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11 March 2013

KPMG: Corporate law from 2014

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The upcoming re-codification of private law also brings fundamental changes to the regulation of legal entities. While legal entities, including corporations, will generally now be regulated exclusively by the new Civil Code (together with contract law), the regulation of corporations (i.e. business companies and cooperatives) will continue to be regulated separately by the Corporations Act, which will partly replace the current Commercial Code.

New types of legal entities

The new Civil Code identifies three types of legal entities:

  • corporations, comprising a personal component (members or owners/shareholders);
    • subcategories include associations and corporations
    • foundations, comprising a property basis;
      • subcategories include endowments and endowment funds
      • institutes, as a new type of legal entity.

An institute combines the property basis with the personal feature (employees). Another typical characteristic is the beneficial nature of its purpose. An institute may be governed by public or private law. The statutory body of an institute is monocratic (typically a director), supervised by a management board or a supervisory body, if such has been established.

Corporate registers

While the Corporations Act only stipulates the minimum scope of data to be registered, a separate law – the Act on Public Registers of Corporate Entities and Individuals – will contain specific regulation of public registers. The bill should be submitted to the Government for approval in near future.

Regulation of various types of corporation

The regulation of individual types of corporation is characterised by overall liberalisation and an effort to replace bans and orders with liability. Importantly, the current restrictions on related-party trading have been abandoned. In addition, a legal entity is permitted to serve as a member of the statutory body of a limited liability or joint-stock company.

Governing law

The moment when a contractual relationship originates will generally be decisive for determining the legislation governing that relationship.

The parts of memoranda of association of business corporations that are at variance with the new legislation will be abolished by operation of law from 1 January, 2014. Corporations will then have to adapt their memoranda of association and agreements on exercising office to the new regulation within six months of the effective date of the Corporations Act.

Corporations may also opt for the new regulation as a whole within two years of the effective date of the Corporations Act. Considering the more liberal regulation of the new laws, and the higher level of legal certainty (as the affected corporations will not face the question of when to apply the old regulation and when the new one should prevail), this is highly recommended.

Martin Hrdlík,, tel.: +420 222 123 392

Linda Čechová,, tel.: +420 222 123 889

Source: KPMG Czech Republic, Financial Update 2/2013

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