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ESSENTIALS OF CORPORATE LAW
1. Business Companies
1.a. General definition
1.i. Association of several persons (individual or legal entities)
1.1. Created by agreement
1.2. Purpose of which is doing business or to manage its assets
1.3. Members of which provide contributions and participate in
management and profits
1.4. Having separate legal personality
1.b. Members / shareholders
1.ii. Founders
1.iii. Persons who acquired interest in a company
2. Act on Business Corporations distinguishes:
1.c. Business companies represented by following entities
1.iv. General partnership
1.v. Limited partnership
1.vi. Limited liability company
1.vii. Joint stock company
1.viii. European company
1.ix. European interest grouping
1.d. Czech law divides companies into two groups
1.x. Personal companies
1.xi. Capital companies
3. Personal companies – general partnership, limited partnership
a. Main features
a.i. Partners (members) are personally engaged in company’s matters – all of
them are authorized to act on behalf of a company
a.ii. No corporate bodies are created, partners decide collectively, as a rule
unanimously
a.iii. Capital contributions into company’s assets - only voluntary
a.iv. Share (participation) in the company is not, as a rule, transferable
a.v. Death or termination of a partner (member) affects the existence of a
company
a.vi. Partners are fully liable for obligations of a company with their own assets
4. Capital companies – limited liability company, joint stock company
5. Most of applicable EU Directives implemented into the Czech legal system
6. Main features
a. Mandatory contributions of partners (shareholders) into the registered capital of the company;
the minimal amount of the registered capital is set forth by law
b. Participation of each partner (shareholder), his rights and obligations are determined by the
amount of his capital contribution
c. Partners (members) are not personally engaged in the company’s matters, the corporate
governance is ensured by specialized bodies the structure of which is prescribed by law
d. Liability of partners (shareholders) for company’s obligations is limited or excluded
7. Establishment of a Czech company
a. Legal act of founders (founding agreement or founding deed)
b. Inscription into the Commercial Register (incorporation)
1.xii. Defects of founding act
1.5. Defects causing invalidity (nullity) of a company
a. Founding agreement was not entered into or its prescribed form was
not complied with
b. Objects of company are contrary to law
c. Founding agreement is missing main data identifying a company, i.e.
the name, contributions of members and amount of registered capital, objects of business activity
d. Minimum amount of contributions was not complied with
e. All founders do not have legal capacity
f. Number of founders is less than stated by law
8. Invalidity (nullity) of a company
a. May be declared only by court even after entry of company into
commercial register (incorporation)
b. Only for defects listed above
c. As of declaration of invalidity company goes into liquidation
d. Legal acts company entered into are not affected by declaration of its
invalidity
9. Company’s assets, registered capital:
e. Start-up capital necessary for company to start carrying out the
business
f. Assets contributed to company by its founders in exchange of their
share in the company
g. Value of these assets represents registered capital = information to
third parties about assets of company financed from its own resources
h. Contributions of founders into company are mandatory only for
capital companies
10. Contributions of founders
1.e. Monetary, or
1.f. In kind; any asset the value of which can be objectively measured (its value
determined)
1.g. Providing works or services cannot serve as a contribution
1.h. If the company does not acquire ownership to contributed asset (in kind contribution)
or its value is lower than declared when company acquired it, shareholder shall compensate company for this value
1.15. May agree with company on settlement/compensation of
detriment caused; such agreement subject to approval of supreme corporate body
1.xx. Conflict of interests
1.16. Member of corporate body must notify any potential conflict
of interests to corporate body he is member of, or to controlling or supreme body of company
1.17. Any contract between company and corporate member must
be notified to the same bodies
1.18. Controlling or supreme body of company may suspend
exercise of tasks of corporate member who notified conflict of interests
1.19. Expulsion of member in case of breach of duty of care and
loyalty
1.20. In case of company‘s bankruptcy the court may expel
member of corporate body from his position if such member obviously contributed to company‘s bankruptcy by breach of his duties
1.21. Court may expel member of corporate body from his position
if such member has violated grossly and repeatedly his duty of care and loyalty during last 3 years
14. Corporate Groupings
1.q. Economic development - creation of groups of companies
1.xxi. Interests of a group may prevail over interests of individual members of
group
1.xxii. Need for protection of
1.22. Minority shareholders
1.23. Creditors
1.r. Controlling person
1.xxiii. Person that may influence appointment of main corporate bodies
1.xxiv. Person holding at least 40% of votes in company based on ownership
stake or any other legal basis
1.s. Group of companies
