This article follows up on a series of articles, which we devoted to the first extensive amendment to Act No. 90/2012 Coll., On Business Companies and Cooperatives (the Business Corporations Act), as amended (hereinafter “Business Corporations Act”). Starting this year, companies have a one-year transition period to bring their provisions of the founding legal acts and articles of association into line with the new provisions of the Business Corporations Act. As we have dedicated the previous article to the limited liability companies, in this article we will focus on some of the most important changes in joint stock companies.
Change of the monistic system
Probably the most significant change is the change in the internal structure of the monistic joint-stock company. The difference between the monistic and dualistic organization of the company lies in the number of organs. In a dualistic system, the company establishes a General Meeting, a Board of Directors and a Supervisory Board, and in a monistic system, the company has previously (until this year) set up a General Meeting, a Statutory Director and a Management Board. While in the first case (dualistic system of internal organization) the company has two bodies in addition to the general meeting, in the second case (monistic system of internal organization) the company also had two bodies. As these systems did not much differ in principle, it is not surprising that the legislation became the subject of professional criticism and with effect from 1 January 2021, a clear and fundamental change was made, which led to the dissolution of the statutory director in a joint-stock company with a monistic organization, thus placing this system in competition with other European legislation.
According to the previous legislation, it has not always been clear in practice which competencies belonged to the Management Board and which to the Statutory Director. Newly, since there is only a Management Board in the company apart from the General Meeting (as the only other body), the division of competencies is already clear. The statutory body in a joint-stock company with a monistic structure of internal organization is the now Management Board. The Management Board is entrusted not only with business management, but also with the supervision of the company´s activities.
Regarding the number of members of the Management Board of the joint-stock company, the Business Corporations Act states that the Management Board has three members, unless the articles of association provide otherwise and unless the length of the term of office of a member of the Management Board is explicitly adjusted, the function period is three years. The Management Board may thus have a single member, if so, determined by the articles of association.
Although all the changes concerning monistic joint-stock companies already apply now, especially in view of the fact that on 1 January 2021 the position of the Statutory Director was automatically deleted from the Commercial Register and the associated automatic transfer of representative authority to the members of the Management Board, on the basis of the transitional provisions the companies are obliged to adapt its articles of association to the amended wording of the Business Corporations Act and to insert the amended articles of association in the Collection of Deeds of the Commercial Register until 1 January 2022.However, it can be recommended that the companies prepare as soon as possible for the necessary amendments to the articles of association and updated them, for example to adjust and adapt the representative rights of members of the Management Board according to the requirements of the company´s shareholders, not according to an automatically made registration in the Commercial Register, which may not correspond to the ideas of the shareholders.
The termination of the position of Statutory Director brings with it many consequences. A fundamental change is that the Statutory Director is no longer entitled to represent (act on behalf of) the company, as the representation of the company now belongs to the Management Board, resp. its members. Until the wording of the company´s articles of association will be amended and adapted to the new legislation, in general (unless the articles of association provide otherwise) each member of the Management Board represents the company separately, precisely on the basis of an automatically executed change in the Commercial Register as of 1 January 2021. However, this way of representing a company may not be entirely appropriate for all the companies, as some companies that have a multi-member Management Board would, for example, prefer that at least two members of the Management Board act on behalf of the company jointly. Therefore, we recommend not to postpone the amendment of the Articles of Association and to proceed with its amendment as soon as possible. In this context, the access data to the company´s data box of the statutory director was also invalidated, and new access data was issued to the members of the Management Board. In addition, the cancelation of the position of Statutory Director also has an impact on his remuneration and other related performance. If the Statutory Director has a contract with the company on the performance of the position and the position of the Statutory Director has been now terminated, the contract on the performance of the function has also expired. Thus, the Statutory Director is no longer entitled to remuneration for the performance of the position and any other performances agreed under this contract in connection with the performance of his position, as it has ceased to exist and therefore no longer performs any position. In this context, it will be necessary to settle the rights and obligations between the company and the Statutory Director arising from this contract. At the same time, it will be quite likely that new contracts will have to be concluded with the members of the Management Board for the performance of their positions, also with regard to their new powers.
Transmitting shares
The Business Corporations Act enables the issuance of so-called transmitting shares, on the basis of which the company´s shareholder gets the opportunity to send his candidate to certain bodies of the joint-stock company – to the Board of Directors (regulated by the Section 438a of Business Corporations Act), the Supervisory Board (regulated by the Section 458 Business Corporations Act) and Management Board (regulated by the Section 458 of Business Corporations Act). It is clear that the issue of such shares must at first be regulated in the company´s articles of association, stating that with the share is connected the right to appoint one member (or more members) of the Board of Directors (Supervisory Board or Management Board) and remove the appointed member. The company may therefore issue transmitting shares as a special type of shares. However, the Business Corporations Act sets a certain limit, when the total number of such appointed members may not exceed the number of members of the Board of Directors (Supervisory Board or Management Board) generally elected by the General Meeting. This rule is mandatory.
