Last year, our office published a series of articles dealing with 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“). Most of the amendments has been effective for several days, and from 1 January 2021, the one-year period for implementing the new rules into the founding legal acts of companies commenced. The purpose of this article is to provide an overview of significant changes that affect a limited liability company.
The amendment significantly simplified the founding of limited liability companies. Until now, in order to pay up a monetary deposit in any amount, it was necessary to open a special bank account to which a minimum amount of the registered capital (i.e. 30 % of the registered capital) had to be deposited prior to the incorporation of the company, otherwise the company could not be incorporated. However, it was only possible to open a bank account after the founding of the company, i.e. after the completion of the founding legal act in the form of a notarial deed. If the founder was in a hurry with founding of the company, he usually had to make a quick transfer from a notary to a bank, where he opened the bank account and received a certificate of deposit to a special account, and then back to the notary, who (not only) based on confirmation, resp. statement of the administrator of the deposit, registered the company in the Commercial Register.
This practice was all the more absurd when, after the effectiveness of the Business Corporations Act, the founders made extensive use of the significant reduction in the minimum amount of registered capital. Therefore, a large part of newly founded companies has a registered capital in the amount of the minimum deposit of CZK 1. It should be noted that the previous legislation prescribed a registered capital of at least CZK 200,000 for a limited liability company. The sprint “notary – bank – and back” was often completed to confirm the deposit of the amount, which is negligible in terms of other costs of founding of a company.
The Business Corporations Act amendment eliminates this problem, and as of this year, in cases where the registered capital does not exceed CZK 20,000, it is not necessary to open a special account for making deposits in the registered capital. Instead, it will be possible to pay up the monetary deposit to deposit administrator in cash. Due to the fact that the deposit administrator may also be the founder, in most cases the incorporation of the company will be significantly accelerated.
Legal entity as an executive
The amendment continues to allow a legal entity to be appointed as an executive. Legal entity – executive is obliged to appoint a representative being an individual who represents the legal entity in the performance of the function in a limited liability company. This should lead to the simply and clear designation of specific person representing the limited liability company and simplify the orientation of third parties in the question as to who “signs” on behalf of the company. If the legal entity – executive failed to appoint its representative it was, according to the current legislation, represented by its executive body in the performance of the function.
What happens in practice – if the legal entity – executive has also a legal entity (or even more legal entities) in its executive body, it often creates confusing and broad structures preventing the initial intention of the legislator to designate one individual who performs “in fact” the function of the executive.
The amendment responds to this practice by prescribing that limited liability companies whose executive is a legal entity must ensure that the legal entity – executive will designate only one individual representing it in the performance of the function of the executive and to register this person in the commercial register within 3 months from the effective date of the amendment, i.e. by 1 April 2021. In the event of non-fulfillment of this obligation, the function of legal entity – executive automatically expires on 2 April 2021. For the sake of completeness, please note that this regulation also applies to all other business corporations.
In such a case, there is a real risk that the limited liability company will cease to have a competent executive body (e.g. it will lose all executives; the number of executives will not be sufficient to properly represent the limited liability company in case the founding legal action requires the company to be represented by more executives together).
In relation to the transfer of a share, the amendment clearly states that the signatures of the parties to the share transfer agreement must be officially verified. From the point of view of current practice, this is not a change, because according to the previous wording of the Business Corporations Act the transfer of shares was effective in relation to the company upon submitting a share transfer agreement with officially verified signatures. So, the current law has required the parties to have their signatures officially verified even before the amendment.
General Meeting – decision-making per rollam
Especially today, when we are forced to eliminate human contact as a result of epidemiological measures, companies are considering decision-making outside the general meeting, i.e. per rollam. By this method, the company can make decisions without the shareholders having to meet. The legislator, however, did not fully accommodate the needs of the shareholders in this respect and tightened the decision-making per rollam in matters requiring a notarial deed.
Newly, in order to take a decision per rollam, it is necessary to draw up two notarial deeds – the first on the proposal for a decision per rollam and the second certifying the adoption of such a decision. It can be assumed that the shareholders will make per rollam decisions in the future rather exceptionally. However, this change unifies the national regulation with European law.
General Meeting – validity of resolutions
The possibility of invoking the invalidity of a resolution of the general meeting has also undergone certain changes. The invalidity of a resolution can generally only be invoked if a protest is lodged against the resolution of the general meeting, which must be precisely defined as to its reason. Only to such an extent can the validity of the resolution of the general meeting be subsequently challenged.
With this amendment, the amendment considers the case law conclusions that have occurred since the effectiveness of the Business Corporations Act. We consider the projection of these conclusions into the text of the law to be beneficial, as it provides the users with a clearer guide to what requirements the protest should meet. Especially in situations where only the reasons stated in the protest can be the subject of judicial review, the exact wording of the law is all the more important.
Please note that the shareholders may completely exclude the obligation of a justified protest in the articles of association.
General Meeting – the right to be accompanied
Another change is the possibility for each shareholder to invite another person to the general meeting, unless this is precluded by the articles of association. However, such a person must prove that he is bound by duty of confidentiality to the same extent as a shareholder.
The amendment responds to the needs of practice, when more complex issues are discussed at the general meeting and the shareholder requires the presence of an expert who would advise him on the issue directly at the general meeting. The current presence of a lawyer or financial advisor in particular will come into consideration.
Appointment right of the shareholder
The amendment introduced a share with the appointment right. Thus, the shareholders may stipulate in the articles of association that certain shares allow to its owner to appoint one or more executives and, together with that, also dismiss these executives. The shareholders are limited by the maximum number of company executives.
The amendment also made it clear that a company may have shares without voting rights, when the Business Corporations Actafter the amendment explicitly states that the company must have at least 1 share with voting rights.
The Business Corporations Act amendment brings with it a number of very beneficial changes and clarifications of some interpretation issues. At the same time, the amendment imposes new obligations on limited liability companies (especially those whose executive is a legal entity), and failure to comply with these obligations may lead to the loss of a functioning executive body, which in turn will cause new problems in practice.
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. Martin Heinzel, attorney – firstname.lastname@example.org
Mgr. Tomáš Maux, junior lawyer – email@example.com
25. 1. 2021