As of 1 January 2014, the Czech Republic has enacted new legal rules regarding the corporate law presented in the act no. 90/2012 Coll., Business Corporations Act (the “BCA”). Meanwhile the new regulation was settling in, the practice has discovered a number of gaps and shortcomings of the new law and thus the lawmakers has presented rather extensive amendment to the BCA. The amendment has passed through its second reading in the Chamber of Deputies and is currently awaiting its third round of discussions.
The reasons of such an extensive changes so soon after the BCA was enacted are said to be by the authors of the amendment, among others, inaccuracies or ambiguities in the text of the current BCA and unnecessary regulatory burden on entrepreneurs. The amendment is therefore aiming to simplify certain processes set out by the BCA, to rectify a number of legislative-technical errors and to remove duplicate or otherwise redundant provisions. This brief peeks under the lid of the amendment and presents you with the basic principles of the prepared changes.
It is no surprise that the limited liability company (in Czech: společnost s ručením omezeným) (the “s.r.o.”) presents the most common form of the entrepreneurship in the Czech Republic. Among the most significant advantages of the s.r.o. belongs undoubtedly a minimum capital requirement of CZK 1. The current BCA, however, prescribes that the contribution must be paid to a company’s bank account, which is obviously rather burdening for the s.r.o. with a small capital. The amendment thus envisage the possibility to repay the capital contribution up to CZK 20,000 in different ways (through the deposit administrator in general). This change is most welcome, as it would simplify the process of establishment of s.r.o. even more.
Another positive change introduced by the new amendment is represented by the explicit option of regulating the limits of admissible competition of the members of statutory body of the company in the articles of association. Currently, the members of statutory body may not commit any act of banned competition without the consent of all members. In the line with the amendment, the company should be allowed to adapt default rules of “competition ban” set out in the BCA to its own needs within articles of association.
Last but not least, the amendment envisage also a possibility to abolish certain provisions of articles of association after the incorporation of the company, which are no longer necessary, by a simple act of the company’s statutory body (or administrative body of a joint-stock company, as the case may be). Such changes to the articles of association would thus no longer need to be decided on by the general meeting in the form of a notarial deed.
Another principle of the forthcoming changes may be generally called transparency. In the line with the European legislative, the Czech lawmakers are as well trying to make the operation of the business as transparent as possible for the sake of protection of third person. With that in mind, the amendment imposes an obligation of the legal person appointed as a body member of different legal person to determine one natural person, which will represent it in the role of such body member. The natural person acting on behalf of a legal person as a body member of different legal person will have to be also registered and identified in the commercial register.
The above-described changes present just a very brief overview of what is coming with expected amendment to the Czech corporate law. The most of the changes are planned to take effect as of the 1 January 2020. Given the time frame, it is, however, very unlikely the amendment will be approved in time.