New legal framework for limited liability companies after 1 January 2014

Czech Republic: Czech private law is about to be revolutionized: a new Civil Code and Corporations Act are coming into force.

Czech private law is about to be revolutionized: a new Civil Code and Corporations Act are coming into force.

The new private law fundamentally redraws the legal framework for trading companies. In this article, we focus on limited liability companies organized under Czech law (known as „s.r.o.”), to be subject to the following changes:

  • partners / shareholders will have substantially more freedom when it comes to drawing the framework for internal governance of the company,
  • the minimum capital deposit of shareholders (and thus the minimum capital stock) may now be as little as one crown,
  • ownership participation in an s.r.o. may now be expressed in the form of common share certificates,
  • shares may come with certain obligations of the shareholder (not only) vis-à-vis the s.r.o.,
  • shareholders may be required to make supplementary capital contributions (without statutory restrictions),
  • shareholders may pay themselves advances on dividends,
  • the statutory body of the s.r.o. need not be composed of natural persons: representation by another company (or other legal entity) is possible,
  • executives may form a collective body (executive board / management board),
  • guarantorship and liability of corporate officers are newly subject to much more stringent terms, esp. as regards violations of the duty to act with the due care of a prudent businessperson followed by insolvency,
  • transactions between affiliated persons become much easier,
  • the law governing groups of companies has been completely overhauled (and introduces e.g. unlimited guarantorship of ‘persons of influence’ and of controlling persons for debts of a controlled entity in insolvency).

Of course, the above list is incomplete and merely contains those changes which we believe to be of the greatest importance.

The new rules will apply to companies that come into existence after 1 January 2014, as well as to existing companies that specifically „opt in” (i.e., submit to the new framework in its entirety). All other companies will operate within a context formed partly by previous laws and partly by the new law – though it is not quite clear to what extent each of them prevails in individual cases. For the sake of legal certainty, we therefore recommend that limited liability companies and their shareholders respond to the change as soon as possible by submitting to the new rules.

If you have questions, the author is at your disposal, as is the entire team of bnt attorneys-at-law in Prague.

Source: Act No. 89/2012 Coll. (Civil Code), Act No. 90/2012 Coll. (Corporations Act)

Jan Safranek
Contact in Prague
Jan Šafránek
Phone: +420 222 929 301

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