New duties of listed companies

An amendment to the Capital Market Undertaking Act stipulates new duties applicable to companies listed on a regulated European market, primarily concerning a more detailed regulation of remuneration provided to management and supervisory body members, and related-party transactions. The amendment transposing the related EU directive entered into effect on 1 October 2019.

One of the main principles is a listed entity’s right to know their shareholders. However, this is nothing new for the Czech legal system. Even before the amendment’s effective date, the issuers of shares in book-entry form could ascertain their shareholders in shareholders’ listings or through an extract from the issue records kept by the central depository. The amendment therefore introduces an alternative option to determine the shareholders of companies with shares in book-entry form.

According to the new regulations, issuers will have to prepare and disclose their remuneration policy. This will be a special document covering not only the members of the board of directors and supervisory and administrative boards, but also managing directors and their deputies. The amendment stipulates remuneration rules that are more detailed than the rules applicable to executive service agreements specified in the Corporations Act. The remuneration policy will include, for example, information about how the issuer’s employees’ payroll and working conditions have been taken into account when preparing the remuneration policy.

Existing executive service agreements will not have to be changed. The amendment provides that service agreements and remuneration-related internal regulations will cease to apply in the extent in which they are at variance with the approved remuneration policy. If the remuneration policy is not submitted for approval to the general meeting, the performance of offices by all persons that should have been covered by the remuneration policy shall be gratuitous. The duty to prepare and submit the remuneration policy to a general meeting applies to companies whose shares were accepted for trading in a regulated European market on or after 1 October 2019.

After the end of the accounting period, issuers must prepare a detailed report on remuneration provided to every person to whom the remuneration policy applies, specifying the total amount of remuneration and all benefits provided to these persons during the period. After it is (dis)approved by the general meeting, the report must be published on the issuer’s website. The report is subject to an auditor’s approval, which is only logical, owing to the fact that certain information included in it has so far been a part of annual reports.

Another novelty is the duty to obtain the general meeting’s prior consent with significant related-party transactions that are not entered into within regular business activities. The transactions’ significance will be determined based on the value of assets that are the subject of the relevant contract. Moreover, these transactions in one accounting period will be summed to evaluate whether the criterion of significance has been met. As in the case of reports on remuneration, the duty to disclose information on a company’s website also applies to significant transactions with related parties.

Considering that the failure to prepare an entity’s remuneration policy may lead to the gratuitous performance of offices, while the failure to disclose related-party transactions could cause the relative invalidity of contracts, the implementation of the above duties should by no means be underestimated.