Changes relating to Joint Stock Company and Limited Liability Company

The previous article concerned the summary of fundamental changes introduced by the Business Corporation Act (Act No. 90/2012 Coll., the “BCA” or the “Act”). In the following text we will summarize the changes introduced by the BCA particularly in relation to Joint Stock Company and Limited Liability Company.

Joint Stock Company

The BCA allows the founders of joint stock companies to decide whether the company will have dualistic (general meeting, board of directors and supervisory board – § 435 et seq. BCA) or monistic (administrative board and statutory director – 456 et seq. BCA) structure. In case of monistic structure the whole management of the company may be vested in one person as the BCA allows for the relevant bodies to be single-member.

Other changes that will have practical effects are the abandonment of the rule for mandatory appointment of member(s) of the supervisory board by employees, the liberalization of decisive process of the general meeting (by way of example possibility to lower the decisive quorum or the possibility for cumulative appointment in corporate bodies) and the allowing for an appointment of a legal entity as member of the statutory body of the business corporation.

In terms of shares, the BCA allows to have different type of shares issued – besides the usual common and preference shares, the corporation may also issue shares that have specific rights attached to them such as different profit share right or different voting rights. This brings bigger flexibility to the administration of the company. The corrective measures here are the rule of equal treatment and the ban on breach of good morals. As a new speciality can be also seen the institute of so called unit shares – shares that do not have any nominative value and their value is represented by equal share in basic capital of the company.

The BCA also remedies certain trivialities, which used to cause problems in practice – for example it expressly allows for the signature on the share certificate to be replaced by the printed (stamped) copy of the signature, provided the share certificate bears other protective signs against its falsification (§ 260 BCA) or the BCA newly specifies the rules for voluntary exchange of share certificates in case of their damage (§ 542 – 543 BCA).

Limited Liability Company

Limited liability company can be newly founded only with CZK 1, – basic capital (minimum amount of CZK 200,000 is abandoned). The above simplifies the starting up business process, while the BCA guarantees the protection of the creditors by the rules of corporate governance, the increase in personal liability of corporate bodies or the bankruptcy test.

The BCA provides for larger freedom in specification of internal corporate processes, which brings greater demands for appropriate drafting of constitutional documentation and the need for professional legal assistance.

The regulation of ownership interest structure in a limited liability company is liberated (§ 135 BCA). The companies will be able to determine in their constitutional documentation that besides the basic ownership interest, which has basic rights and obligations attached to it, they  will also have other types of ownership interests with specific rights attached (such as priority right for profit distribution, etc.). Ownership interests that will have the same spectrum of specific rights attached to them will fall into the same category of ownership interests. If agreed by the Memorandum of Association, one member can owe more ownership interests of different categories.

An important change is associated with respect to transfer of ownership interests – transfer of the ownership interest to other member will no longer require consent of the general meeting of the company. The BCA newly allows for possibility to transfer the ownership interest to a third party without the consent of the general meeting (this option can be disqualified in the Memorandum of Association). The option to incorporate the ownership interest in the company into an order instrument (security certificate) (§ 137 BCA) will make it easier for the transfer of the ownership interest – in this case the ownership interest will be transferred by the endorsement of the relevant security certificate.

By: Jiri Spousta