A new amendment to the Czech Corporations Act (Amendment), which came to force as of 1 January 2021, requires companies to implement important changes in their founding documents and file new information in the Commercial Register. We highlight the most important changes below.
1. Changes in regulation of monistic system of joint stock companies
Since the Amendment cancels the institute of the statutory director at joint stock companies and henceforth the board of directors will be the only statutory body, the corporate governance structure of monistic joint stock companies has to adopted. Accordingly, the articles need to be updated and published in the Collection of Deeds and respective changes filed in the Commercial Register.
2. New shareholders’ rights
The Amendment explicitly enables the association of the right to appoint one or more members of the statutory body with a particular share. An institute which used to be included in shareholders’ agreements may now be introduced in the articles or memorandum of association respectively. The Amendment also enables limiting the shareholder's voting right for important reasons stated in the memorandum of association or creating shares without voting rights (on condition there is at least one share with a voting right). To be able to benefit from these new possibilities, the founding documents need to be updated accordingly.
3. Scope of prohibited activities of the statutory body
From now on, the founding documents may extend or narrow the scope of prohibited activities of the statutory body and it is also possible to exclude all restriction entirely or specify conditions under which their performance is prohibited. Should the companies wish to use such new institutes such as modification of competition of the member of the statutory body or shareholders’ rights, they are also obliged to update their memorandums of association or articles accordingly and publish them in the Collection of Deeds.
4. Exclusion of dispositive provisions
Companies may also exclude some of the innovations introduced by the Amendment. To do so, respective dispositive provisions need to be explicitly excluded in their founding documents. For example, the Amendment enables shareholders to bring another person to the general meeting. The companies may consider excluding such right or limiting it, for example, only to legal counsels or other professional advisors.
5. Publication in the Commercial Register
Companies are newly required to publish some information in the Commercial Register even though such change does affect the memorandum of association or articles. In particular, if a member of a statutory body is a legal entity, it is necessary to register a person authorized to act on its behalf in the Commercial Register. The authorized person must be a natural person who meets the legal preconditions for performing a function of a statutory body. If this information is not published in the Commercial Register, the function expires. Therefore, companies with such elected bodies must ensure their records in the Commercial Register are updated.
6. Deadline for changes and publications
In conclusion, the changes made by the Amendment may require attention not only regarding adapting founding documents and new filings in the Commercial Register, but also to changes in structure and functioning of companies. The deadline for changes in memorandum of association and articles is 1 January 2022. However, legal persons who are members of a statutory body are required to authorize and publish the person in the Commercial Register before 1 April 2021. Other changes which require publishing in the Commercial Register have to be published before 1 July 2022.
However, please note that the provisions of founding documents, which are in conflict with the mandatory provisions of the Amendment, ceased to be binding as of 1 January 2021. Also, the Amendment includes several other changes which, although they do not require a change in the founding documents directly, may be essential for the functioning of the company.
By Miroslav Dubovsky, Country Managing Partner, and Marcel Janicek, Associate, DLA Piper