essential to emphasise that this form of business company also introduces entirely new rights. The right to participate in a share transfer enables a shareholder to transfer their shares together with another shareholder’s shares. In connection with such a transfer, a shareholder may also require another shareholder to transfer their shares to a third party together with them (the right to require a transfer of shares). An entitled shareholder may also unilaterally set the price of a share and require another shareholder to transfer their shares to them at that price (the right to require the acquisition of shares).
The organisational structure of an s.j.s.c. is also simplified: it must have a general meeting and a board of directors, whereas, unlike an ordinary joint-stock company, establishing a supervisory board is optional.
In general, it may therefore be concluded that the legislation governing this type of business company is capable of significantly strengthening the business environment in the Slovak Republic.
