Shrnutí: Assets are a company’s property and other economic resources, such as real estate, machinery, inventory, accounts receivable, or cash. Liabilities show the sources from which assets are financed—they include both equity and debt. The book value of assets, however, may not correspond to their market price or the value of the entire company. In this overview, we explain why these differences matter in business operations, the sale of a company, and the settlement of ownership interests.
| What are you watching? | What the figure represents | Example |
|---|---|---|
| Assets | What property and other assets does the company report? | Machinery, inventory, accounts receivable, cash |
| Liabilities | What sources are used to finance the assets? | Equity, loans, liabilities |
| Equity | An internal source of financing that is part of liabilities | Shareholders’ contributions, retained earnings |
Are you handling the transfer of company assets or the sale of a stake? As part of our “Lawyer for Business” service, we’ll help you review contracts and assess the legal risks associated with the company’s assets.
Assets represent all property and assets that an entity controls and from which it expects future economic benefits. These can include tangible items (e.g., an apartment, a car, inventory in a warehouse) as well as intangible rights (e.g., copyrights, trademarks, software, know-how). However, not everything that has economic value for a company automatically appears on its balance sheet.
In other words, assets are everything that can bring you or your company benefits or money. From a legal perspective, assets are of fundamental importance in property settlements—for example, in divorce, inheritance, or the liquidation of a company.
The breakdown of assets and liabilities shows your financial standing. A high proportion of current assets indicates flexibility. Long-term assets indicate stability but may be less liquid. Banks, investors, and courts evaluate what assets you own and what their value is—for example, when applying for a loan or determining the amount of a settlement share.
First, let’s explain what a balance sheet is. A balance sheet is a basic financial statement that shows the financial position of an individual or a company. Essentially, it’s a list of everything you own, as well as an overview of where you got the funds to acquire it. It consists of two inseparable parts—assets and liabilities. These two components must always be in balance, which is why a balance sheet is also called a “balance.”
Assets represent property—that is, everything you own (including, for example, items held under lease or accounts receivable) that has a certain value. These can include tangible assets (e.g., a house, a car, furniture, equipment), intangible assets (e.g., copyrights, software), and financial assets (money in accounts, investments, receivables). In other words, assets answer the question “What do I have?”
Liabilities represent the sources of funding for assets—that is, where the money used to acquire those assets comes from. They are divided into equity —your own funds (e.g., savings, company profits)—and external sources —obligations to others (e.g., loans, mortgages, debts, unpaid invoices). Liabilities, therefore, answer the question, “Where do I get the funds for what I own?”
Example: If, for instance, you own an apartment worth 5 million crowns but financed it with a 3-million-crown mortgage, then your assets total 5 million (the value of the apartment) and your liabilities total 3 million (the debt to the bank). The difference between assets and liabilities—that is, 2 million—represents your net worth, or equity —the portion of the apartment’s value that is truly yours and for which you no longer have any debt.
Distinguishing between assets and liabilities is of fundamental importance. For example, when dividing joint marital property (SJM), not only what the spouses own is divided, but also their debts. If, for example, one spouse purchased a house with a mortgage, this financial burden must also be taken into account.
In probate proceedings, on the other hand, not only property (assets) but also liabilities are inherited. Heirs may thus also inherit the deceased’s debts.
This is also a crucial consideration in business —the balance sheet helps determine a company’s true financial stability and assess whether the business has sufficient equity or is excessively indebted.
Tip: A company’s assets form the foundation of every business activity. Whether it’s manufacturing equipment, software licenses, financial reserves, or even inventory—everything has its own value, legal status, and accounting considerations. Read our article to gain a clear understanding of what your company owns.
For basic understanding, we distinguish between fixed assets and current assets. It is not just a matter of how quickly an asset can be sold, but also of its nature and intended use. Fixed assets include, for example, buildings, production machinery, intangible fixed assets , and long-term financial assets.
Current assets primarily include inventory, accounts receivable, short-term financial assets, and cash. However, this does not mean that every item will be converted into cash within one year: long-term accounts receivable may also be included in current assets. Therefore, the maturity and actual collectability of individual receivables are also important for assessing the financial situation.
The classification provided here is a basic overview. The detailed structure of a business’s balance sheet is governed by the implementing decree to the Accounting Act.
The valuation of assets is a fundamental step not only in accounting but also in legal proceedings—for example, in cases of divorce, inheritance, insolvency, or the sale of a business. The method of valuation has a direct impact on the actual value of the assets and how they will be handled going forward.
Under Czech law, valuation is primarily governed by the Accounting Act and, in legal disputes or proceedings, also by the Act on Experts, Expert Offices, and Expert Institutes.
Below, we describe the three main methods used to value assets in practice.
From an accounting perspective, assets are typically valued at cost, i.e., the amount the entity actually spent to acquire them. Cost includes not only the purchase price itself but also incidental costs—such as transportation, installation, customs duties, or administrative fees.
Over time, the value of the asset is reduced by depreciation —which reflects the wear and tear or obsolescence of the asset. The result is the so-called net (book) value, which is recorded on the balance sheet and used for the company’s financial reporting.
