Capital business corporations, i.e. limited liability companies, joint stock companies and limited partnerships must create mandatory registered capital on incorporation.v

Common practice when setting up business corporations or increasing the registered capital of these corporations is to make a non-financial contribution to the corporation’s registered capital, usually in the form of real estate property. The value of this real estate property expresses the amount of the contribution, respectively registered capital.v

A business corporation’s operation includes the disposition of registered capital, which in practice often means the sale of real estate property contributed to a corporation’s registered capital.

In their decision-making practice, some courts conclude that the sale of real estate property contributed to the registered capital of a corporation de facto reduces the corporation’s registered capital. For this reason they required a contract for the transfer of real estate property to be preceded by a General Meeting decision on a reduction of registered capital. If such a decision is not issued prior to the conclusion of a contract for the transfer of real estate property, the courts consider such a contract invalid due to its contravention of law.

When selling real estate property contributed to a corporation’s registered capital, there was therefore a relatively high risk the contract would be invalid, if it was not accompanied by a decision to reduce registered capital.

Yet a General Meeting decision to reduce registered capital must take the form of a notarial deed, where the notary’s fee is calculated based on the value by which registered capital is reduced, i.e. the value of the transferred real estate property. The transfer of real estate property would therefore be associated with considerable additional financial and administrative costs.

In its ruling of 13 August 2014 in case no. 29 Cdo 2790/2012, the Supreme Court took a completely opposite view in relation to the above issue and found the decision-making practice of the courts to be incorrect.  The Supreme Court concluded that registered capital is not represented by financially appraisable values (i.e. real estate property) contributed to a corporation’s registered capital in the form of non-financial contributions, but simply a numerical expression of the value of these non-financial contributions.  Disposition of the corporation’s assets, regardless of whether these assets represent non-financial contributions, has no effect on the corporation’s registered capital as the value of the contribution is not reduced by such disposition.

In its ruling, the Supreme Court therefore eliminated the absurd requirement by some courts for a decision on a reduction of registered capital prior to the transfer of real estate property contributed to a corporation’s registered capital.

Thanks to the Supreme Court ruling, it is now possible to transfer real estate property contributed to a business corporation’s registered capital without a prior reduction in registered capital, without running the risk the contract for the transfer of real estate property will be declared invalid.

For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.