Czech Republic: Significant obligations under the new Act on Business Corporations

1 January 2014 was a significant milestone in terms of changes to civil laws in the Czech Republic. The New Act No. 90/2012 Coll., on Business Corporations (the “Act”) brought a number of changes to Czech corporate law and imposed a number of new obligations on all companies:

1. Changes to companies websites

The Act requires that as of 1 January 2014 joint stock companies create a website and place specific information on such website. Limited liability companies remain free to decide whether they want to have a website or not.

The new law also requires that all companies’ websites (including the websites of limited liability companies, if created) must contain the following information: company’s business name, address of the registered seat of the company, company’s ID and file reference number under which a company is registered in the Commercial Register.

The above mandatory information must be easily accessible, ideally on the first page (i.e. without the need for several “clicks”).

2. Performance agreements

The Act reversed the general rule on remuneration of members of the companies’ bodies (e.g. executive directors, members of the board of directors or supervisory board members). If their remuneration is not agreed in writing and approved by the general meeting, the performance shall be, pursuant to the Act, deemed free of charge.

Companies will need to amend their existing performance agreements with the members of their corporate bodies by 1 July 2014. If they fail to do so, the members of the company bodies shall not be entitled to any remuneration after that date.

3. Articles of Association

Provisions of the Articles of Association that conflict with the mandatory provisions of the Act were automatically terminated as of 1 January 2014.

Companies are required to amend their Articles of Association to correspond to the Act by 1 July 2014 and to file the amended version with the Commercial Register.

4. Exchange of bearer shares

By virtue of Act No. 134/2013 Coll., on Increasing Transparency of Joint-Stock Companies (“Transparency Act”) bearer share certificates issued by Czech companies were automatically transformed to registered shares as of 1 January 2014.

Companies with bearer shares, which were automatically transformed, are obliged to call on their shareholders by 30 March 2014 to submit the relevant shares for exchange.

In response to the call of the company, shareholders will need to submit their shares for exchange by 30 June 2014. If they fail to do so, they will not be entitled to exercise rights attached to such shares throughout the period of delay and they will have no right to dividend.

5. Adherence to the Act within two years

Czech companies established before 1 January 2014 have the option to either fully adhere to the Act or to be subject to dual regulation (i.e. to the regulation of the Commercial Code where it is not contrary to the mandatory provisions of the Act, and to the mandatory provisions of the Act).

In order to avoid the uncertainties that dual regulation would entail (as it is not entirely clear which provisions of the Act are mandatory), it is generally recommend to fully adhere to the Act. Companies will have until 1 January 2016 to fully adhere to the Act.