Selected Problems of the Public Trading Company and Its Management in Context of the Slovak Commercial Law

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Journal of Eastern Europe Research in Business and Economics
http://ibimapublishing.com/articles/JEERBE/2018/414936/
Vol. 2018 (2018), Article ID 414936, 10 pages, ISSN: 2169-0367
DOI: 10.5171/2018.414936
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Cite this Article as: Katarína Močarníková, Boris Mucha and Tomáš Peráček (2018)," Selected
Problems of the Public Trading Company and Its Management in Context of the Slovak Commercial
Law", Journal of Eastern Europe Research in Business and Economics, Vol. 2018 (2018), Article ID
414936, DOI: 10.5171/2018.414936
Research Article
Selected Problems of the Public Trading
Company and Its Management in Context of the
Slovak Commercial Law
Katarína Močarníková, Boris Mucha and Tomáš Peráček
Faculty of Management, Comenius University in Bratislava, Bratislava, Slovak Republic
Correspondence should be addressed to: Tomáš Peráček; tomas.peracek@fm.uniba.sk
Received date: 3 February 2018; Accepted date: 21 August 2018;
Published date: 3 December 2018
Academic Editor: Ionel BOSTAN
Copyright © 2018. Katarína Močarníková, Boris Mucha and Tomáš Peráček. Distributed under
Creative Commons CC-BY 4.0
Abstract
The change of social establishment in 1989 brought the possibility of doing business. The
basic problem has become the question of determining the appropriate legal form of
business since the Commercial Code and the Trade Licensing Act have allowed several
legal forms of business. In practice, it is a trade license and business in the form of
business companies. A public company, which has its origins in German and Austrian
commercial law, is generally applied in the area of family business. In the current Slovak
conditions, according to the data from the business register, it literally "extinguishes"
despite its advantages. Our aim is to provide a scientific and doctrinal interpretation of
legislation, professional literature and jurisprudence, to give this type of Business
Company a comprehensive view with an emphasis on selected problems of its
management. The contribution is divided into several parts; our focus is primarily the
issues of founding and establishing a public trading company, the rights and obligations
of the partners, the problems in managing the company, the liability of the partners for
the company's obligations as well as the death of one of the shareholders. As a result of
the public company's examination, the hypothesis that the Public Trading Company is an
unnecessary type of Business Company and a historical experience of commercial law
will eventually be confirmed or rejected
Keywords: liability, management, partner, public company

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Katarína Močarníková, Boris Mucha and Tomáš Peráček (2018), Journal of Eastern Europe
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Introduction
Public company is basically a typical
personal business company because it is
very closely connected with the persons
of business partners. Because of business
risk, this may also results into negative
consequences for the partners. Vrabko,
Machajová, Reken et al. (2001) argues
that, these possible negative impacts are
the same for example in the case of
entrepreneurship according to Trades
Licensing Act. However, the difference is
that the risk is shared by at least two
partners. In the long run, capital
corporate companies remain on the edge
of interest of business law scientists, and
little attention is paid to them as
compared with capital companies, which
is what the authors are trying to at least
partially remove with this contribution.
Using multiple scientific research
methods like analyzes, descriptions,
deductions, or comparisons, we will
review the available literature, court case
law, and legislation, and provide a
response to the hypothesis that "A public
company is an unnecessary type of
business and a historical experience of
business law."
According to Paragraph 76 of the
Commercial Code, a public company is a
commercial company, in which at least
two persons operate under the same
business name and guarantee for
commitments of company jointly and not
differentially by all their assets. From this
definition, it is clear that the legislator
excluded the possibility of establishing a
public company by one person in a
conceivable way. To establish a public
company by one person is possible only in
case of capital companies. Such
companies are Limited Liability Company,
a joint-stock company and a simple joint-
stock company. According to Ovečková,
Černejová, Lacová et al., (2012), the
founders of the company can be physical
entities, legal entities or state. In case a
state is a partner, state is considered as
legal entity by law. This type of the
business company can be established only
for the purpose of doing business,
because any activity other than business
activity is allowed only for a joint-stock
company and limited liability company.
Some authors (Kubíček, Mamojka,
Patakyová, 2008) argue that the
Czechoslovak legislator has been inspired
by the German and Austrian trade-related
regulation when drafting the regulation of
a public company. The legal orders of
these states, and as well in Great Britain,
recognize a special legal position of public
companies, and according to them, they
are neither physical entities, nor legal
entities. Slovak legal order has a different
and clear point of view in this question;
whether public company will be
considered as legal entity or not.
According to Paragraph 18, section 2,
letter b) of the Civil Code, legal entities
are purposeful associations of assets,
including all commercial companies.
From the legal definition of a public
company based on deduction, we can
determine the base conceptual features,
which includes the participation of at
least two persons, the common purpose
of the business activity, the common
business name of the company, personal
and joint liability of the partners for the
company’s commitments, the
participation of a partner that is not
conditional by the deposit of a
contribution to the company, the law
which doesn’t require the company’s
capital, the threat of the company’s
demise based on partner’s withdrawal
from the company, and the legal

