The content of this article will be the summary of fundamental changes introduced by the Business Corporation Act (Act No. 90/2012 Coll., the “BCA” or the “Act”)). In the next article we will summarize the changes introduced by the BCA particularly in relation to Joint Stock Company and Limited Liability Company.
The BCA lays down the fundamental framework of conditions for operation of business corporations, while it does not provide for complex regulation – certain general conditions for operation of business corporations are included in the New Civil Code (Act No. 89/2012 Coll., the “NCC”) and other, more specific areas of regulation, are left to specific statutory regulations (such as Business Corporations Transformation Act, Act on Public Registries). BCA classifies under the term “business corporations” all forms of business companies (limited liability company, joint stock company, special limited partnership, co-partnership company, European company and European economic interest grouping) as well as cooperatives (cooperative as such, apartment cooperative, social cooperative and European cooperative).
It is important to know that the new Act lays down a mandatory rule according to which any provisions of existing constitutional documentation of business corporations (such as Statutes, Articles of Association), which are in breach with the mandatory provisions of the new Act, i.e. in breach with such provisions of the BCA from which the business corporations cannot divert, must be brought into compliance with the BCA within 6 months period as of the effective date of the new law (i.e. by 30.6.2014). Should the existing business corporations fail to do that, they are taking a risk of involuntary dissolution of the company by court order (§ 777 the BCA).
The BCA at the same time allows the business corporations to decide for so called opt-in approach, under which the company will accept a formal decision by which it will conform its corporate governance and operation to the new law and the regime of the BCA. There is a two year transition period for such opt-in. In case of using this option, these business corporations will no longer apply the existing Commercial Code for any of their future corporate relations and by this should avoid major part of any interpretation obstacles and doubts which may be caused by double-dealing legal regulation.
The BCA brings a special transitional provisions with respect to the regulation of executive´s agreement (§ 777(3). These agreements must be brought into compliance with the new Act within 6 months period as of the effective date of the new law (i.e. by 30.6.2014). After the elapse of the above time period, a new mandatory rule will apply stating that the performance of the office of a statutory body of a business corporation is deemed to be carried out by the relevant person for no consideration.
The BCA more closely operates with the term “diligent business person” and adds its corrective in the form of business judgment rule (§ 51 et seq. the BCA together with § 159 the NCC).
Corporate governance rules are also complemented by the authorisation of the court to recall any member of statutory body of business corporation, who, as a result of bad administration, led the business corporation into bankruptcy (§ 63 et seq. the BCA). This rule is supported by the increase in personal liability of the members of statutory bodies for any debts of the company – provided the company ended in bankruptcy and the statutory body did not introduce any reasonable measures to prevent the bankruptcy (§ 68 the BCA).
By: Jiri Spousta