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Another step towards digitisation in corporate law

The Ministry of Justice has prepared a bill to implement into Czech law further changes arising from the EU directive as regards the use of digital tools and processes in corporate law. The related amendment to the Notarial Code has already entered into effect.

The new legislation aims to transpose Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law. The directive aims to allow for the formation of companies (at least limited liability companies) fully electronically, and for the use of digital tools throughout a company’s further lifecycle, in particular by creating model memoranda of association and making it possible to electronically register data in public registers, file documents in the collections of deeds, or establish branches in other states.

In this context, an amendment to the Notarial Code and the Act on Administrative Fees was published in the Collection of Laws and took effect on 1 January 2021. The amendment to the Notarial Code introduces, among other things, the possibility to prove a person’s identity and determine their will as to what content is to be entered in the notarial record without that person’s physical presence, by videoconferencing with the simultaneous use of electronic identification means. The amendment will thus in some cases allow for drafting, e.g., a company’s memorandum of association without the need to physically appear before a notary. This means that, starting September, it will be possible to form a company fully online.

Furthermore, the Ministry of Justice has prepared a bill to amend certain laws in connection with the use of digital tools and processes in company law and the functioning of public registers. The bill incorporates the above outlined objectives of the EU directive in the Trade Licensing Act, the Act on Court Fees, the Corporations Act, and the Act on Public Registers of Legal and Natural Persons and on the Registration of Trusts. The effective date has been proposed for 1 July 2022. For newly formed corporate entities, the bill introduces an option to choose in what phase of the incorporation process they will notify their trade or apply for a licence: before or after filing for registration in the Commercial Register. It will therefore no longer be necessary to wait with the registration in the Commercial Register until a trade licence is obtained.

The bill also redefines the incapacity to exercise the office of a member of business corporation’s elected body. So far, integrity as defined under the Trade Licensing Act was taken as a basis for this purpose. Now, there are three reasons for the incapacity to exercise an office: a decision of a Czech or foreign public authority banning the person from exercising an office; reasons related to insolvency; or convictions for selected crimes. The bill also proposes a regulation for the establishment of a non-public register of persons thus excluded from exercising an office of a member of an elected body of a corporation, as foreseen by the European regulation. The register should allow for the exchange of information on persons with an impediment to exercising an office between member states.
The bill is only in the early stages of the legislative process, so the proposed wording is still expected to change. However, the basic points outlined above should be maintained, in line with the EU regulation.