General Meeting – the right to be accompanied
The amendment of the Business Corporations Act also allows one person designated by him to be present with the shareholder at the General Meeting, unless this is excluded by the articles of association. However, such a person must prove that he is bound by professional secrecy to the same extent as the shareholder.
This new provision therefore directly allows the presence of another person other than the shareholder at the general meeting of the company, unless the articles of association preclude the presence. The shareholder usually uses and appreciates the presence of other person at the General Meeting in the case of discussing more complex issues, when he requires the presence of such a person, for example, for the purpose of an advice or professional consultation conducted directly at the General Meeting.
General Meeting – decision-making per rollam
Newly, if the Business Corporations Act requires that the decision of the General Meeting be certified by a public deed, the draft resolution per rollam itself must take the form of a public deed, in which case a copy of the public deed on the draft decision is sent to shareholders. The shareholder´s statement must also state, inter alia, the content of the draft decision of the General Meeting to which the statement relates and the shareholder´s signature on the statement must be officially verified.
General Meeting – validity of resolutions
According to the amendment of the Business Corporations Act the shareholder may not invoke the invalidity of the decision of the General Meeting if the shareholder has not filed a reasoned protest against the decision, unless the petitioner has not filed a protest for a serious reason. It is therefore essential in this matter that the shareholder duly and clearly justifies the protest.
Legal entity as a member of the body
The current regulation allowed the membership of a legal entity in an elected body and allowed it to be represented by another legal entity, thus enabling another similar chain. It has often happened that finding the end link of this chain could be difficult and sometimes impossible. To avoid this chaining, a new approach has been chosen.
If a member of an elected body of a joint-stock company is a legal entity, this legal entity must without undue delay after its election to the body of the joint-stock company authorize a specific natural person who meets the requirements and prerequisites to perform the position to represent the legal entity in that concerned body, and in addition, its representative must be entered in the Commercial Register. Without registration of the legal entity´s representative, the legal entity cannot be registered as a member of the body in the Commercial Register.
A legal entity is obliged to change the entry in the Commercial Register within three months from the day when the position was created, when at the same time it is obliged to list a specific natural person as its representative, under penalty of termination of the position of this legal entity. It is necessary to proceed in a similar manner in the event that the authorization of the representative expires, within three months from the moment when the authorization expired, again under the penalty of termination of the position of such a member of the statutory body.
Contract for the performance of the office
The legislator newly amended the regulation of approving the contract on the performance of the position so that if it is not approved by the highest body of the company, this contract will not take effect at all.
With regard to effectiveness, it applies that, unless the highest body of the company decides otherwise, the approved contract is effective from the date of its conclusion, or from the date of the appointment, whichever is later. However, if the contract on the performance of the position contains such an arrangement which is in conflict with the articles of association, the provisions of the articles of association shall apply. However, if the contract on the performance of the position has been approved by the majority required for the amendment of the articles of association, then the provisions contained in the contract for the performance of the position shall apply. This construction is also different from the previous legislation.
Erasure of data from the founding legal acts
The founding legal act of a joint-stock company usually contains information that is obsolete after the very establishment of the company. This is typically information concerning the founders´ deposit obligation, the election of the first members of the Statutory Body, the appointment of the administrator of deposit or the valuation of the non-monetary capital. Until now, however, there has been uncertainty as to whether the “amendment” of the articles of association, consisting in the erasure of these data, is an amendment to the articles of association in the true sense of the word, with all the procedural consequences. It is now established that the erasure of the obsolete data from the founding legal act is not its change.
Protection of the shareholders
The provisions of Section 244 of the Business Corporations Act concerning the protection of shareholders were amended, deleting its second paragraph, which provided that legal proceedings aimed at unjustifiably favouring any shareholder to the detriment of the company or other shareholders are not taken into account, unless this law provides otherwise, or it would be to the detriment of third parties who relied on such legal proceedings in good faith. The legislator considers such a provision superfluous. This provision therefore contains only a general rule stipulating that a company treats all shareholders on the same terms under the same conditions.
Conclusion
The amendment of the Business Corporations Act brings with it relatively significant changes, especially regarding to the change in the monistic structure of the internal organization, the introduction of so-called transmitting shares or new conditions for General Meetings held in the form of per rollam and the possibility to be accompanied at the General Meeting. At the same time, it also brings clarification of some interpretation problems. In connection with the amendment, it will be necessary to ensure, in particular, that companies do not forget to fulfill their legal obligations and harmonize the wording of the articles of association within the set statutory one-year period, whereas we strongly recommend not postpone it.
If you have any questions regarding the topic of this article or corporate law in general, we are at your disposal – do not hesitate to contact us.
Mgr. Bc. Štěpánka Vajdová, attorney – vajdova@plegal.cz
Mgr. Tomáš Maux, junior lawyer – maux@plegal.cz
4. 2. 2021