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entitlement of all company partners to act
as its statutory authority. As we have
already mentioned, unlike the capital
commercial companies to which the
Commercial Code pays extensive
attention, it has satisfied itself with very
short and hesitant legislation in personal
commercial companies. For this reason,
the authors are convinced that in order to
eliminate possible future disputes
between partners, it’s necessary to
modify the mutual rights and obligations
of the partners in the social contract in
the most detailed way that is possible.
Establishing the Company
Like all business companies, the public
company is also established by a social
contract, which needs to be in a written
form. Unlike the joint-stock company or
simple joint-stock company, the lawgiver
dropped the draft a founding agreement
in a special form, notably a notarial
record of a legal act (Milošovičová,
Nováčková, Wefers, 2017). However, he
insists that the social contract has to be
signed by all founders of the company,
and the authenticity of their signatures
must be officially verified. We emphasize
that the persons authorized to verify the
authenticity of the signatures are the
notary offices. This is the so- legalization
under § 58 of Act no. 323/1992 Coll. On
Notaries and Notarial Activities (Notary
Code), as amended. The notary or the
employee authorized by him certify that
the person whose signature has to be
certified in his presence, signed the
document by himself, or that the
signature on the document has been
acknowledged before him as his own.
Other subjects authorized to perform the
verification of the signature are district
authorities and municipalities pursuant to
Act no. 599/2001 of Collection of the laws
on certification of documents and
signatures on documents by district
authorities and municipalities, as
amended. According to Cirák, Števček,
Ficová et al. (2008), the law permits the
social contract of the founders to be
signed by their representatives on the
basis of a written mandate of attorney
with the certified signatures of the
principals that are attached to the social
contract.
Article 78 (1) of the Commercial Code
contains the mandatory terms of the
social contract. The first essential element
of a social contract is to determine the
business name and registered office of the
company. The business name is the name
under which the entrepreneur, i.e. the
company is registered in the business
register and under which it operates. The
business name of legal entities consists of
the strain i.e. its own name and the
addendum identifying the legal form i.e. a
public company. In case of bankruptcy,
restructuring or liquidation being
declared, this fact must also be mentioned
as an addendum identifying the legal
form. In this regard, it is worth pointing
out the opinion of the Supreme Court of
the Slovak Republic, according to which,
the fact that if a commercial company or
cooperative is a party to the litigation, the
form of its business is part of its business
name. If this fact in the business name is
missing, it should be added. Mentioned
deficiency cannot be regarded as an
unavoidable impediment to the
proceedings but as an incomplete
submission that the court may remove in
accordance with the provisions of Section
43 of the Code of Civil Procedure (The
Supreme Court of Slovak republic, 1997).
If the business name contains the
surname of at least one of the members,
the addendum "et al." is sufficient; the
surname of other members is no longer
needed to mention.
The second essential element of the social
contract is the determination of the
partners, indicating the name and
registered office of the legal person or the
name and address of the physical person.

