Czech Business Corporations Act introduces important changes to corporate law

The amendment to the Czech Business Corporations Act went into effect in January 2021. It comprises both minor and major changes concerning the decision-making process at companies and corporate structures, and the distribution of profit.

Lukáš Vajda of Sniehotta & Vajda Legal has highlighted some of the key changes brought about by the amendment.

When founding a limited liability company with registered capital of less than CZK 20,000, it will no longer be necessary to open a designated bank account for making contributions. Previously a shareholder's financial contribution to a corporation was deposited into a special account established only for this purpose. A new exemption reduces the administrative burden; it is now possible to deposit a financial contribution directly to the administrator of the deposit if the registered capital does not exceed CZK 20,000. 

The current legal regulation of decision-making per rollam (i.e. decision-making outside the general meeting) can be an expensive and somewhat complicated process for capital companies in cases where the decisions made in the general meeting are required to take the form of a public document or notarial deed. In such cases, each separate vote by each shareholder has to be notarized, which can lead to significant additional costs when there is a greater number of shareholders.

The amendment to the Czech Business Corporation Act makes it unnecessary to execute shareholder’s votes via a notarial deed. It is sufficient to execute the public document with the decision to be made and distribute a copy to all shareholders.

In order to ensure greater transparency in companies' management structure, a new obligation will be introduced for legal entities that perform the function of a  member of an elected body in another company or cooperative (this applies only to limited liability companies and joint-stock companies). These legal entities are obliged to authorize a single natural person as their representative in the relevant body. Otherwise, they will not be able to register the legal entity in the Commercial Register as a member of the elected board. If the representative is not registered in the Commercial Register within three months from the commencement of the legal entity's office in a company's board, the legal entity's term of office automatically expires by law.

The monistic system of a joint-stock company has also been changed. Companies with a monistic structure will no longer have a statutory manager. Its responsibilities pass to the Supervisory Board as a statutory body with supervisory powers. 

The members of the administrative board are appointed by the general meeting. According to the law, the administrative board has three members, but the memorandum of association may deviate from the legal regulation and establish a higher or lower number of members.

There are also new procedural rules to eliminate inactive corporations. The court will initiate a proceeding in the dissolution of the business corporation if the company did not submit financial statements to the Collection of Deeds of the Commercial Register for at least two consecutive years and is contactless.

However, the new legislation introduces more changes, such as changes related to the executive contract concluded with a member of a statutory body or his remuneration, etc. The corporations are obliged to adapt their founding documents to the new regulation by Jan. 1, 2022, and register in the Commercial Register facts that have not been yet subject to registration by June 30, 2021, with some exceptions.