BCA 2021: Companies should review and amend their Articles of Association
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The Amendment of the Business Corporations Act (“BCA”), which became effective as of 1 January 2021, has also brought some changes which may affect the Articles of Association of many companies.
Additionally, the Supreme Court held in May 2021 that a provision of the Articles of Association stipulating the scope of business as “production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act” is non-existent and should be disregarded due to its ambiguity. According to the Supreme Court, such scope of business cannot thus be registered in the Commercial Register pursuant to such provision. A constitutional complaint was filed against the Supreme Court’s decision and the upcoming Constitutional Court’s decision may have a significant impact on further developments in this area.
For these reasons and with regard to the rules set out below, we recommend reviewing the current wording of the Articles of Association and adapting them to the new rules.
General duty to adapt the Articles of Association to the new legislation
Provisions of the Articles of Association, which are not in accordance with the mandatory provisions of the amended BCA became ineffective as of 1 January 2021. Companies are currently obliged to adapt their Articles of Association to the new legislation and file them to the Collection of Deeds of the Commercial Register by 1 January 2022.
A company may face a fine of up to CZK 100,000 for non-compliance pursuant to the Public Registers Act. A breach of duty to file a document in the Collection of Deeds may also be sanctioned by a fine of up to CZK 100,000 under the Act on Certain Administrative Offences.
Failure to comply with such duties may lead to the breach of statutory bodies’ duty to act with due managerial care and negative consequences arising therefrom directly for such persons.
Failure to file a document in the Collection of Deeds may even lead to criminal penalties for the criminal offence of distortion of data on the state of business and assets under Section 254 of the Criminal Code.
The presence of other persons at the General Meeting
Unless the Articles of Association stipulate otherwise, the BCA amendment explicitly permits shareholders to attend General Meetings together with another person, who is bound by a confidentiality obligation at least to the same extent as the shareholder.
If the Articles of Association of a company incorporated by 31 December 2020 do not cover the presence of persons other than shareholders at the General Meeting, the above change will not apply until 1 January 2023.
The relationship between Articles of Association and Executive Service Agreement
The BCA amendment has introduced a general rule, under which if there is a discrepancy between the Executive Service Agreement and the Articles of Association, the provisions of the Articles of Association will prevail. However, if the Executive Service Agreement has been approved by the shareholders’ majority required for the amendment of the Articles of Association (notarial deed is not required in such case), the provisions of the Executive Service Agreement will prevail. In relation to the Executive Service Agreements approved by the end of 2020, the previous BCA rules will apply.
Monistic joint-stock companies
By repealing the position of the Statutory Director, the Administrative Board as a collective body has become the statutory body of the monistic joint-stock company. Each Administrative Board member will be authorised to represent the company individually, unless the Articles of Association stipulate otherwise.
Therefore, it is recommended that the Articles of Association stipulate the method of representation of the Administrative Board members.
Section 457(1) BCA of the originally proposed amendment stipulated a general rule that the Administrative Board consists of at least three members. This rule is not included in the final version of the BCA amendment; therefore, the transitional provision of the amendment that stipulates that companies should
amend the Articles of Association at the latest as of the day of appointment of new Administrative Board members or the first change of the number of the Administrative Board members, should not be applicable.
Joint-stock companies where some Supervisory Board members are elected by employees
Newly, only a person in the employment relationship with the company may become a Supervisory Board member elected by employees. The Articles of Association can stipulate that the position of such member does not terminate with the termination of the employment relationship because of retirement.
If the Supervisory Board member elected by employees was not in an employment relationship with the company as of 1 January 2021, his/her office will run according to the previous legislation and his/her office will not terminate.
Joint-stock companies which have adapted their Articles of Association to the requirements of Section 448 BCA according to one of the previous amendments (Act No. 458/2016 Coll.) are obliged to adapt their Articles of Association and Election Code to the new rules in Section 448 and Section 448a BCA by 1 January 2026.
