The lower instance courts did not act consistently in resolving certain issues concerning the entry of business corporations into the Commercial Register. This has led to uncertainty amongst those entered in the Register and also an impermissible degree of inequality, with different courts issuing different rulings on the same matter.
Therefore, on 13 January 2016, the Supreme Court, whose tasks include unifying the decision-making practices of lower instance courts, adopted unifying opinion Ref. No. CPJN 204/2015 on the matters given below:
1) The possibility of various kinds of shares emerging in a limited liability company which has not subordinated itself to the Business Corporations Act as a whole
2) The obligation to enter details of the type of share or ordinary share certificates if the company only has the basic type of share and does not issue ordinary share certificates
3) The obligation to grant consent to the transfer of a share in a company in the form of a notarial record
4) The obligation to have the signatures on a pledge agreement for a share in a limited liability company officially verified
5) The possibility of the statutory director of a joint stock company with a monistic internal structure concurrently serving as the chair of that company’s one-member Administrative Board or member of the collective Administrative Board
1) Possibility of various kinds of shares
Certain lower instance courts do not allow a limited liability company which was established before Act No. 90/2012 Coll., the Business Corporations Act (“BCA”) came into effect and which has not subordinated itself to the BCA as a whole in accordance with Section 777(5) of the BCA to have multiple types of shares, and therefore rejected petitions to enter multiple share types. Other courts permitted this, and the entries were made in the Register.
In its unifying opinion the Supreme Court concluded that companies’ articles of association may agree to permit multiple share types and may allow the issue of ordinary share certificates, including in cases where the corporation has not subordinated itself to the BCA as a whole.
According to the Supreme Court, compliance with the BCA as a whole is not required for partners to exercise the rights granted by the BCA (i.e. in this case to issue multiple types of shares or ordinary share certificates).
A limited liability company may therefore have multiple types of shares and issue ordinary share certificates, even if it has not subordinated itself to the BCA as a whole.
The Supreme Court also touched upon the fact that business corporations may continue to comply with the BCA as a whole, as the two-year period stipulated by Section 777(5) of the BCA is merely an unenforceable deadline.
2) Entering type of share
The lower instance courts required that petitions include a statement that the petitioner’s limited liability company has only basic shares and does not issue ordinary share certificates, otherwise there is the risk that the entire petition will be rejected. Other courts, however, reject petitions for entries stating that the company has only basic shares, claiming that such information is redundant.
The Supreme Court concluded that in the case of a company which does not issue other than basic shares, entering the share type into the Commercial Register has no meaning for third parties. The same purpose, i.e. showing that the company has not issued various types of share, is also served by giving no details of the share type. In other words, if the share type is not entered in the Commercial Register, that means that the company has only issued basic shares. The same conclusion applies for ordinary share certificates, or the non-issue of such.
It is therefore not necessary to enter the share type into the Commercial Register if only basic shares are issued, nor is it necessary to state that the company has not issued ordinary share certificates.
3) Consent to the transfer of a share
Some courts require that a proposal to enter a change to a shareholder also needs the general meeting’s consent to the transfer of a share to a third party in the form of a notarial record, as they consider such consent to constitute a decision that changes the articles of association. Other courts, however, do not require a notarial record. The acquisition of a notarial record is a time-consuming and costly matter.
The Supreme Court concluded that consent to the transfer of a share does not constitute a general meeting resolution that would change the articles of association due to a change in shareholders, and so no notarial record is required.
Therefore, consent to the transfer of a share in a company does not need to be in the form of a notarial record.
4) Establishment of a pledge to a share
The registration courts are also inconsistent concerning the requirement for the official verification of signatures on a pledge contract to a share in a company which does not constitute an ordinary share certificate.
The Supreme Court took a stricter view and concluded that a pledge contract establishing a pledge to a share in a limited liability company (which does not constitute an ordinary share certificate) must be in writing and with officially verified signatures.
According to the Supreme Court, a simple signature on a pledge contract to a share in a company is therefore insufficient.
5) Serving as both statutory director and member of the Administrative Board of a joint stock company
The statutory director of a joint stock company with a monistic internal structure may also be the chairman of that company’s one-member Administrative Board, as well as a member of the collective Administrative Board.
Certain lower instance courts are of the opinion that the statutory director of a joint stock company with a monistic internal structure may not be a member of the company’s Administrative Board other than its chairman. Certain courts also conclude that with a one-member Administrative Board, the only member is not the chairman of the Administrative Board, and therefore refuse to enter that person as chairman of the Administrative Board.
The BCA allows joint stock companies to choose between two internal structure systems – the dualist system, under which a Supervisory Board and Board of Directors are mandatory, and the monistic system, under which an Administrative Board and statutory director are mandatory. The Administrative Board can also have only one member.
The Supreme Court concluded that in a one-member Administrative Board, that sole member is automatically the chairman. The Supreme Court also adds that if a statutory director can serve as chairman of the Administrative Board, a different member of the Administrative Board may also be the statutory director.
Therefore, the sole member of a one-member Administrative Board, or any member of an Administrative Board with multiple members, may serve as the statutory director of a joint stock company.
For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.