Most Common Way of Employing – Establishing of the Limited Liability Company in the Slovak Republic
The most popular way of how to become an employer in the Slovak republic is to establish the business company. The most common form of the Slovak business company is the limited liability company (hereinafter “LLC” or “company”).
In this article we would like to provide you with basic information regarding this business company and procedure of its incorporation.
LLC (in Slovak “spoločnosť s ručením obmedzeným”; abbreviation “spol. s r.o.” or “s.r.o.”) is a company, whose registered capital is made up of contributions agreed in advance by its shareholders. The LLC may be founded by one or more persons; however, it may have a maximum of 50 shareholders.
In this regard it should be emphasized that the LLC with a sole shareholder may not be a sole founder or a sole shareholder of another LLC and a natural person may not be a single shareholder of more than three LLCs.
The company itself is liable for any breach of its obligations with its entire property, whereby each shareholder’s liability for the company’s obligations is limited to the unpaid part of their contributions as recorded in the Commercial register. This means that if the contribution of the shareholder is fully paid up, the shareholder shall not be liable for the company’s obligations. The minimum registered capital of the LLC is EUR 5.000, whereby the value of the contribution of each member must be at least EUR 750.
The LLC is obliged to create a reserve fund. The reserve fund must be created at the time and in the amount determined in the company’s memorandum of association (in case of more shareholders) or the company’s foundation deed (in case of a sole shareholder); if the reserve fund was not created at the time of the company’s incorporation (which is not obligatory), the company is obliged to create it from net profit reported in the annual financial statements for the first year of the company’s profitability, namely in an amount of at least 5% of net profit but no more than 10% of registered capital. An amount determined in the memorandum of association (or foundation deed) of at least 5% of net profit reported in the annual financial statements shall be annually transferred by the company to the reserve fund until it reaches the amount of the reserve fund determined in the a memorandum of association (or foundation deed), such amount being equal to at least 10% of the registered capital. Please note that the fund may only be used for the purpose of covering company losses.
Managing Director of LLC
The company has one or more managing directors (the number of managing director is not limited). If the company has several managing directors, each of them is entitled to act on behalf of the company independently, unless the memorandum of association (or foundation deed) stipulates otherwise. The function of the managing director may be performed by the shareholder or the sole shareholder of the company as well as by a third person outside the company.
The function of the managing director may be performed by the national of the Slovak Republic or other EU/OECD member state as well as by the third country national. In this regard, however, note that in order for the third country national to become the managing director in the Slovak LLC, he/she must obtain the TR or the permanent residence in the Slovak Republic. The condition of the TR or the permanent residence does not apply to the nationals of EU/OECD member states, who may perform function of the managing director without any residence permit.
The incorporation process of the LLC encompasses 3 stages: (i) foundation of the company, (ii) notification to the Trade licence office and (iii) incorporation in the Commercial register.
The company is founded by the foundation deed (in case of one founding shareholder) or the memorandum of association (in case of two or more founding shareholders). Before filing an application with the Commercial register, the company must notify/obtain trade licence/s from the Trade licence office. Most of the trades are “free/unregulated”, i.e. no special requirements are needed; the managing director of the company must only meet the general conditions for conducting the trade i.e.:
- minimum age of 18 years,
- legal capacity, and
- integrity – i.e. the managing director will have to prove to the Trade license office that he/she has not committed any criminal offence relating to the respective scope of business.
Except for the free trades, the company may also apply for qualified and craft trades, in case of which besides the general conditions for conducting the trade, also other special conditions need to be met (such as specific education or practise). For this purpose, the company is obliged to appoint the-so-called authorised representative, who fulfils these special conditions, has a permanent residence or a TR in the Slovak Republic and, generally, must be in an employment relationship with the company.
Once the company obtains the respective trade license, it may file an application for incorporation of the company in the Commercial register. Before filing the application for incorporation of the company in the Commercial register, at least 30% of each monetary contribution must be paid up. The total value of paid-up monetary contributions together with the value of provided non-monetary contributions must amount to at least 50% of the minimum amount of registered capital. If the company was founded by a single founder, the company may only be incorporated in the Commercial register if its registered capital has been fully paid up.
The company is entitled to start conducting business activities based on the trade license and employ employees only after the registration with the Commercial register takes place.