1.xxv. One or more persons subject to uniform management of another
person form a group with the managing person
1.xxvi. Corporate body of controlling person may give instructions to
controlled person provided these are in the interest of the controlling person or another member of the group
1.xxvii. Corporate bodies of the controlled persons are not relieved from duty
to act with due care
1.t. Two main concepts of legal regulation
1.xxviii. French concept
1.24. No need for specific regulation – protection based on
prohibition of abuse of majority should suffice
1.25. Rosenblum case concept – pursuing group interest is
legitimate provided
14.a. Affected subsidiaries are part of a structurally stabile
group
14.b. Group uses coherent group policy
14.c. Disadvantages of being a group member are
balanced by membership advantages
1.xxix. German concept
1.26. Detailed regulation
1.27. Subsidiary’s management should act primarily in its interest
1.28. Shareholders must be informed about all contracts and other
dealing between members of the group
1.u. Czech legislation
1.xxx. Inspired newly by French concept with certain modifications
1.xxxi. Grouping is an economic reality, effective tool for business
organization
1.xxxii. Therefore the statutory regulation must primarily address only the
negative consequences of control
1.xxxiii. General principles
1.xxxiv. Any person who influences the behavior/activities of a company to
its detriment shall compensate this detriment unless proves acting in good faith and in the interests of the company
1.xxxv. If compensation is not provided to company until the end of
accounting period the damage suffered by shareholders of company should be also compensated
1.v. Controlling person is not liable for detriment suffered by controlled person due its
influence if
1.xxxvi. Such detriment is in interest of controlling person or another member
of group
1.xxxvii. Detriment is counterbalanced by appropriate compensation or other
advantages
1.w. Outside shareholders protection
1.xxxviii. Access to information about relations between controlling and
controlled persons
1.xxxix. Obligation to prepare and make available report on relations between
linked persons
1.xl. Report must include legally prescribed information about transactions
between linked persons and consequences of measures imposed by controlling person
1.xli. Outside „qualified“ shareholders are entitled to have the report reviewed by
court appointed expert
1.xlii. Other than qualified shareholders have this right only if the report contains
information about damage caused to controlled person that was not or will not be compensated
1.29. Outside shareholders are entitled to request controlling
person to purchase their shares
1.30. If control as exercised by controlling person adversely
affects their position within company or their other legitimate interests
1.31. For price determined on the basis of expert opinion
1.o. Right to participate in management
4.i. Each member is authorized to manage the company and act on behalf of the
company in all matters (statutory body)
4.ii. Founding agreement may grant the management right only to one or more
members
4.iii. “Managing members” are liable to other members for proper management of
the company
4.iv. “Non-managing” members have the right to be informed and to inspect the
books and other documents of the company
4.v. Right of one or more members to manage the company can be terminated
4.1. As agreed in founding agreement
4.2. By court upon request of any other member if managing member
grossly violates his duties
4.3. “Managing member” may resign from his position
4.vi. Matters pertaining to the existence of the company may be decided only by
all members or majority of members stated in the founding agreement
4.vii. Examples of such decisions
4.4. Change of founding agreement
4.5. Termination of a company
4.6. Approval of financial statements
4.7. Disposition of major assets
4.8. Appointment of one or more “managing members”
4.9. Other matters stated in founding agreement
4.viii. Members decide unanimously unless founding agreement states otherwise
1.p. Property Rights
4.ix. Right to participate in profits of the company; each member participates
equally in profits unless founding agreement states otherwise
4.x. Member who provided contribution is entitled to profit equal to 25% of his
contribution
4.xi. If the aggregate profit does not suffice, it is divided (up to 25% of
contributions in the aggregate) among contributing members pro rata their contributions and the rest equally among other members
4.xii. Each member is authorized to be reimbursed for costs expended for arranging
corporate matters
4.xiii. In case of liquidation - right to participate in liquidation balance
5. Duties of members
1.q. Reflect the personal nature of general partnership
4.xiv. Obligation to participate in carrying out the business of the company
4.xv. Obligation to perform member’s tasks with due care
4.xvi. Obligation to provide contribution in company’s assets – only if provided for
in the founding agreement
4.xvii. Obligation to share losses of the company
4.xviii. Obligation to refrain from carrying out outside the company business activity
identical or similar to that carried out by the company (ban on competition conduct)
6. Liability of members for obligations of a company
1.r. All members are personally and fully liable for obligations of the company
1.s. Liability is joint, several and unlimited
