Enterprise

What it means

An enterprise is the set of tangible, personal and intangible components of a business used to carry on an activity. It includes assets and receivables, employees, contracts, licences, know-how, the business name, the customer base and reputation. The concept is defined in the Commercial Code.

An enterprise is not the same as a company. A company is a legal entity that may run one or more enterprises, and a sole trader can have an enterprise without forming an s. r. o. The enterprise is an object of rights, a thing in the broad sense, which can be sold, contributed or leased.

The value of an enterprise as a whole is usually higher than the sum of its individual assets, because it includes working relationships, processes and customers. On acquisition, the difference between the price and the fair value of net assets is booked as goodwill.

How it works in practice

In a sale of a business all rights and obligations belonging to the enterprise, including employment relationships, pass to the buyer under a single contract. There is no need to transfer every contract and every employee separately, which greatly simplifies the transaction.

A sole trader who wants to continue as an s. r. o. can put the enterprise or part of it into a company as a non-cash contribution of a business. If the statutory conditions are met, the assets move across at book value, without immediate tax on the difference and with depreciation continuing.

An enterprise can also be leased, with the lessee running it on its own account and paying rent. This is used, for example, in generational succession or ahead of a planned sale, when the buyer wants to test how the business works in practice first.

What to watch out for

Liabilities pass with the enterprise, including ones the buyer did not know about if they belonged to it. Thorough due diligence, seller warranties in the contract and possibly retaining part of the price to cover unknown debts are therefore essential before buying.

The seller's tax and contribution debts follow special rules and may pass to the acquirer on a transfer of the enterprise. Licences and permits tied to the seller personally must also be dealt with, since they do not pass to the buyer automatically.