When Is (and When Is Not) an Expert Appraisal Required in Business?
Expert appraisals in business are often cited as a costly and mandatory item in various legal transactions -- establishing a company, increasing capital, or transforming a company. However, an expert appraisal is not always necessary. In this article, we provide a clear summary of when it is required by law and when it can be avoided entirely.
Contents
- 1. When Is an Expert Appraisal Mandatory?
- 2. When Is an Expert Appraisal Not Required?
- 3. Summary Table: When an Expert Is Not Required (LLC)
- 4. Special Case: Transition from Sole Proprietorship to LLC
- 5. Summary
1. When Is an Expert Appraisal Mandatory?
In corporate law, there are several situations where an expert appraisal is expressly required by law. In addition to a change of legal form, these include the following cases:
| Situation | Legal Sources | Note |
|---|---|---|
| Change of legal form (e.g., from cooperative to LLC) | Section 367 of Act No. 125/2008 Coll. | An expert appraisal of assets is mandatory for changes from cooperative to LLC or from LLC to joint-stock company |
| Merger, demerger, transfer of assets to a partner | Sections 253-254 of Act No. 125/2008 Coll. | The expert appraisal values the assets being transferred to the successor company |
| Non-monetary contribution to a joint-stock company | Section 251 of the Business Corporations Act | Must always be valued by a court-appointed expert |
| Squeeze-out (forced transfer of shares) | Sections 375 and 391 of the Business Corporations Act | The share price is typically supported by an expert appraisal |
2. When Is an Expert Appraisal Not Required?
The Business Corporations Act in Section 143(2) allows exceptions where an expert is not needed for non-monetary contributions to a limited liability company.
- An expert appraisal is not required if:
- The articles of association do not require expert valuation,
- And one of the following conditions is met:
- Securities or money market instruments are contributed whose market value is determinable from the market (e.g., publicly traded shares).
- All partners or founders agree on the valuation,
and at the same time:
- The subject of the contribution is valueable in monetary terms,
- Its value is reliably determinable (e.g., based on market practice, public price lists, etc.).
However, if the articles of association expressly stipulate that all contributions must be valued by an expert, the expert requirement cannot be bypassed.
3. Summary Table: When an Expert Is Not Required (LLC)
| Situation | Is an Expert Required? | Legal Basis | Note |
|---|---|---|---|
| Non-monetary contribution or supplement to an LLC, if the conditions of Section 143(2) of the Business Corporations Act are met | No | Section 143 of the Business Corporations Act | Exception: agreement of all partners, contribution must be valuable in monetary terms and reliably determinable |
| Increase of registered capital by non-monetary contribution or supplement (LLC), if conditions are met | No | Section 143(4) of the Business Corporations Act, in conjunction with Sections 468-473 | Can be valued without an expert just as at incorporation, if legal conditions are met |
| Departure of a partner, if the parties agree on the share price | No | Section 36(2) of the Business Corporations Act | If no agreement is reached, the value is determined by the court appointing an expert |
4. Special Case: Transition from Sole Proprietorship to LLC
Transitioning a business from a sole proprietorship to an LLC is not legally considered a change of legal form but rather the establishment of a new company. Therefore, Section 367 of Act No. 125/2008 Coll., on Transformations of Commercial Companies and Cooperatives, which governs changes of legal forms of corporations (e.g., from cooperative to LLC), does not apply to this situation. However, if the sole proprietor contributes the business or other assets to a newly established LLC as a non-monetary contribution, the rules set out in Section 143 of the Business Corporations Act apply, which refers to Sections 468 to 473 of the Business Corporations Act.
These provisions allow the non-monetary contribution to be valued without an expert appraisal, provided it is: - valueable in monetary terms, - its value is reliably determinable, - and all founders agree on the valuation.
In practice, this means that if a sole proprietor contributes an entire business or specific assets (e.g., a vehicle, inventory, equipment) to an LLC, an expert appraisal is not required, provided the above conditions under Section 468 of the Business Corporations Act are met.
This regulation significantly simplifies the transfer of business from a natural person to a legal entity without having to undergo the formal and costly transformation process or prepare an expert appraisal in every case.
5. Summary
- An expert appraisal is an important instrument of certain legal certainty, but note that its legal certainty is not automatic.
- In some situations, the law expressly requires it; in others, it allows a complete exception.
- Proper assessment of the situation saves time and costs.
If you need advice on when an expert appraisal is truly necessary and when it can be safely omitted, get in touch. We will be happy to help you with the analysis and practical procedure.
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