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Katarína Močarníková, Boris Mucha and Tomáš Peráček (2018), Journal of Eastern Europe
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Please note that this brief identification of
the founder, caused by the legislature's
superficiality, may have fatal
consequences for the layman-founder,
consisting in refusing to register a public
company with a court of the registry. Each
legal entity must be identified in the
founding document by its name, legal
form, registered office, identification
number if it has been appointed and a
person authorized to act for it. Physical
person i.e. a person is identified by his or
her first name, last name, date of birth,
the birth number if it was given and by
residence or by citizenship details.
The last essential element of a social
contract is the determination of the
subject matter of the company's business,
taking care to ensure that it is not a
prohibited activity or a law reserved for
the selected entity (Strážovská, 2004).
The absence of a written form as well as
some mandatory elements of the social
contract would mean that the social
contract as a legal act would be affected
by a fault of absolute nullity. Absolute
invalidity occurs directly by law (ex lege)
and affects everyone so that everyone can
reach it. The court considers the absolute
nullity. In particular, it must be pointed
out that the defect of absolute nullity of a
legal act can be remedied neither by
subsequent approval nor can be
reconsidered (remedied) by an additional
failure to act on the ground of invalidity
(Varga, 2012).
Article 78 (2) of the Commercial Code
imposes an obligation on the partners to
file an application for the registration of
the company in the Commercial Register
within 90 days of the establishment of the
company or from the delivery of a
document proving a trade or other
business licenses. When counting time,
however, according to Gregušová and
Varga (2014), you need to keep an eye on
the individual terms, because 90 days do
not mean three months. In case of non-
observance of the period of 90 days for
delivery of an application for registration
of a company in the Commercial Register,
the registry court would have to refuse to
register the company in the Commercial
Register and the shareholders would have
to establish the company once more. The
application for registration of the
company in the Commercial Register is
filed by all the partners, and their
signature must also be officially verified
as is the case with the social contract. The
proposal is submitted on the prescribed
form, the model of which is listed in the
annex to the Decree of the Ministry of
Justice of the Slovak Republic no.
25/2004 Coll. laying down models of
forms for filing applications for entry in
the Commercial Register and a list of
documents. The annex to the proposal
consists of additional documents as an
authorization to perform business
activities i.e. usually a trade license
granted for a registered trading company,
and a document certifying the
authorization to use the designated
property for the purposes of the
company's approval. Last but not least,
the proof of payment of the court fee for
registration of the company in the
Commercial Register is attached to the
proposal. As can be seen from the
commentary on the Civilian Out-of-
Competition Order (Ficová, Števček,
Bajánková et al. 2010), the role of the
Registry is to examine whether the social
contract contains all statutory
requirements, assess the annexes to the
proposal for registration of the company
in the Commercial Register, and decide to
register the company in the Commercial
Register. Company registration in the
Commercial Register has constitutive
effects. It means that a business company
acquires the right to hold rights and
obligations only on the day of its
incorporation in the business register, not
of the date of its establishment. If the
application for registration is incomplete
or the court finds contradictions of
certain facts, it shall decide to refuse to
enter the entry in the Commercial

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Register. Against the negative decision of
the court, a remedy, which is called
objections, is admissible. In detail, the
entire court process is governed by Act
No. 161/2015 Coll. Civilian Out-of-
Competition Order as amended.
Rights and obligations of partners
The social contract establishing a public
company has several meanings. In the
first place, a public company is
established by this contract. The second
meaning is the internal regulation of legal
relations within the company i.e. between
the company and the partners as well as
between the partners (Komjaty, 2016).
According to Gregušová and Varga
(2014), the provisions of Sections 79 to
84 of the Commercial Code have
dispositive character, which allows the
partners to make use of this possibility
and, according to the agreement, to
modify the relationship with the social
contract. In general, the consent of all
partners is necessary to change it, except
when the Commercial Code or the social
contract does not provide different
legislation. In the case of a larger number
of partners, the need for a unanimous
decision to change a social contract can
cause significant problems, and the
company will not be able to respond
flexibly to certain changes. In that case,
the court would have to decide what, in
the conditions of the Slovak judiciary and
the length of litigation, would not have to
be in the interests of the company
(Capandová, 2015). From the author's
perspective, the solution is, in case of
three or more partners, for example, an
acceptable reduction in the quorum to
accept a change in the social contract for
2/3 or 3/4 of the shareholders' votes.
A public company is a private business
company in which the law does not
require capital (i.ee, shareholders'
contributions). However, there are some
cases in which the members of the
company still choose to place money or
non-monetary capital in a company that
becomes the property of the company
pursuant to Section 80 (1) of the
Commercial Code. However, it is not
necessary for all partners to assume the
obligation to provide a contribution to the
company. The partner has to repay his
contribution within the term specified in
the social contract and, if that term is not
specified, without undue delay after the
establishment of the company. The
concept without undue delay is very
broadly interpretable and not defined by
law. It should always be considered in
relation to the other circumstances. A
more appropriate solution is to determine
the specific period of time when a partner
is required to repay his contribution if he
has already committed himself to that
step because it is a company's judicially
recoverable claim against a partner
(Králik and Jakubovič, 2004). Unlike a
Limited Liability Company, the amount of
the deposits of the individual partners is
not recorded in the reserve register,
which the legislator justifies by the fact
that the establishment of that company is
not conditional on the contribution of the
partners. After the partner has ceased to
participate in a public company for the
duration of the company, the partner is
not entitled to a refund of his contribution
because it has become the property of the
company and will be taken into account in
calculating its settlement amount (The
Supreme Court of Slovak Republic, 2002).
The characteristic feature of a public
company is that the Commercial Code, in
the provision of Section 81 (1), confers to
each partner the statutory right to the
company's commercial management
under the principles agreed between the
partners. By analyzing Section 81 of the
Commercial Code, it can be concluded
that if the partners in the social contract
entrust the company's management
partly or wholly to one or more partners,

