As of January 1 2017, the amendment to the Slovak Commercial Code introduced a new corporate form – the simple joint-stock company (JSA). It is a simpler form of the joint-stock company with some specific features, including: reduced share capital of a minimum of just €1 ($1.20); the possibility of a one-person board of directors; the ability to issue various classes of shares; and, the ability to agree on an exit from the company. Two new statutory concepts were also introduced: the shareholders' agreement and option rights in the sale of shares.
Previous incarnations of the act only governed the basic rules of company operation, leaving far too many issues undetermined. These gaps were generally dealt with under shareholders' agreements which set out the details of the rules of operation and management of the company. However, there was no clear legal framework for these agreements and their enforceability was uncertain at best, which in practice was addressed through contractual penalties and other mechanisms.
The new legislation explicitly allows shareholders' agreements for all business companies and cooperatives, and sets out the general content of these agreements.
The amendment also provides for tag-along, drag-along, and shoot-out (deadlock) rights in the sale of JSA shares. The tag-along and drag-along rights may be provided as an unregistered contractual arrangement, but there is also the option to register these rights in the new public register kept by the central depository. The shoot-out right can only be an unregistered arrangement. Registered rights are not subject to a limitation period, are binding on subsequent owners of the shares, and enjoy enhanced legal protection. Although the act only governs these rights in the context of the JSA, that does not preclude these (and other) rights from being used in other types of companies, even without the increased legal protection afforded to the JSA rights. In other words, in other types of companies, these rights enjoy contractual protection but not substantive protection.
In the tag-along, when a shareholder initiates a sale of its shares to a third party the other shareholder has the right to join the transaction and sell its shares to the third party on the same terms and conditions, in particular at the same price. If the tag-along right is infringed, the other party's protection is determined by whether or not the option was registered. If the right was not registered, the infringed party has the right to initiate court proceedings to force the infringer to purchase the infringed party's shares on the same terms and conditions. If a registered option was infringed, the infringed party can additionally demand that the third party purchase the infringed party's shares on the same terms and conditions, or decide to retain the option for use at some point in the future.
In the drag-along, the shareholder selling its shares has the right to ask the other shareholder to join in the transaction and sell its shares to the third party. If an unregistered option is infringed, the third party may require the non-selling shareholder to transfer its shares to the third party on the same terms and conditions it acquired the shares of the selling shareholder; the third party may also retain the option for future use. If the option was registered, the selling shareholder has the right to directly transfer the non-selling shareholder's shares to the third party (in the name and on the account of the non-selling shareholder), provided the purchase price for the non-selling shareholder is secured by way of escrow or letter of credit.
The right to demand acquisition of shares (shoot-out – Russian roulette) gives a shareholder the right to set a price and serve notice on the other shareholder of its desire to purchase the other shareholder's shares at that price. If the second shareholder rejects the offer, it must purchase the shares of the first shareholder on the same terms and conditions; that obligation is directly enforceable in the courts. In practical terms, this right can resolve deadlock situations or exits from the company, since the deadlock is resolved by one shareholder buying out the other shareholder. It also makes it possible to generate the ideal price for equity in the company.
However, the act only provides a basic framework for these rights, and it references the shareholders' agreement for detailed terms and conditions. For this reason, the agreement must also provide for other important matters such as the right of first refusal and options, concurrency of options, and potentially other types of options. A downside to this is that the statutory option rights can only be used in the JSA and not in the classic joint-stock company or other corporate forms where, although these rights can be agreed upon, they will be without the benefits of registration and the certainty of enforcement in the courts.
|Daniel Futej||Branislav Mikulay|