General description of forms of business legal entities

Basic information on differences between various forms of business corporations and the difference between incorporation and formation.

Legal persons whose main purpose is to run a business are called business corporations. In addition to the general rules contained in the Civil Code, their activities are regulated in particular by the special Act on Business Corporations, which establishes the basic framework of their internal structures and decision-making processes as well as the rules of their formation and dissolution, and requirements of the constituent legal documents, etc.

Business corporations are divided into commercial companies and cooperatives, which differ from each other in particular in the closed or open number of members (unlike cooperatives, commercial companies must amend their founding documents if they want to accept a new shareholder, for example). Commercial companies include a public trading company, a limited partnership, a limited liability company and a joint stock company. The law further divides these into partnerships and capital companies. Partnerships (public trading companies, limited partnerships) are characterised by a closer connection to the persons of the partners. Compared to capital companies, for example, the partners are liable for the company’s debts to a wider extent and the change in the partner’s person is also more complicated. On the contrary, capital companies (limited liability company, joint stock company) are characterised by a looser connection of the shareholders to the company. The shareholders are liable for the company’s debts on a limited basis and their separation from the day-to-day running of the company (managerial control) is common. 

To the extent that it is not regulated by specific national and European regulations, the Business Corporations Act also applies to European forms of business corporations, i.e. the European Company, the European Economic Interest Grouping and the European Cooperative Society.

All companies and cooperatives are compulsorily registered in the Commercial Register. Without this registration, no company can come into existence and thus cannot have rights or bind itself to obligations. There are a number of legal actions that must be taken prior to the formation of a business corporation. For this reason, we distinguish the formation of a business corporation (by registration in the Commercial Register) from its incorporation (by drawing up a memorandum of association).

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