An amendment to the Business Corporations Act as a step towards relieving the entrepreneurs?

12. 7. 2019

The Chamber of Deputies is currently discussing in the second reading an extensive amendment to the Business Corporations Act, which has already received a considerable response in the debate, in which a few hundred comments have been raised. However, no less passionate discussion is also expected in the Czech Parliament. What fundamental changes could this amendment bring to the Czech legal system?

The first significant change is the proposed possibility of transferring shares in a partnership, which is currently only possible through an amendment to the Articles of Association. However, according to the new regulation, it will also be possible to transfer shares in a partnership through a written contract with the officially verified signatures of all the shareholders.

Another change, which aims to reduce the bureaucratic burden on entrepreneurs, is to abolish the obligation to pay a contribution into a special bank account, for contributions up to CZK 20,000, which would bring both time and financial savings, especially for smaller companies – the minimum registered capital for a limited liability company is just 1 CZK.

Under the new legislation, it will also be possible in a limited liability company for the executive to decide to delete details from the Articles of Association, provided that this power is conferred on him or her by the Articles of Association and, moreover, that the decision would not have to be taken in the form of a notarial deed.

Another innovation is the upcoming change concerning inactive companies. If a business corporation did not file financial statements in the collection of deeds for two consecutive periods and it also was not possible to deliver a summons to comply with this obligation to such corporation, the corporation could be wound up without liquidation. In such cases, liquidation is a financial burden which lawmakers are trying to reduce.

A very significant change to the current concept of joint-stock companies with a monistic structure is the abolition of the position of statutory director and its replacement with a board of directors, which will have all the powers not entrusted to the general meeting.

Although we have only listed selected areas of the new regulation, it is clear that the upcoming changes to the Business Corporations Act aim to reduce the regulatory burden and strengthen the autonomy of the people concerned. On the other hand, there is also strong criticism of the planned changes. It is currently proposed that the amendment will come into effect on 1 January 2020.

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