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Katarína Močarníková, Boris Mucha and Tomáš Peráček (2018), Journal of Eastern Europe
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the other partners lose this right. It is true
that an authorized partner is obliged to
follow the decision of the partners by a
majority vote unless the social contract
determines otherwise; each partner has
only one vote (Krejci, 1995). The fact that
he too often uses the notion of a
company's business leadership also
denounces the superficiality of the
legislature, but this notion does not in any
way define what can cause considerable
disputes between the partners. In our
point of view, we can understand the
decisions relating to the normal operation
of the company i.e. company management
on technical, personnel, financial, and
other issues.
If a social agreement does not specify
otherwise, a partner's mandate can be
called off if the other partners agree. In
case that the authorized partner violates
his obligations in a material manner, the
court shall remove the partners’
credentials from the company's
management at the suggestion of any of
its members, even if the commission
under the social contract is irrevocable. In
this case, the term "substantial breach of
duty" is already defined in Section 345 (2)
of the Commercial Code, but the
formulation is inappropriate and in
practice almost inapplicable. Even in this
case, it is more appropriate in our opinion
to precisely specify this term in the social
contract. Until the time when the partners
agree to a new person authorized to
conduct business, the provisions of
Section 81 (1) of the Commercial Code
apply, according to which all partners are
entitled to the company's management.
The partner responsible for the
company's business management is
obliged to inform other partners about all
matters of the company upon request.
Each partner is entitled to inspect all
company documents. The statutory
authority of a public company is each of
the partners unless the social contract
determines that they act together. If only
a few members are entitled to act on
behalf of the company in all its matters by
a social contract, only those partners are
its statutory authorities. In particular,
laypeople do not realize that internal
partnership agreements have no legal
force against third parties (Peráček,
Vojtech, Srebalová et al. (2017). In case
that the partners decide to entrust the
performance of the statutory authority to
only one of them or a certain number, the
agreement takes legal effect with respect
to third parties up to the moment of entry
in the commercial register.
By extension of the Commercial Code on
the provision of Section 81a, each partner
was entitled to a repayment of the deposit
or the right to compensation for the loss
or damage suffered by the company
against a partner or partners. This option
does not apply only if the company
already applies these rights.
Distribution of profit and loss of
company
Dispositive provision Paragraph 82 (1) to
(3) of the Commercial Code governs the
distribution of profits, provided that the
social contract does not provide
otherwise. Nováčková, Saxunová and
Strážovská (2016) state that the profit to
be distributed; is divided among the
partners equally. The share of profit
determined on the basis of the annual
accounts is payable within three months
of its approval. The loss itself, found by
the annual financial statements, is borne
by the partners equally. The social
contract may modify the method of
dividing up profit and incurring losses.
Entry, resp. joining a partner to
company
The personal character of a public
company is also reflected in the fact that
the provision of Section 83 of the
Commercial Code makes possible, on the
basis of a change in the social contract, for

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another partner to join the company or to
leave the company in condition that at
least two partners remain in the
company. The question of amendment of
the social contract is governed by the
provision of Section 79 of the Commercial
Code, which is already analyzed, while for
its change, the mandatory written form is
required. If the social contract does not
require the consent of all members to
change, obtaining the sufficient number of
votes with the required action is obliged
to sign the amendment of the social
contract by those members who voted for
it. Furthermore, the new wording of the
social contract, which is based on the
collection of letters in the Commercial
Register, is also signed by those members
who voted against or abstain (Škultéty,
Machajová, Reken et al., 2000).
In this question, Dědič and Čech (2004)
claim that, in § 83, the change of the
partners of a public company under the
contract is regulated. It follows from that
provision that the extension of the
number of partners in a company is
possible only by changing the social
contract, that is, with the consent of all
the members of the company. The same
principle applies to leaving the company
but with the condition that there will be
at least two partners in the company
because, in a public company, there
cannot be only one partner. It is a
mandatory establishment so that any
provisions of a social agreement that only
some of the members of a company
decide to join a partnership, or that only
the consent of some suffice, albeit an
over-majority of the partners, is sufficient
to leave the company. However, this view
cannot be accepted as it is inconsistent
with the principle of disposition of
internal regulation of the rights and
obligations of public companies' partners.
Liability of a partner for the company's
liabilities
The liability is, from the point of view of
the theory of private law, the legal
relationship between the creditor and a
third party whose content is the
guarantor's obligation i.e. person other
than the debtor to satisfy the creditor's
claim if the debtor does not satisfy it
himself (Eliáš, Bejček, Marek et al., 1999).
A public company as a legal entity with
the full capacity to be the holder of rights
and obligations is responsible for its
obligations with all of its assets. These
responsibilities do not create obligations
for individual partners. Another situation
arises if the company's property ratios
change so that they are unable to repay
their debts to the creditors. In this case,
the joint liability of the shareholders
arises directly by law, which means that
the procedure provided for in § 303 et
seq. of the Commercial Code, under which
the creditor declares in writing that he
will satisfy him if the debtor fails to fulfill
a certain obligation, becomes the debtor's
guarantor.
The partners guarantee the Company's
obligations in solidarity with all its assets
i.e. jointly and severally. According to
Vojčík, Krajčo, Ľalík et al., (2010) in
practice, the creditor may demand full
fulfillment from any guarantor. The
partner who has joined the company
must count on the company's liability for
the company's obligations before his
accession. He may require from the other
members to provide compensation for the
provision of that service and to
compensate for the related costs. In case
of a participant's disappearance in a
company during its term, he is
responsible only for obligations that
arose before the termination of his
participation.
Cancellation and liquidation of the
company
Section 68 of the Commercial Code
regulates the grounds for the cancellation

