Remember the amendment to the Business Corporations Act?

Issue 9/2020 of our Newsletter​ drew attention to the changes that will be introduced by the amendment to Act No. 90/2012 Coll., on Business Corporations (the "BCA"). On 1 January 2021, this amendment came into force and, as a result, the need arose for many companies to change their memorandum or articles of association.

The transitional provisions of the amendment, which stipulate that those parts of the memorandum or articles of association that go against the meaning of the new legal provisions are automatically devoid of binding effect, also directly force the implementation of these changes. Therefore, we prefer to remind you of these changes once again and recommend that you check your memorandum or articles of association to avoid unwanted surprises at general meetings.

Our write-up does not contain all the changes made – we are simply reminding you of the most fundamental ones. For more detail, we refer primarily to the effective wording of the BCA.

A legal entity that is a member of an elected body must be represented by a natural person (Section 46 BCA)

If a member of the elected body of the corporation is a legal entity, it must authorise a single natural person to represent the legal entity. The registration of a natural person in the Commercial Register must take place within three months, otherwise the function of the legal entity will expire by law.

Distribution of profit and other equity (Sections 34 and 35 BCA)

The conditions for profit distribution and distribution of other equity were unified. The conditions for the distribution of other equity have been tightened.

Prohibition of the provision of gratuitous benefits to shareholders and persons close to them (Section 40 (5) BCA)

It is forbidden for the company to provide gratuitous services to a shareholder or a person close to them, even with the consent of the general meeting. This does not apply to legal exceptions (e.g. occasional gifts).

Report on relations (Section 82 (5) and (6) BCA)

The report on relations does not contain confidential information. However, the report must state that it is incomplete. Furthermore, the report on relations should contain the subject of trade secrets in a reasonable degree of generalisation.

Decision-making by letter (per rollam) and notarisation (Section 175 (3), Section 419 (2), Section 654 (2) BCA)

If the law requires that the decision be certified by an authentic instrument (notarial deed) and such a decision is to be taken by letter (per rollam), the draft decision must take the form of an authentic instrument. A copy of the public deed containing the draft decision is therefore sent to the shareholders. An officially verified signature will then suffice on the subsequent statement of the shareholder. The amendment concerns limited liability companies, joint-stock companies and cooperatives.

Special rights for shares and stocks (limited liability companies: Section 194a (1) BCA; joint-stock companies: Sections 438a (1), 448a (1) and 458 (1) BCA)

At present, it is relatively common in the founding documents to regulate various types of shares or stakes. The law now sets out how far we can go, especially with regard to unequal regulation of rights. This is an opportunity to transfer the rules from the shareholder agreements to the founding documents. You will therefore achieve uninterrupted binding obligations for the legal successors of the original owners of the shares.

Simultaneous participation of a shareholder and a third party in the meeting of the highest body (limited liability companies: Section 168 (3) BCA, joint-stock companies: Section 399 (2) BCA)

It is possible for a joint shareholder and a third party designated by him (for example, a lawyer or another advisor) to participate in the meetings of the company's highest body. This provision is dispositive and can be modified in or excluded from the memorandum or articles of association.

Changes in the monistic system of a joint-stock company (Section 456 et seq. BCA)

The institute of the statutory director is abolished. The new statutory body is only the board of directors, which can also be single-member. Monistic joint-stock companies must amend their articles of association and change the data in the Commercial Register.

Report on business activities (Section 435 (5), Section 456 (6) BCA)

If the joint-stock company does not prepare an annual report, the obligation to prepare a report on business activities is maintained. The report on business activities must be entered in the Collection of Documents at the Commercial Court.

Have these amendments affected your business and have you made the necessary changes? If you are unsure or wish to seek advice, do not hesitate to contact your lawyer or us directly. We're here for you.

Jiří Svoboda, [email protected]

Aleš Malach, [email protected]