NEWS ALERT
08/2013
A 2014 REVOLUTION IN CIVIL LAW: PART 1
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recent changes relating to the system of the state incentives as well as the grid system for
the renewable energy (especially solar) sources and the photovoltaic market in Poland.
Do you know the changes that will come with the Act on Business Corporations (“ABC”) and
the New Civil Code (“NCC”) for limited liability companies (LLC) (which are known in Czech
as an “s.r.o”) from 1 January 2014?
Below is an overview of the most important items you should be aware of.
1.
THE MOST IMPORTANT DEVELOPMENTS AND CHANGES CONCERNING LLC’S
1.1
By 30 June 2014, each limited liability company (LLC) is obliged to change its
articles (memorandum of association) to comply with the new legislation and to
deliver the changes to the court maintaining the Commercial Register; and
provisions in articles that contravene mandatory provisions of the ABC shall be
repealed as of 1 January 2014.
1.2
End of the linking ban – at the moment it is prohibited for a Czech LLC to have
only one shareholder if that shareholder takes the form of a limited liability company
(domestic or foreign) and which itself only has one shareholder. One natural person
may be the single shareholder of no more than three LLC’s. The ABC completely
repeals these provisions. In practice these provisions were often not well known
and quite often contravened.
1.3
A managing director will now be allowed to act for a company together with
an authorised signatory (known as the mixed proxy) – it seems that this way of
acting for a company, which has been inadmissible so far but has been completely
common in other continental countries, should be accepted from 1 January 2014 by
the courts maintaining the Commercial Register.
1.4
New requirements of an agreement to serve as managing director –
agreements to perform the office of managing director entered into prior to 1
January 2014 have to be changed to comply with the requirements of the ABC by
no later than 30 June 2014, otherwise the office must be performed for free
under such agreements.
1.5
The creation of statutory provisions (special reserves) with limitations upon
their use will no longer be mandatory – thus the funds erlated to them may, in
Company Id. No. (IČ): 27948994, VAT No. (DIČ): CZ27948994
registered with the Commercial Register maintained by the Municipal Court
in Prague under Section C, Insert No. 128700
NEWS ALERT
08/2013
A 2014 REVOLUTION IN CIVIL LAW PART 1: WHAT WILL CHANGE FOR LLC’S?
particular, be paid out to shareholders, transferred to the account of retained
earnings of previous years etc.
1.6
New business rules will apply to managing directors under the Business
Judgement Rule: if a person (managing director) can prove that he or she acted in
good faith and acted on an informed basis and in the defendable interest of the
company, the person shall not be held liable for damage caused to the company in
respect of his action.
1.7
New creditor protection will be based on what is known as the insolvency test,
which prohibits a company from paying out profit funds from its other equity or
making advance payments if the company were to go into bankruptcy as a result;
this will also be based on the rules of conflict of interest and on wrongful trading
rules.
1.8
Wrongful trading – if the company board breaches prudent management rules by
failing to take steps necessary to avert bankruptcy, a court may, on a proposal from
the receiver or a creditor, decide that the company board shall be liable for meeting
the company’s financial obligations. This provision far exceeds the existing liability
for the late filing of an insolvency proposal.
2.
SHARE AND CONTRIBUTION
2.1
From 2014, the minimum contribution by one shareholder must be CZK 1.00.
2.2
Various types of shares – the ABC will allow the existence of various types of
business shares and the shareholder will be allowed to own multiple shares, even
of various types.
2.3
Common share certificates – it will become possible for a shareholder to have
shares which have unlimited rights as to their transfer and which will be in the form
of a common share certificate, but which will not be permitted to be traded on a
public market.
3.
GENERAL MEETING
3.1
Electronic decisions of a general meeting – the ABC does not limit voting
methods at general meetings; it only provides for the way of verifying those present,
who also include those present, for example, electronically (which for example can
include video-conferencing or SKYPE). In addition, shareholders not present may,
additionally, vote in writing on proposals submitted to the general meeting to decide
on them within seven days from the date of the general meeting.
