BCA 2021: Approaching deadline for revision and amendment of Articles of Association

The Amendment of the Business Corporations Act (“BCA”), which became effective as of 1 January 2021, has brought some changes which may affect the Articles of Association of many companies.

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.

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. If a company’s Articles of Association provisions stipulate the scope of business as “production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act”, the company is obliged to change such provisions and precisely specify the activities which constitute its scope of business.

Among the major changes brought by the amended BCA belong:

• Changes in consequences of a breach of the duty to act with due managerial care
• Obligation of a legal entity as a member of appointed body to authorise a specific individual as its representative
• Changes in relation to transfer or a pledge of an enterprise or a part of assets and liabilities
• Changes in relation to Executive Service Agreement and remuneration of members of appointed bodies
• Repeal of the Statutory Director position
• Restriction of the additional voting at General Meeting

Consequences of non-compliance with the obligation 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.
• 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.

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