Two highlights in the amendment of the Business Corporations Act worth noticing upon taking effect
On 1 January 2021, an amendment of Act No. 90/2012 Coll., the Business Corporations Act (the “BCA”) took effect. The following two highlights in the amendment should not escape your attention.
Legal entities as members of elected bodies of limited companies and cooperatives (Section 46 of the BCA)
It is not uncommon that a governing body of a company is a legal entity which has another legal entity as its governing body, thereby creating a long line of legal entities, obscuring the person authorized to act on behalf of the company.
There is a new rule imposing an obligation on any legal entity that is a governing body in another company to elect an individual (representative of the legal entity) authorized to act on behalf of the company where the legal entity is a governing body.
It will be immediately clear which individual is authorized to act on behalf of which legal entity. Legal entities must comply with this requirement and make the respective registration in the Commercial Register within three months from the effective date of the amendment, i.e. by 31 March 2021. If the registration is not made by that date, the legal entity’s membership in an elected body will be terminated by law. If, after the effective date of the amendment, a registered governing body of a company is a legal entity, the Commercial Register will not register the governing body unless a representative is appointed at the same time.
Joint-stock companies in one-tier system; abolition of the office of a Chief Governing Officer (Section 456 et seq. of the BCA)
Another novelty is a change of joint-stock companies in one-tier system of corporate governance structure. The only bodies which are now mandatory and statutorily required to be set up are the General Meeting and the Administrative Board.
A joint-stock company in one-tier system is not required to set up any other bodies.
The office of a Chief Governing Officer has been abolished; the reason behind that was to avoid any disputes concerning the mutual position of the Administrative Board and the Chief Governing Officer as the latter no longer has to be mandatorily set up as a corporate body.
The powers conferred on the Chief Governing Officer by law, including but not limited to the company business management, will be transferred to the Administrative Board by the operation of law.
If a joint-stock company in one-tier system had one person appointed as its Chief Governing Officer and as its Administrative Board at the same time, nothing changes; just remember to have the Administrative Board affix their annex to the signature.
If there were two different persons holding these offices, the Chief Governing Officer is no longer authorized to make legal acts on behalf of the company. If they still did, their acts would be invalid.
Last but not least, please note that the amendment also applies to European companies in one-tier system with their registered offices in the Czech Republic since such European companies are also subject to Act No. 627/2004 Coll., on European companies, and Act No. 90/2012 Coll., on business companies and cooperatives.
In the light of the above, we recommend amending your by-laws accordingly and having the changes registered in the Commercial Register as soon as possible.
In the next parts of our series of articles on the amendment of the Business Corporations Act, we will guide you through the major points of the amendment, explain the practical implications and alert you of the deadlines for the implementation of certain changes. If you are seeking advice about the implications of the amendment for your company already now, we are at your service.