The peculiarities and benefits of SICAV

Czech Republic: The variable-capital joint-stock company ought to encourage investors

One of the novel concepts that have been added to the Czech legal system is, as of January 2014, the variable-capital joint-stock company (known as SICAV, from the French Societe d’Investissement A Capital Variable). The lawmaker’s primary objective behind introducing the SICAV to the Czech legal system was to lift the legal framework for collective investments to the standard expected abroad, and thus to make the Czech Republic more attractive in the eyes of investors.

SICAV is essentially a joint-stock company, but with certain specifics that derive from the Act on Investment Companies and Investment Funds. For the rest, the SICAV is governed by the general rules for joint-stock companies contained in the Corporations Act. The corporate governance structure of SICAVs must always follow the so-called one-tier system. The SICAV issues two types of shares: founder shares and investment shares. The registered capital stock that is entered in the Commercial Register is limited to the amount raised by subscription of the founder shares, i.e., the subscription (and possibly the later redemption) of investment shares has no impact on the amount of the registered capital. Nor is the issuance or buyback of such investment shares subject to the general principles and rules which otherwise apply to the increase or decrease of a joint-stock company’s capital. These procedures are therefore not encumbered by the cumbersome administrative demands which previously applied to any and all capital changes at joint-stock companies.

One of the central characteristics of SICAVs is their ability to flexibly create subfunds that each follow a different investment strategy – with the added advantage that the subfunds are not subject to minimum capital requirements (as these only apply to the SICAV as a whole), nor do these capital requirements become more stringent as more and more new subfunds are brought into existence. From an accounting perspective as well as from the property-law perspective, the assets of individual subfunds are separate and self-contained. This also means that they and their investors enjoy legal protection in the sense that the debts racked up by any one subfund due to failed investments can only be compensated from the assets of that very same subfund.

Having presented all these advantages, we should mention a downside of the SICAV which is inherent in the fact that the application and interpretation of individual provisions of this wholly new legal concept are as of yet fraught with uncertainty. Only time will tell to what degree the new rules have made collective investments in the Czech Republic more attractive.

Source: Act No. 240/2013 Coll., on Investment Companies and Investment Funds

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