Another step towards greater transparency of corporate structures?

Effective 2014, the Civil Code enables corporate entities to elect other corporate entities as their bodies. Such corporate entities may then appoint a representative (an individual) to act on their behalf, otherwise, they are represented by their statutory body. This regulation was adopted to respond to the needs of global corporations that are used to such an approach from their home countries. However, it has allowed for rather non-transparent structures: corporate entities acting as elected bodies of other corporate entities may themselves elect corporate entities as their bodies, which leads to ‘chains’ where it is virtually impossible to identify a concrete individual acting on behalf of a company. The concerns about the possible abuse of the regulation have now led to the proposed amendment.

The proposed regulation significantly emphasises the representatives that corporate entities elected as members of statutory bodies of ‘capital’ companies (joint-stock or limited liability companies) or cooperatives must appoint and record in the Commercial Register without undue delay. Such a record will be a precondition for recording a corporate entity as a member of an elected body. If the corporate entity fails to appoint its representative within three months from being elected into the office, and if such a representative is not recorded in the register by that time, the corporate entity’s office as member of an elected body shall cease to exist by operation of law. The three-month deadline has been set for the sake of companies that, whatever their reasons and intentions, are not sure what ‘without undue delay’ means. The option to appoint a representative thus becomes a duty.

The current regulation also allows for speculations as to whether more than one representative may be appointed, and, if so, in what manner they shall act on behalf of the company. The proposed regulation stipulates that there shall be just one representative of a corporate entity. To avoid any doubts, it is also proposed to explicitly state that the appointed individual must meet the same statutory conditions as those stipulated for membership in the elected bodies, i.e. no criminal record and full legal capacity.

Is this change a benefit, or just another red-tape obstacle hindering business? The public interest in eliminating the possibilities to bypass law indicates the former. The same goes for removing the uncertainty as to the number of appointed representatives, and the fact that one record in a public register will make it clear who acts on behalf of the company, for a long time and many acts ahead. 

It is yet to be seen how the proposed change will be approached by either chamber of parliament, and in what shape the amendment will be eventually signed by the president. It is also yet to be seen whether it will meet the declared purpose. Hopefully, we will avoid situations similar to those in England, where following negative experience the above described concept locally known as ‘corporate directors’ has been almost fully abandoned.