As you have probably noticed, on 1 January 2014, the new Czech Companies Act came into effect as a part of the recodification of Czech private law, which now comprehensively regulates the rights and obligations of all companies in the Czech Republic. All companies were obliged to adapt their founding documents (memoranda of association, founder’s deeds, and articles of association) to comply with the Companies Act by 1 July 2014. A company that fails to fulfil this duty may even be dissolved by the commercial court. This obligation continues to apply to all companies.
However, the recodification of private law has brought uncertainty about what rules and to what extent they apply to companies that did not agree to abide by the Companies Act, i.e. whether they will be subject to the previously applicable Commercial Code or the new Companies Act. To eliminate this legal uncertainty, companies may choose to be governed solely by the legal regime of the Companies Act (“opt-in”) and hence be only subject to the Companies Act. However, this option is only available within two years of the effective date of the Companies Act, i.e. no later than by the end of 2015.
Our clients are strongly advised to exercise the opt-in. Above all, this option brings greater certainty for companies if they govern their internal affairs by the Companies Act only and not also by the Commercial Code, the scope of which is rather unclear. This mainly applies to companies incorporated during the effect of the Commercial Code and not choosing the opt-in.
For companies that choose to opt in and be governed by the Companies Act, a wide range of opportunities open up to make the company’s internal structure more efficient, such as:
- Use of a simpler, one-tier management structure;
- Issue of various classes of shares (suitable for management incentive schemes, more effective profit distribution to shareholders or as a tool for gradual succession in a family business);
- Limited liability company membership certificates;
- Contributions made simpler (no notarial deed required);
- Reserve funds cancelled, and so on.
The deadline for opting in will expire in a few months. Our team is prepared to handle for you and your clients with Czech subsidiaries all of the matters related to the opt-in, including notarial services. We firmly believe that, with our experience in hundreds of opt-ins behind us, including complicated minority shareholders, we can take care of these matters to your and your client´s full satisfaction.