Long awaited amendment to the Corporations Act
Soon, we will mark the third anniversary of the Act on Corporations and Cooperatives (Corporations Act) coming into effect. Since the beginning, its application has been wrought with difficulties due to its inaccuracies and deficiencies. An amendment to the Corporations Act proposed by the government and aiming to correct these deficiencies is now going through the comment procedure. While its effective date is only planned for 1 January 2018, it is advisable to become acquainted with the main points of the proposed amendment now.
Changes are proposed all throughout the act. Apart from correcting obvious errors, the amendment also brings some simplification. For instance, when founding a limited liability company, the duty to pay the deposits into a special bank account should be abolished if the registered capital of the company does not exceed CZK 20 000. It should also be made certain that the acquisition of a share in a corporation does not constitute the other spouse’s participation in the corporation. The law should also explicitly allow for the creation of interests and shares without a right to profit distribution, without a right to a share in a liquidation balance and, most importantly, without a voting right. The question of per rollam vote in cases where the law requires the general meeting’s resolution in a form of a notarial record should also be clarified: a new type of notarial record will be created for these situations. Changes will also affect the regulation of dividends and advances for profit shares.
Stricter sanctions are to be imposed on corporate entities operating as statutory bodies of other corporations: they will have to authorise a single individual to represent them in such statutory body; if they fail to do so, the corporate entity’s office in the statutory body will terminate after two months. A new concept of liability of statutory bodies’ members should also see the light of day: influential and controlling entities will be held liable for the company’ debts if they contributed to the company’s bankruptcy. In such cases, the courts could rule that the entity in question has to provide to the bankrupt company’s assets a supply up to the amount of the difference between the company’s total debt and the value of its assets.
Perhaps the most important changes will concern the monistic system of the internal structure of a joint-stock company. The existing office of a statutory director is to be abolished and a single obligatory body will thus remain – an administrative board. The board will be in charge of the management of the company’s business, and in charge of the supervision of a company’s activity.
Finally yet importantly, the amendment to the Corporations Act also brings numerous changes to other laws, among them the Act on Public Registers of Individuals and Corporate Entities. Here, the changes are meant to respond, among others, to the general non-observance of the duty to file financial statements in the Collections of Deeds of the Commercial Register.