Paying up consideration and trade license

Other necessary preconditions for the formation of a business corporation - paying up a consideration and trade license.

Before a business corporation can be registered in the Commercial Register, the consideration must be paid up and a trade licence must be obtained.

Consideration means the monetary expression of the value of the subject of consideration to the registered capital of a business corporation. In the case of a joint-stock company, the deposit is denominated as the nominal or par value of the share. The obligation to pay up the consideration can be met by paying up a cash consideration or by contributing an item that can be valued in monetary terms (non-monetary consideration). A member has no right to the return of the subject of the consideration, either for the duration of the existence of a business corporation or after its dissolution.

A company cannot acquire assets before it is formed, because it does not have legal personality. For this reason, in the articles of association, the founders must entrust a specific person with the administration of the paid-up or contributed considerations or parts thereof. The founder or one of the founders may also be appointed as the contributions administrator. The Business Corporations Act lays down the requirements for the paying up of monetary contributions and the contribution of non-monetary consideration only for limited liability companies.

While a monetary consideration for these companies is paid up to a special account opened with a bank or savings and loan association, with the bank not allowing these funds to be made use of before the limited liability company is formed, non-monetary considerations are contributed before the limited liability company is formed. A considerations administrator carries out its activities on the basis of the provisions on an order pursuant to the Civil Code, i.e., must act honestly and diligently within the scope of their abilities.

If the non-monetary consideration is an item of real estate, two actions by the founder are needed for its contribution. The founder must submit to the consideration administrator a written declaration of the contribution of the real estate with an officially verified signature, and must also hand the real estate over to the consideration administrator. The company acquires ownership of this real estate at the time of its formation. If the real estate that is the subject of consideration is registered in a public register, the company acquires ownership of it by registering its ownership right in the public register on the basis of the aforementioned declaration.

If the subject of consideration is a movable asset, the non-monetary consideration is contributed by handing over the asset to the consideration administrator, unless otherwise stipulated in the articles of association. If, by the nature of the asset, it is impossible to actually hand it over, it is, in accordance with the Act, handed over by transferring data or other media and documentation. If the non-monetary consideration is a business establishment or part thereof, or a receivable, the subject of the consideration is contributed by the entry into effect of a contract on the contribution of a business establishment or part thereof, or of a receivable. For other non-monetary consideration, a consideration is contributed by the entry into effect of a contribution contract concluded by the consideration administrator with the founder.

The consideration administrator must issue a written declaration on the fulfilment of the consideration obligation or parts thereof by the individual founders; this forms an annex to the proposal for registration of a company in the Commercial Register. Following the company’s formation, the consideration items are handed over to it by the consideration administrator. If the company is not formed, the consideration administrator must return the consideration items to the founders without undue delay.

Before a business corporation is formed, it must also obtain a business licence (provided that it is formed for the purpose of doing business), either as a trade licence or some another business licence. The trade licence for a legal entity registered in the Commercial Register arises on the day of notification, within the scope of the registered subject of business.

Within the meaning of the Trade Licensing Act, an extract from the Trade Register is a proof of a trade licence and, until such time as an extract from the Register is issued, so also is a copy of the notification with proof of its delivery to the Trade Licensing Office. An authorization issued by a competent authority in accordance with other legal regulations is proof for any other business activity.

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