Of interest.

What changes will the Amendment to Business Corporations Act brings?

The first major amendment to Act No. 90/2012 Coll., on Commercial Companies and Cooperatives (Business Corporations Act), as amended (the “Amendment”), of which we informed you already last year, was on 29 January 2020 signed by the President of the Czech Republic and will be published in the Collection of Laws in the coming days. The Amendment will come into effect on 1st of January 2021. The amendment brings many changes in the area of business corporations about which we will gradually inform you in detail this year through specific articles.

In general

The Amendment significantly amends the wording of the Business Corporations Act and was adopted with the aim of increasing legal certainty by eliminating inaccuracies or ambiguities in the text of the legal act that have so far arisen from the application of the legal act in practice.

In this article we provide you with an overview of the most important changes that the Amendment brings which we are going present you and inform you about more closely during this year.

The overview of changes

The Amendment probably most significantly interferes to the adjustment of the monistic system of internal structure of joint stock companies, which will make them highly functional and competitive against monistic models in other European countries.

It is newly proposed to abolish the statutory director within the monistic structure of the internal organization. The only obligatory bodies to be established should be the General Meeting and the Administrative Board. The Administrative Board would be responsible for the company’s business management and for overseeing the company’s activities either. This should avoid interpretative confusion about the status and responsibilities of the Administrative Board and the Statutory Director, as it is not possible to determine unequivocally which provisions contained in the dualistic system are to be applied to the monistic system and to which authorities (bodies). The legal regulation of the monistic system will be regulated explicitly, which should contribute to increased legal certainty.

Very important legislative changes will occur in the case of profit share and other own resources, the related adjustment of advances to profit-sharing, and also the rules for the distribution and payment of profit share or other own resources, which should remove some of the interpretative issues of the current Business Corporations Act, especially in relation to the applicability of older financial statements as a basis for such operations, and to reflect the decision-making practice of the courts.

Significant changes have also been made in the area of ​​elected bodies of a business corporation, where will be changes in the concepts and provisions of legal entities as members of the business corporation.

The Memorandum of Association will be able to newly determine that the right to appoint one or more executive directors and to remove such executive director relates to the share. Similarly, the Articles of Association may stipulate that with the share is connected the right to appoint one or more members of the Board of Directors and to remove such member.

Changes will also be made in the legislation on the agreement on performance of office and its related issues, where it shall apply, inter alia, that if the Articles of Association or the agreement on performance of office do not include the term of office, the term of office shall be three years.

The legal regulations governing the election of members of the Supervisory Board will also be different. Members of the Supervisory Board may be newly elected by employees or appointed by a shareholder. The Amendment introduces more sophisticated regulation of procedures and questions related to this.

Other changes regulated by the Amendment relate for example to the founding legal acts of business corporations. The Amendment clarify the issue in connection with the deletion of certain data from the Memorandum or Articles of Association after fulfillment of the deposit obligation for capital companies.

It will be also newly stipulated that if the amount of all cash deposits in case of establishment of a capital company does not exceed CZK 20,000 in total, the cash deposit may be repaid in a manner other than by depositing into a special account intended for managing deposits (e.g. by deposit at the cash register).

There will also be a change, especially clarification of the legal regulation of procedures and rules for the exclusion of a member of the statutory body from the office. The court will be able to decide on its own that a member of the statutory body of a business corporation who has repeatedly or seriously breached his / her duties in the performance of office during the last three years, will not be able to serve as a member of the statutory body of any business corporation for a period of three years from the effective date of the exclusion decision.

The provisions relating to the special obligations of members of the bodies in the event of a business corporations bankruptcy have also been revised. The Amendment stipulates that if a member of a statutory body has contributed to the bankruptcy of a business corporation by violating his / her obligations and if the insolvency proceedings have already been decided on how to resolve the bankruptcy of a business corporation, the insolvency court, on the basis of the insolvency trustee’s decision, decides on the obligation of this member to surrender to the estate the benefit gained from the contract of performance of office.

The legislation concerning the General Meeting also did not avoid changes. Specifically, the Amendment goes through provisions relating to legal requirements that must be met at the General Meeting, including provisions on the content and formal requirements of an invitation to the General Meeting. If the amendment to the Articles of Association is included on the agenda of the General Meeting of the joint stock company, the invitation must contain at least a brief and concise description and justification of the proposed amendments to the Articles of Association. The Board of Directors or the Administrative Board, together with the invitation to the General Meeting, will publish the full draft amendment of the Articles of Association on the Company’s website and the Company shall allow any shareholder to take a look at the draft amendment to the Articles of Association free of charge; the shareholder must be notified of this right in the invitation to the General Meeting.

The changes in the adoption of decisions of the General Meeting outside its meetings (per rollam) will also undergo fundamental changes. In the case of a limited liability company, in the future it will not be possible to change the founding legal act without the cooperation of a notary.

Finally, the Amendment also concerns provisions on the rules for increasing the registered capital of a joint stock company.

Conclusion

We will discuss all the topics addressed in this article in detail in specific articles that will be published throughout the year 2020. The first changes being commented more closely are going to be the changes in the rules of decision of the General Meeting outside its meetings (per rollam).

In case of any questions under the corporate law on specifically forthcoming amendments to the Business Corporations Act we are at your disposal, please do not hesitate to contact us

 

Mgr. Bc. Štěpánka Vajdová, junior lawyer – vajdova@plegal.cz

Mgr. Jakub Málek, partner – malek@plegal.cz

Kateřina Roučková, legal assistant – rouckova@plegal.cz

 

www.peytonlegal.cz

 

31. 01. 2020

 

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