Changes brought by the amendment to the Corporations Act - I

The proposed amendment to the Corporations Act, which the deputies will be voting on again in January after it was returned to them by the Senate, is to enter into effect from 1 January 2021 and will bring a relatively high number of changes. We will summarise the most important ones for you in a series of articles, with the first one focusing on proposed changes in the act’s initial provisions.

  1. Contributions into registered capital

The current legal regulation requires opening a special account with a bank or a savings cooperative to which contributions into the registered capital shall be deposited. This applies even to cases where the registered capital of a limited liability company only amounts to one Czech crown. Under the amendment, it would be possible to make a monetary contribution in another manner as well, for instance with a notary as a contributions’ administrator, provided that the registered capital of the limited liability company does not exceed CZK 20 000.

  1. Rights in rem to shares/ownership interests in a business corporation to be recorded in the Commercial Register

Currently, only a prohibition to pledge or transfer a share/ownership interest in a business corporation, if established as a right in rem, has to be recorded in the Commercial Register. Under the new regulation, other rights in rem to a share/ownership interest in a business corporation (except for those represented by a security) shall be recorded in the Commercial Register as well, for instance a pre-emptive right. This means that these rights will only come to existence once recorded in the Commercial Register.

The amendment stipulates that the establishment and origination of these other rights in rem shall be governed by the provisions of the Civil Code regarding the establishment and origination of a  pledge to a share/ownership interest in a business corporation. These provisions stipulate that if a share/ownership interest can only be transferred under certain conditions, the same conditions must be met to pledge it. This means that, under the new regulation, if a share can only be transferred under certain conditions, the same conditions must be met to establish another right in rem to such a share/ownership interest.

The amendment also allows to stipulate one set of conditions for transferring a share/ownership interest, and different (stricter) ones for pledging it in the memorandum of association or deed of foundation.

  1. Bodies of a business corporation

Where a corporate entity is a member of an elected body of a corporation, it is currently represented by its statutory body. In extreme situations (e.g. in a chain of companies), it may happen that a corporation is its own representative. Under the new regulation, a corporate entity will have to appoint a concrete individual to represent it in an elected body of another corporation, and have this representative recorded in the Commercial Register within three months, otherwise the corporate entity’s office in the elected body shall terminate. The individual representing the corporate entity shall be subject to the same duties as the corporate entity that is the member of the elected body (for instance the fiduciary duty/due managerial care).

The amendment further specifies conflict of interest rules by, e.g., making it clear that they shall not apply to a corporation’s members/partners. The amendment also stipulates the corporation’s duty to inform about the conclusion of contracts with controlling or influential entities (not applicable to groups subject to a single management – holdings, or ‘concerns’ as defined by the Corporations Act). Concluding such agreements may be prohibited by a supreme or supervisory / audit body, if against a corporation’s best interest.

  1. Expulsion of a member of a statutory body

The amendment aims to clarify the rules for the expulsion of a member of a corporation’s statutory body. The amendment proposes the time for which a member of a statutory body may be expelled to be stipulated as the maximum period (‘up to three years’). On the other hand, the conditions for expulsions shall be stricter: under the existing regulation, there must be a serious and repeated breach of duties (with both these conditions having to be met cumulatively), while under the new regulation just one of the conditions must be met. The breach will be reviewed retrospectively for the last three years prior to the initiation of the expulsion procedure.

  1. Business groups

The rules regarding the deadlines for filing a report on relations in the Collection of Deeds will be more specific. Under the amendment, reports on relations that form parts of annual reports shall be audited, same as financial statements, and filed in the Collection of Deeds together with the annual reports. In other cases, i.e. where the controlled entity does not prepare an annual report, the report on relations shall be filed in the Collection of Deeds within the deadline for filing the financial statements for the accounting period for which the report on relations has been prepared.

Sdílet článek