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of a commercial company in general. This
provision is followed by the provision of
Section 88 (1) of the Commercial Code,
under which a public company is also
abolished:
a) if the contract was concluded for
an indefinite period, by a lump
sum of at least six months before
the end of the calendar year,
unless the social agreement
determines otherwise,
b) by the decision of a court, on the
basis of a proposal by another
partner, on the grounds that one
of the members of the company
significantly violates the social
contract,
c) the death of one of the partners,
except that the social contract
allows the heir to become an heir
who signs up for his participation
and at least two other members
remain in the company,
d) the dissolution of a legal person
who is a partner,
e) the bankruptcy of the assets of
one of the partners or the
rejection of the petition for
bankruptcy for lack of property,
f) by forfeiture or limitation of
eligibility for the legal acts of one
of the partners,
g) delivery of the execution order to
the partner's share,
h) for other reasons specified in the
social contract.
Under Section 90 of the Commercial Code,
"if one of the partners violates the social
contract in a substantive manner, the
court may, on the proposal of another
partner, cancel the company." According
to Srebalová (2008), in consideration of
the over-general formulation of the law,
we emphasize the need for a social
contract or company statutes to clearly
define this concept. However, even if a
substantive breach of contract is really
proven, it is not the duty of the court to
cancel the company, since the legislator
did not use the imperative "must" but the
term "may".
Compensation of Partners
When company is cancelled by
liquidation, the partners are entitled to a
share in the liquidation balance, which is
distributed among the partners first, up
to the amount of their paid deposits
(Bohdalová and Greguš, 2012). The
remainder of the liquidation balance is
shared between the partners equal to the
share. However, if the liquidation balance
is insufficient to repay the paid-up
deposits, the partners are involved in
proportion to their amount, and the social
contract may adjust the distribution of
the liquidation balance differently.
Conclusion
In Slovak society, the opinion is that a
public company as a legal form of
business "survives", respectively, it only
survives from past times when its
founding was mainly tax benefits. In the
past, for example, in the case of a joint-
stock company, there was a dividend tax,
which in practice meant double taxation.
Firstly, the tax was paid at company level
and then, after the payment of the profit
share i.e. dividends also at the
shareholder level. In the case of a public
company, it was not possible to talk about
dividend payments because it was not a
joint-stock company. This was often the
main reason for doing business in this
form. We reject the hypothesis that this is
an unnecessary type of Business
Company and a historical experience of
business law. As a personal type of
business company, however, there are
also some shortcomings, such as the most
criticized unlimited liability of the
partners for the company's obligations,
the relatively low possibility of obtaining
foreign sources of financing from banks,
the greater the number of partners in a
certain risk of conflicts, as by law are all

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Katarína Močarníková, Boris Mucha and Tomáš Peráček (2018), Journal of Eastern Europe
Research in Business and Economics, DOI:10.5171/2018.414936
also statutory representatives, or that
leaving the partner of a company may in
some cases also mean the extinction of
society. From our point of view, the
mentioned risks can be eliminated by a
rigorous correction of mutual relations in
the social contract as well as the honesty
of business.
This type of Business Company has its
undisputed benefits. A public company is
relatively easy and simple to establish, it
does not have to make a shared capital, it
can only have two partners and each
partner is legally a statutory body of the
company. The advantage of a public
company has also revived a tax license
that does not apply to this legal form of
business.
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