This method of valuation is important for tax and accounting purposes, but not necessarily for determining the actual value of an asset upon its sale or distribution.
Market value reflects the amount for which an asset could be sold under normal market conditions. Under the Accounting Act, an accounting entity may, under certain circumstances, revalue assets to fair value (particularly in the case of securities, derivatives, or equity interests in other companies).
In a general legal or economic context, however, we use the term “market value” to mean the price at which a given item would sell today if it were sold in the ordinary course of business.
Example: An apartment you bought 10 years ago for 2 million may have a market value of 5 million today. The book value (acquisition cost less depreciation) is therefore different from the current market price.
Market value is crucial, for example, in the division of marital property, in probate proceedings, or in the sale of a business or a stake in a company.
In legal proceedings, an expert opinion carries decisive weight. It may be requested by a court, a notary, or even a contracting party to objectively determine the value of an asset.
An expert opinion is a professional statement by an expert listed in the official registry of the Ministry of Justice. This document must meet formal and substantive requirements, and its conclusions carry legal weight.
Expert appraisals are used primarily in divorce cases and property division (the expert determines the fair market value of an apartment, business, or other property to ensure a fair settlement), probate proceedings (to accurately determine the value of the estate), insolvency proceedings (to determine the value of the estate), and in the sale or transfer of businesses—the expert determines the value of the business or business interest.
If a valuation is performed by an expert, it takes precedence over subjective or accounting-based determinations of value, as courts and government agencies treat it as expert evidence.
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How assets affect a company’s value depends not only on their book value but also on their actual usability, profitability, and legal status. Two companies may report assets of equal value, yet have different values to a buyer. One owns modern machinery and has easily collectible receivables, while the other has outdated equipment and invoices from customers who do not pay.
When assessing a company’s value, it is therefore necessary to verify whether the assets actually exist, who owns them, and whether any third-party rights are attached to them. Factors such as liens on real estate, restrictions on the transfer of licenses, or ownership disputes are significant. When it comes to receivables, it is not enough to simply look at the amount recorded in the books: their due dates, collateral, and likelihood of collection are also important.
The value of the entire company is not equal to the simple sum of the assets on the balance sheet. Debts, the ability to generate future profits, customer relationships, or dependence on a key supplier may also play a role in the valuation. Therefore, book equity cannot automatically be considered the price of a business interest.
Before purchasing a company or a stake in it, it makes sense to combine the economic valuation with a legal due diligence review. This review may reveal that assets presented as a significant advantage of the company cannot be transferred, used independently, or sold without restrictions.
A prospective buyer interested in acquiring a stake in a manufacturing company visits a facility equipped with modern machinery. The buyer assumes that all the equipment belongs to the company and is included in the offered price. However, upon reviewing the contracts, it turns out that the company only leases some of the machinery, and one of the key machines is owned directly by the selling partner.
Neither the buyer nor the company becomes the owner of the partner’s assets through the purchase of the stake. Therefore, before signing, it is necessary to clarify the future use of the equipment or, if necessary, negotiate a separate transfer of ownership. This finding may affect both the purchase price and the terms of the entire transaction.
This is a hypothetical example illustrating the difference between a company’s assets, its owner’s assets, and leased equipment.
Are you buying a stake in a company? A business lawyer can help you verify whether the contracts align with what the company actually owns and uses.
From both a legal and economic perspective, what is not recorded is as if it did not exist.
That is why it is important to: maintain an inventory of assets (including proof of acquisition), update the value of assets (especially real estate), insure valuable assets, and consider the legal form of ownership (e.g., company assets vs. personal assets).
Legal tools that can protect assets include joint property settlement agreements, liens, trust funds, and liability or property insurance.
Assets represent a company’s property and other economic resources, while liabilities show the sources of their financing, including equity and debt. The breakdown of assets and liabilities helps in understanding the balance sheet; however, it is not sufficient on its own to determine the value of a company. The actual value and usability of assets, the collectability of receivables, indebtedness, and legal restrictions are also important. Book value may differ from market value, and an expert appraisal provides a professional basis that the court evaluates alongside other evidence. Therefore, when managing or transferring assets, it is essential to maintain high-quality records, ensure accurate valuation, and review contracts and ownership relationships.
Yes. Negative equity can arise, for example, due to accumulated losses. It is a warning sign, but it does not in itself indicate that the company is insolvent.
No. The company acquires the machine, but at the same time incurs a debt. Another key factor in determining its value is whether the machine will generate sufficient revenue and whether the company will be able to repay the loan.
Not automatically. For example, a building owned by a partner does not become the company’s property simply because the company conducts business there. What matters is ownership and the legal right to use the property.
No. Some of the receivables may be past due or difficult to collect. In addition to their amount, it is also necessary to monitor their age, collateral, and the debtors’ ability to pay.
Prepare your current financial statements, a list of significant assets and receivables, purchase documents, and important loan, security, lease, or license agreements. The specific scope of the documentation depends on the planned transaction.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 15 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 15 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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