1.t. General provisions on suretyship are applicable to liability of members for obligations of the
company
4.xix. Member may be requested by the company’s creditor to pay only if company
does not perform
4.xx. Member has a subrogation right towards the company
4.xxi. Member has a right to be compensated by other members in proportion to
their liability
1.u. Any member may resign from company through change of founding agreement, in
such case is liable for debts arisen before resignation
1.v. New member can accede through change of founding agreement, such member is liable for
company´s debts even before his accession
7. Specific remedies
1.w. Each member is authorized to
4.xxii. Claim on behalf of the company damage caused to the company by the other
member
4.xxiii. Seek with the court decision on termination of the company for important
reasons, in particular, if the other member materially violates his obligations
1.x. Company may seek with the court expulsion of member who materially violates his
obligations
8. Termination of general partnership
1.y. For reasons applicable to all companies
4.xxiv. Decision of all members to terminate the company with liquidation
4.xxv. Decision of all members on termination through a transformation
4.xxvi. Decision of a court
1.z. For reasons specific only to general partnership
4.xxvii. Upon the death of a member (natural person)
4.xxviii. Upon termination of a member (legal entity)
4.xxix. Upon declaration of bankruptcy over assets of a member
9. Unless founding agreement and agreement of remaining members allow for continuation of company
1.v. Founding agreement may grant the management right only to one or more
unlimited members
1.vi. Right of one or more unlimited members to manage the company can be
terminated
4.1. By decision of other unlimited members as agreed in founding
agreement
4.2. By court upon request of any unlimited member if managing member
grossly violates his duties
4.3. Managing member may resign from his position
1.m. Right to participate in management – limited members
1.vii. Rights and duties determined by size of capital contribution unless founding
agreement states otherwise
1.viii. Right to be informed and to inspect the books and other documents of the
company
1.ix. Vote on matters outside day to day business and change of founding
agreement together with unlimited members
1.x. Voting separate by unlimited and limited members unless founding
agreement states otherwise
1.n. Property Rights
1.xi. Right to participate in profits of the company
4.4. Profits divided into two parts - one for unlimited partners, one for
limited partners
4.a. Part for unlimited members divided equally
4.b. Part for limited members divided in accordance with
their capital contributions
4.c. Both unless founding agreement states otherwise
1.xii. In case of liquidation - right to participate in liquidation balance
4.5. Each member authorized to the amount adequate to its contribution
4.6. In case of insufficient balance limited members take priority
4.7. The rest divided pursuant to rules applicable to division of profits
5. Duties of members
1.o. Reflect distinctions in nature of unlimited and limited members
1.p. Unlimited members - the same position and duties as members of general partnership
1.q. Limited members – duties similar to duties of members of limited liability company
1.xiii. Obligation to provide contribution in company’s assets
1.r. Limited members do not share losses of the company unless provided for this in founding
agreement
6. Liability of members for obligations of a company
1.s. Unlimited members are personally and fully liable for obligations of the company
1.t. Liability of unlimited members is joint, several and unlimited
1.u. Limited member is liable jointly and severally with other members (unlimited and
limited) for obligations of company up to the amount of his unpaid contribution as registered in commercial register
1.v. Liability amount
1.xiv. Founding agreement may stipulate that limited partners are liable for
obligations of the company up to the amount set forth in the founding agreement ( liability amount )
1.xv. Liability amount is registered in Commercial Register
1.xvi. Liability amount may not be lower than the aggregate of contributions of
limited partners
7. Termination of limited partnership
1.w. For reasons applicable to all companies
1.xvii. Decision of all members to terminate the company with liquidation
1.xviii. Decision of all members on termination through a transformation
1.xix. Decision of a court
1.x. For reasons applicable to general partnership with regard to unlimited partners
1.xx. Upon the death of unlimited member (natural person)
1.xxi. Upon termination of unlimited member (legal entity)
1.xxii. Upon declaration of bankruptcy over assets of unlimited member
1.y. Death, termination or bankruptcy of limited partner does not affect the existence of company
1.iv. The Position Participation of the shareholders/members, is sort of
incorporated in the shares (ownership interest)
1.m. Ownership interest represents:
1.v. Right to participate in management company
1.vi. Right to share in profits of the company
1.vii. Right to share in liquidation balance in case the company’s liquidation
1.n. (Capital)Extent of member’s right is determined by the size of the member’s capital
contribution, unless the founding agreement states otherwise (ex so It is up to the members to provide the members with different position and participation in profits..)
