MANDATORY CORPORATE CHANGES WITH RESPECT TO NEW CIVIL LEGISLATION – Schaffer & Partner

Aleš EppingerPartner, Schaffer & Partner

MANDATORY CORPORATE CHANGES WITH RESPECT TO NEW CIVIL LEGISLATION

On January 1, 2014, the new Civil Code and the Act on Commercial Corporations came into effect. Also the companies established before December 31, 2013 are subject to the completely new legislation. Since there are many extremely important changes and duties imposed on the companies, we would strongly advise to take the respective necessary legal steps to avoid potential negative consequences. Therefore, please see below the summary of key obligations to be taken into account.

1. Which legal steps must / can be taken and by when:

Mandatory amendments to the corporate documents

  • Existing companies are obliged to amend their corporate documents – Articles of Association or By-laws – in order to comply with the Act on Commercial Corporations
  • Deadline: June 30, 2014
  • If a company did not comply with this requirement, it could be dissolved by the court decision (upon elapsing of an additional period given by court)
  • Review of the Articles of Association with respect to the new legislation is further necessary to keep the rules set therein effective in the same way also after January 1, 2014 (e.g. concerning competence of the general meeting and the shareholders, whereas any amendment to the Articles of Association or winding-up a company might require personal attendance of all shareholders for drawing-up the notarial deed; or it will no longer be possible to impose a duty to contribute outside of the registered capital)

Opt-in (i.e. decision that the company will be governed by the Act on Commercial Corporation on the whole)

  • With respect to the new legislation, existing companies are de facto subject to dual legal regime – the Commercial Code and the Act on Commercial Corporations. Therefore, they should consider whether the new legislation is or is not more advantageous in their case (in terms of the amount of registered capital, utilization of the reserve fund or payment of dividends)
  • Existing companies are entitled to make so called “opt-in”, i.e. the shareholders can decide that the company, will be governed solely by the new legislation
  • Deadline: December 31, 2015

Remuneration of members of company’s bodies

  • If the agreement on performance of the position of the executive was not concluded or it does not regulate the remuneration and/or the remuneration is not approved by the general meeting, the performance of such position is considered to be without consideration (contrary to the previous regulations)
  • There are several specific & strict conditions for the agreement on the remuneration (especially specification of remuneration’s components, including non-monetary compensation), which must be fulfilled to secure the validity of such agreement
  • Deadline: June 30, 2014

Obligatory amendments to the registration in the Commercial Register

  • Existing companies have to register some new information, registration of which is required under the new legislation, such as number of executives
  • Deadline: June 30, 2014
  • If a company did not comply with this requirement, it could be dissolved by a court decision (upon elapsing of an additional period given by court

2. What should your customers know: Letterhead and websites

According to the new legislation, the court is newly entitled to impose a fine due to lack of the mandatory information and other facts, which shall be stated on business documents (letterhead) and shall be published and kept updated also on the company’s website.

3. Why should be your corporate documents updated: Collection of Deeds

Collection of Deeds of the Commercial Register shall contain the company’s Articles of Association and its subsequent changes and the up-to-dated version of the Articles of Association, annual reports, financial statements and decisions regarding appointment or termination of a function of a statutory body and further documents

Company’s failure to comply with this duty may be sanctioned by the court (fine up to 100,000 CZK) and under some circumstances may even lead to the liability of the executive for damage

4. Where is your company seated: Lease agreement

Since all lease agreements on real property are governed by the new legislation, regardless that the agreement was concluded before January 1, 2014, the revision of a lease agreement might also be advisable.