Concept, Types, Documents and Procedure of Company’s Legal Form Change

Company’s legal form change

Company may change its legal form under the conditions and procedure which have been prescribed by the provisions of Articles 478 to 482 of the Companies Act.

Concept of a Legal Form Change

By changing the legal form, a company converses from one legal form into another legal form, in accordance with Companies Act.

The change of the company’s legal form does not affect the legal personality of that company.

The provisions of the Companies Act governing establishment of a form of a company apply mutatis mutandis to the change of a legal form of the relevant company, unless this Act stipulates otherwise.

If a public joint stock company changes its legal form, it must fulfill the requirements for termination of the status of a public company which are prescribed by the law governing capital market.

A company may not change the legal form if it is in liquidation or bankruptcy, except as a measure of reorganization in accordance with the law governing bankruptcy.

Types of Changes of Legal Form

According to the Companies Act types of changes of legal form are:

    • conversion of joint stock company into limited liability company
    • conversion of a joint stock company into general or limited partnership
    • conversion of limited liability company into joint stock company
    • conversion of limited liability company into general or limited partnership
    • conversion of general or limited partnership into limited liability company and joint stock company
    • conversion of general partnership into limited partnership and vice versa.

A sole trader may pass a decision on continuing to perform the activity in the form of a company, whereby the provisions of the Companies Act governing the establishment of the given form of a company apply mutatis mutandis.

If two or more sole traders perform the activity jointly the decision on continuing to perform the activity in the form of a company is passed unanimously.

Based on the decision on continuing to perform the activity in the form of a company the deletion of the sole trader from the register of business entities is concurrently executed with the registration of establishment of the company which undertakes all sole traders’ rights and obligations resulting from the operation until the moment that company was established.

Following the loss of sole trading capacity that natural person remains liable with all his assets for all obligations resulting from the performance of activity until the moment of deletion of the sole trader from the register.

Change of legal form from the legal form of a company or institution into the legal form of the entrepreneur is not possible.

Drafting of By-Laws and Documents Related to the Legal Form Change

For the purpose of conducting the procedure for the change of legal form, the board of directors of the company prepares and submits to the general meeting the following by-laws and documents for adoption:

  • Proposal of the decision on the change of company’s legal form
  • Proposal of the amendment to the memorandum of association for the purpose of harmonization with the provisions of this Act governing the relevant legal form of the company
  • Proposal of the articles of association of the company, if the company changes its legal form into a joint stock company
  • Proposal of the decision whereby the members of the company’s bodies are appointed, in compliance with the provisions of this Act governing the relevant legal form of the company
  • Report on the need for conducting the procedure for changing the legal form, which shall contain:
    – Explanation of legal consequences of the change of legal form;
    – Reasons for and the analysis of the expected effects of the change of legal form;
    – Explanation of the ratio of conversion of stocks into shares, i.e. shares into stocks, i.e. conversion of a share in one legal form of a company into shares of another legal form of a company, depending on the specific change of legal form
  • Detailed notification about the right of a company member to dissent from the decision on the change of legal form, in terms of Article 481 of this Act.

If the company has a two-tier management system, the by-laws and documents from paragraph 1 of this Article are prepared by the executive board, and the supervisory board finalizes them and forwards them to the general meeting for adoption.

Conducting the Procedure of Company’s Legal Form Change

The provisions of the Companies Act governing status changes apply mutatis mutandis to the notification of company members and creditors of the conducting of the procedure of legal form change, to the invitation for a session at which a decision on the change of legal form is to be made, and to the procedure of rendering such a decision, unless this Act stipulates otherwise.

Decision on the Change of a Company’s Legal Form

A decision on the change of legal form of a company contains in particular:

  • Business name and address of the seat of the company that undergoes the change of legal form
  • Designation of a new legal form of the company
  • Details regarding the manner and conditions for the conversion of shares in a company into stocks, or vice versa, i.e. conversion of shares of one legal form of a company into shares of another legal form of a company, depending on the specific change of legal form.

In a joint stock company, the decision on the change of legal form is passed by a three-quarter majority of the stockholders present, unless a larger majority is stipulated by the articles of association.

Concurrently with the decision on the change of legal form of a company, the company’s members, i.e. the general meeting adopts:

  • Amendments to the memorandum of association
  • Articles of association, in case of a change of legal form into a joint stock company
  • Decision or decisions on appointing members of the company’s bodies.

Registration of the Change of Legal Form of a Company and Legal Consequences of Registration

The registration of the change of legal form of a company is carried out in accordance with the registration act, and if a company changes its legal form to become a joint stock company, it shall carry out the prior registration of stocks with the Central Register, in keeping with the Companies Act.

If a company changes its legal form and becomes a public joint stock company, or ceases to be such a company, the provisions of the law governing capital markets that relate to obtaining, i.e. termination of the public company status also apply.

The legal consequences of the change of legal form of a company arise on the day of registration of such a change, in accordance with the registration act.

The change of the legal form of a company produces the following legal consequences:

  • Shares of the members of the company are converted into stocks or vice versa, i.e. the shares of one legal form are transformed into shares on another legal form of a company, depending on the specific change of legal form
  • Statutory holders of convertible bonds and warrants, i.e. other securities with special rights, except stocks, are provided with at least equal special rights after the change of legal form, unless the decision on the issuance of such securities stipulates otherwise, or unless a different agreement has been reached with their holders
  • Partners and general partners who, due to the change of legal form, have become company members with limited liability, remain jointly and severally liable, together with the company, for the company’s obligations created prior to the registration of the change of legal form in compliance with the registration act.

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