1.viii. (personal characteristic) position in the company may be determined by other
criteria
1.o. As it is a capital company- Ownership interest is transferable to other members or persona
outside the company, transferability may be restricted by founding agreement
1.ix. Transfer ownership interest to other member is possible without limitations
1. As the transfer would likely not affect the life of the company
1.x. Transfer of ownership interest to person outside the company is subject to
approval by general meeting
3.1. Personal feature as members can get personally involved in the
bodies of the company other might be interested
3.2. Effective after granted approval
3.3. Must be explicitly provided for in the Founding agreement
1.xi. Founding agreement may stipulate more kinds of ownership interests (with
different rights)
1.xii. Each member may have more ownership interests
1.xiii. Ownership interest may be represented by share certificate – security issued
in the name of its holder
1.xiv. Transferability of ownership interest is evidenced by share certificate cannot
be restricted
1.xv. Company maintains list of members (shareholders)
4. Company’s structure
1.p. Corporate governance is carried on by specialized corporate bodies
1.q. General Meeting
1.xvi. Supreme body comprised all members of the company
1.xvii. Power of general meeting
3.4. Decision pertaining to existence of the company
4.a. Changes in the founding agreement if required by
founding agreement
4.b. Increase or decrease of registered capital
4.c. Termination of a company if required by founding
agreement
3.5. Decision concerning rights and obligations of members
participation in profits
4.d. Participation in profits
4.e. Determination of voting requirements
4.f. Imposing duty to contribute to company’s assets
amount in excess of capital contributions
3.6. Decisions concerning corporate governance
4.g. Election of executive directors or members of
supervisory board
4.h. Remuneration of executive directors and members of
supervisory board
3.7. Convocation and proceedings of general meeting are subject to
strict rules guaranteeing equal treatment of all members
4.i. Notice of convocation must be sent to members
within legally prescribed deadline
4.j. Only matters included in the agenda contained in the
notice of convocation can be discussed and decided
4.k. Member may waive the right to the timely notice of
convocation
1.xviii. Each member has 1 vote corresponding to his contribution equal to 1 CZK
1.xix. Voting an be exercised at the general meeting or outside general meeting
through technical means
1.xx. Members are not allowed to vote
3.8. Matters relating to his position in company (breach of duties)
1.r. Executive director
1.xxi. Statutory body
3.9. Decides all matters not entrusted to general meeting, acts on behalf
of company
3.10. Elected by general meeting- one or more executive directors
1.s. Supervisory body
1.xxii. Controlling body – its existence is not mandatory
1.xxiii. Elected by general meeting
1.t. Duty of care and duty of loyalty for executive directors and members of supervisory body
5. Duties of the members
1.u. Obligation to make capital contribution (capital)
1.xxiv. In the amount prescribed in the founding agreement (no minimum sated by
law)
1.xxv. Defaulting member
3.11. Shall pay a default interest
3.12. May be expelled from company
1.xxvi. Obligation to refrain from competitive conduct, if stipulated by the founding
agreement
1.v. Duty to provide additional contribution if stated in the Founding Agreement (personal
feature)
1.xxvii. Obligation to pay amount in excess of capital contribution, if requested by
general meeting
1.xxviii. Member who did or not vote for this obligation may resign from company
provided he paid his capital contribution in full
1.xxxviii. Financial assistance (self financing)
3.32. Company may not provide advance payments, loans for purposes of
acquisition of its own shares of may cause bankruptcy of company
3.33. If financial assistance is permitted it must be provided
4.l. Under fair conditions
4.m. Executive director prepares report justifying such
assistance
8. Termination of membership in company
1.bb. Resignation from company by member who at general meeting did not agree with
1.xxxix. material change of business objects of company
1.xl. Extension of terms of existence of the company
1.xli. Obligation to provide additional contribution into company’s assets
1.cc. By agreement among all members of company
1.dd. By court decision upon company’s proposal regarding member who grossly violated his
duties
1.ee. By court decisions upon proposal of member if its not fair to insist on continuation of his
membership in company
1.ff. In case of member’s bankruptcy by termination of bankruptcy proceeding for lack of
member’s assets
9. Disposition with ownership interest of member who terminated his membership
1.gg. Company shall sell this ownership interest
1.hh. Other members have preemptive right to proportionate to their ownership interests
1.ii. Terminated member shall receive settlement share
1.xlii. Proportionate to his ownership interest
1.xliii. Calculated on the basis of company’s financial account as of the date of
member’s termination
