Limited liability companies (hereinafter “LLC”) are the most widely used form of business company in the Czech Republic. They are particularly popular with small and medium-sized businesses. This relatively well known legislation in the business community will undergo a series of changes of varying degrees of significance when Act No. 89/2012 Coll., the New Civil Code (hereinafter “NCC”) and Act No. 90/2012 Coll., on business corporations (Business Corporations Act, hereinafter “BCA”) come into effect. Conceptually, these changes will mean less restrictions and greater flexibility. This article focuses on the most important of these changes.

1. Registered capital and capital participation of members

According to the BCA, a LLC will be a capital company characterised by the capital participation of its members and the compulsory creation of registered capital. The most significant change in this area according to the BCA will be a reduction in the minimum amount of the company’s registered capital to a mere CZK 1.

This also applies to the minimum investment by members. The amount of investment can also be set differently for individual types of ownership interests (see point 4 of this article).

Investments will continue to be possible in both pecuniary and non-pecuniary form. Non-pecuniary investments will no longer need to be valued by a court-appointed expert. A valuation by any chosen expert will suffice.

2. Establishment and incorporation of LLC, prohibited chaining, compulsory reserve funds, websites

As previously, it will be possible to establish a LLC by a sole member. However the ban on chaining has been lifted, whereby one person can now be the sole member of an unlimited number of LLC.

If a LLC sets up a website, it will be required to include data that must be included on all business documents according to the BCA, as well as other data prescribed by the BCA on this site.

The BCA no longer requires the creation of a compulsory reserve fund, which will be left to the discretion of the founder of the LLC.

3. Memorandum of Association

In terms of the Memorandum of Association, there will be a significant change under the BCA, which combines the institute of the Memorandum of Association (in the sense of current terminology) and the institute of Articles of Association according to Section 3 (3) of the BCA, which states “The Memorandum of Association is understood to include the Articles of Association and Deed of Incorporation”.

Apart from the Articles of Association, the term “Memorandum of Association” will therefore also include the Deed of Incorporation, which under the BCA means the possibility of a LLC being established by a sole member (see Section 11 et seq. of the BCA).

4. Members and ownership interests, equity certificates, end of participation

According to the BCA, a member’s ownership interest will continue to be determined according to the ratio of its investment to the company’s registered capital. A new factor is that a member will be able to own more than one interest and the Memorandum of Association may even allow the creation of different types of ownership interests. Various rights and obligations may then be associated with different interests (e.g. different weight of votes, pre-emptive rights to shares of profit, etc.).

The Memorandum of Association may also specify that the member’s interest will be represented by an equity certificate, which it will be possible to issue as a security to order (see Section 137 of the BCA).

There will also be new opportunities for a member to end their participation in the company. In addition to existing options, a member will, in certain cases, be able to end its participation by withdrawing from the company (see Section 202 of the BCA).

5. Conclusion

This article by no means summarises all the changes in legislation governing LLC. However, in view of the above, it is clear that there are many changes and that some of these are very important. Thus, even experienced entrepreneurs with a good overview of legislation on LLC gained over years of practice, should not rely on their knowledge once the NCC and BCA come into effect without consulting an expert on corporate law.

For more information, please contact K&A partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz; tel.: +420604242241.