3.2
Decisions by circular letter – after the shareholders receive a draft resolution, they
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Company Id. No. (IČ): 27948994, VAT No. (DIČ): CZ27948994
registered with the Commercial Register maintained by the Municipal Court
in Prague under Section C, Insert No. 128700
NEWS ALERT
08/2013
A 2014 REVOLUTION IN CIVIL LAW PART 1: WHAT WILL CHANGE FOR LLC’S?
can decide outside the general meeting, by delivering their consent to such a
proposal within the deadline specified in the resolution; otherwise shareholders are
held to have disagreed with the proposal.
4.
MANAGING DIRECTOR, CONFLICT OF INTEREST
4.1
Compared to the current legislation, any non-compete clause for managing
directors is lifted, and the law assumes that there is no ban on competition if the
shareholders were aware of a possible conflict.
4.2
The ABC imposes an obligation on company officers to provide information
about possible conflicts of interest and enables the governing body of the
company (the general meeting) to suspend such a person in the event of noncompliance with this requirement. A breach under these rules is such conduct in
contravention of prudent management rules and may be a reason giving rise to a
managing director’s liability. The ABC also imposes an obligation on a future
company officer to provide information relating to his or her past insolvency; this
alone will no longer be an absolute impediment to the performance of the function
because the general meeting may declare it irrelevant.
4.3
Measures against conflicts of interest between a company and other persons
will no longer be governed by today’s highly problematic Section 196a of the
Commercial Code; it will be replaced with stricter rules on the conflict of interest of
company officers, rules on asset stripping in a company and wrongful trading
principles.
5.
BUSINESS SHARE TRANSFERABILITY AND WITHDRAWAL FROM A COMPANY
An important change in the ABC is the disposal of shares by one shareholder where
there are several other shareholders. Each shareholder may transfer his or her
share to another shareholder unless the company’s articles makes such a transfer
conditional upon consent of the company board (today, this requires consent of the
general meeting of the company). The transfer of a share to a third party will be
possible with only general meeting’s consent without this procedure having to be
expressly provided for in the company’s articles (today, such an option must be
expressly written into the articles). Any company that wishes to prevent such
relaxation can make changes to its articles provided that they are made in good
time.
5.1
If the relevant body fails to grant its consent to a share transfer without giving any
reason or if the body is dormant, the shareholder can withdraw from the
company, but only if the shareholder has paid in full his or her contribution to the
amount of relevant share capital. The ABC will also allow a shareholder’s
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Company Id. No. (IČ): 27948994, VAT No. (DIČ): CZ27948994
registered with the Commercial Register maintained by the Municipal Court
in Prague under Section C, Insert No. 128700
NEWS ALERT
08/2013
A 2014 REVOLUTION IN CIVIL LAW PART 1: WHAT WILL CHANGE FOR LLC’S?
withdrawal from the company if, for example, the shareholder has voted against
and disagreed with a general meeting’s adopted decision to change the objects of
the company’s business.
6.
NEW TERMINOLOGY
New terminology will be introduced:
6.1
Business corporation – the ABC puts in place the overreaching term ‘business
corporation’, which covers business companies (notably general partnership, limited
partnership, limited liability company and joint-stock company) as well as
cooperatives.
6.2
(Business) operation ((Obchodní) závod) – the term ‘business operation’
supersedes and updates the existing term enterprise.
6.3
Branch (Pobočka)– supersedes today’s term ‘branch of an enterprise’ and refers
to such a part of a company’s operation that has an economic and functional
independence. Registered in the commercial register it will be called (like today) a
branch
We hope you have found our brief overview useful. If you have any questions, please feel
free to contact us at the address below.
bpv BRAUN PARTNERS
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4/4
Company Id. No. (IČ): 27948994, VAT No. (DIČ): CZ27948994
registered with the Commercial Register maintained by the Municipal Court
in Prague under Section C, Insert No. 128700