10. Termination of limited liability company
1.jj. By decision of all members unless founding agreement grants this authority to general
meeting
1.kk. By transformation
1.xliv. Merger
1.xlv. Amalgamation
1.xlvi. Dissolution
JOINT STOCK COMPANY
1. General Characteristic
1.a. Capital company
1.b. Legal entity
1.c. Created by one or more founders (individuals or legal entities); a sole founder may be only a legal
entity
1.d. May be created for business but also for other purposes
1.e. Must have registered capital at least in the amount prescribed by law, i.e. minimum CZK
2.000.000, members required to make capital contributions
1.f. Internal corporate structure prescribed by law, shareholders are not personally involved in the
management of the company
1.g. Rights of shareholders to participate in the management and other matters of the company are
embodied in a share
2.h. Possible for companies to issue specific categories or type of
shares which may carry certain priority rights (ex. priority of liquidation, priority in terms of payment of dividends)
2.i. Do not usually carry voting rights only in certain situation
like if the general meeting is going to vote in change of statues this shareholder will be able to vote
3. Establishment
1.n. Founders sign the founding agreement and undertake the obligation to pay the whole amount
of the registered capital
1.o. Founders approve the statutes
1.p. Founders elect the board of directors and supervisory board
1.q. Company incorporated when registered in the Commercial Register
2.viii. The application can only be submitted if
2.8. At least 30% of monetary contributions are paid
2.9. If the are obligated for in-kind contribution they have to be paid or
made prior in hold
1.r. After incorporation
2.ix. It can issue
2.10. Shares, only if the whole amount of the registered capital is paid, or
2.11. Interim Certificates if the capital contribution is not paid in full
4. Shareholders position
1.s. Duties
2.x. In capital companies, the shareholders have only one main obligation which is to
make the capital contribution,
2.12. if they subscribe to the shares in connection to the establishment or
an increase of the registered capital it is their obligation to pay
2.xi. Sanctions in regard to the breach of this obligation
2.13. Shall pay a default or interest laid down in the statutes, if it is silent it
will be regulated by law
2.14. May be expelled of the company through an specific procedure
1.t. Rights
2.xii. Embodied in the share
2.xiii. Right to participate in the management of the company
2.15. (Limited liability company is similar, but stricter)
2.16. Their involvement is through participation and voting in the general
meeting
2.j. General meeting is the only forum or place for shareholders
participation (unlike limited liability they cannot do anything towards the company outside the general meeting against a decision)
2.17. Voting right is attached to the share, the voting power depends on the
number and nominal value of the shares
2.18. Right to ask question and request explanation
2.k. General meeting is the only place where they can get
information about the company
2.l. Restriction on the process of providing information
2.v. Right to ask question and request
explanation only if asking of the matters on the agenda of the general meeting
1. Shareholders are in an equal position and must know
what they can ask and expect of the person organizing the meeting
2.vi. Information may be refused only if it is
confidential , or it is detrimental to the company
2.2. Reason: because the share is a freely
tradable instrument anybody can be a shareholder, the shareholders are not insiders but outsiders they have no ban on competitive completion, for example, it would be detrimental to the company to share with them business secrets or confidential information
2.3. Remedies: decision of not providing
information may be reviewed to the supervisory board. They can even go to court requesting it to order the company to provide the information
2.19. Right to request a convocation of the general meeting and determine
the agenda
2.20. Voting agreement to increase voting power
2.m. Practice in which a certain group of shareholders
vote together to pursue their common interest
2.vii. As a rule these voting trusts are allowed but
certain arrangements which have a base of some kind of misuse of this voting group, it is not allowed.
2.viii. They would be null and void:
2.4. To follow instructions given by
company or any of corporate bodies
2.5. To support proposals tabled by
corporate bodies
2.6. To vote in predetermined manner in
exchange for advantages provided by company
2.xiv. Right to share profits
2.21. Similar at is to the limited liability company
2.22. Right to receive dividend, depending on your investment in the
company
2.23. May be paid only if the assets
2.n. Exceed the amount of registered capital together with the
special capital funds of the company which are to be used to cover losses and certain obligations derived from law
2.24. Shareholders themselves, in the general meeting, decide whether or
not the dividends must be paid on the basis of the annual financial statements
2.xv. Right to a liquidation balance if the company is terminated
