The new corporations act, however, should free up managers’ hands in 2014. The major changes are outlined below.
Most media attention regarding the new corporations act has focussed on the end to the dogma surrounding registered capital. It is clear today that the current duty to have a registered capital of CZK
200,000, and to pay it up within five years, is nothing but an illusion of creditor security since companies are not actually required to make such money available. The amount of registered capital is therefore a meaningless figure in a company’s bookkeeping.
The corporations act allows limited liability companies to be incorporated with a registered capital of only CZK
1. In other words, registered capital is to be preserved and will continue to be disclosed in the commercial register but it will no longer serve to protect creditors. It will be up to the individual to determine whether to do business with a company with a low registered capital, which can indicate a lack of confidence of an entrepreneur in his business (i.e. he has little or no willingness to invest his or her own money in it). On the other hand, the elimination of the fairly high threshold may also serve to help small businesses which have good ideas but little cash to start up their operations.
Creditors, however, will not be left exposed since other tools exist to protect them, such as a new insolvency test, general corporate management principles, executives’ liability, and corporate group rules.
Rules applicable to contributions in kind will also change, which is likely to be welcomed by all yet-to-be-established companies and existing ones that wish to increase their registered capital. The corporations act will continue to require that contributions in kind be valued by experts, but those experts will be appointed directly by the founders of the company or the company’s executive. This should speed things up in practice since companies will no longer have to wait until an expert is appointed by the court.
Further, the so-called ban on chaining, which is firmly (and nonsensically) anchored in the Commercial Code, will be abolished. This will allow limited liability companies with a sole member to be the sole founders of or members in other companies. The reason is to lessen the burden on businesses as much as possible. In addition, the current ban on chaining has no basis in EU legislation, which has no requirements in that regard.