Act No. 90/2012 Coll., on business corporations (hereinafter “ABC”) has been in effect for some time. The final provisions of the Act include an important date for business corporations, namely 30 June 2014. The importance of this date is explained in Section 777 (1) of the ABC, which states that any provisions of Memoranda of Association that do not comply with the mandatory provisions of the ABC will become void as of 1 January 2014. Section 777 (2) of the ABC gives business corporations a six-month period to amend their Memoranda of Association to comply with the new legislation. Amended Memorandum of Association must then be delivered to the Collection of Documents of the respective Commercial Register. Sanctions for a failure to comply with this obligation can lead to the wind-up and liquidation of the business corporation.
As the deadline for the amendment of Memoranda of Association to comply with the ABC draws near, it may be useful to review this topic, especially for corporations that have not yet amended their Memorandum of Association.
1.Partial amendment
Obligatory, ergo compulsory amendment only applies to the mandatory provisions of the ABC. Provisions of Memoranda of Association that are not in conflict with the mandatory provisions of the ABC remain in force. In the context of compulsory changes, it is important to amend provisions relating to ownership interests (now only “interests” under the ABC) in limited liability companies, or shares in joint stock companies. Companies should also focus on the competencies of the General Meeting and treatment of statutory bodies.
However, according to Section 777 (4) of the ABC provisions governing the rights and obligations of members will continue to be governed by the abolished Commercial Code. The consequence of this will be dual-track legislation, where a certain part of the Memorandum of Association will be governed by the ABC, while the section on the rights and obligations of members will be governed by the Commercial Code. As it is still unclear how this system will work in practice and what specific members’ rights and obligations are to be governed by the Commercial Code, we consider this option problematic as it may create a state of legal uncertainty for business corporations in the future and lead to the need for costly legal analyses of relations within the company.
2. Complete amendment – opt-in
In view of the above, it may therefore be appropriate to consider the option offered under Section 777 (5) of the ABC, which gives business corporations the option of conforming to the ABC as a whole (opting in) within 2 years of the effective date of the ABC, thereby eliminating the aforesaid dual-track legislation and state of legal uncertainty. The business corporation will thus be governed in all legal relations by the ABC alone. Although the period for exercising this option is two years, it is more appropriate to make this transition together with the above compulsory amendments, thereby reducing the costs of a notarial deed and the fee for an application to enter these amendments in the Commercial Register.
3. Revision of Articles of Association and new options under the ABC
As part of amendments to comply with the new ABC, whether partial or complete, it is also recommended that business corporations thoroughly revise their whole Memorandum of Association, as the ABC can significantly impair established corporate rules. However, the ABC also offers new options that can help improve the company’s operation.
Due to the limited scope of this article, we will confine ourselves to an illustrative list of new options for limited liability companies.
Reserve fund and registered capital
One of the benefits of the ABC for limited liability companies may be the fact they no longer need a statutory reserve fund and that they can reduce their registered capital to a minimum contribution of CZK 1.
Decisions at General Meetings and outside General Meetings
Another major change is the ability to make decisions outside General Meetings, i.e. decisions “per rollam”. It will be possible to make decisions in this manner without the need for a notarial deed, as under Section 175 (3) of the ABC a certified signature will suffice.
It will also be possible to use technical means that permit distance voting, such as video conferencing, to vote at General Meetings. However, these means must permit verification of the identity of the voter.
It is also possible to use correspondence voting, in which members submit their votes in writing prior to the General Meeting.
Ownership interests A member of a limited liability company will newly be able to own more than one ownership interest, where each of these interests may differ, or rather be associated with different rights. An interest (or interests) may also be incorporated in a common certificate, which is a security to order. This security is then freely transferable without any further restrictions.
4.Conclusion
For business corporations that have not yet adapted their Memorandum of Association to comply with the ABC, it is now high time for them to meet their statutory obligations. In view of the above, full amendment of the Memorandum of Association to comply with the ABC is recommended to increase legal certainty, with a complete revision of the Memorandum of Association so that it not only complies with the mandatory provisions of the ABC, but also takes advantage of the new options offered by the ABC according to the corporation’s needs.
Finally, it is worth reminding that contracts for the performance of the office of managing director should also be revised. Contracts that do not comply with the requirements of the ABC by 30 June 2014 will give rise to the legal assumption that the duties of this office are performed without pay. Members of statutory bodies should therefore be motivated to bring their contracts in line with the ABC. However, an analysis of this topic goes beyond the scope of this article.
For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.