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Joint-Stock Companies Welcome One-Tier System, But Expect Interpretation Problems

Joint-Stock Companies Welcome One-Tier System, But Expect Interpretation Problems

6.2.2013 14:40
Autor: Jan Dědič, KSB

One significant change is that a joint-stock company’s supervisory board will no longer be required to include company employees. This requirement has lead many businessmen to form limited liability companies instead.

Another fundamental change introduced by the Act is the one-tier board system, which is used in several foreign countries, such as England, the US and France. However, the same actions do not always produce the same results. In fact, it seems that the concept of a one-tier board system is not fully understood here. While a one-tier system typically has only a single body, Czech legislators chose a rather atypical solution, namely a two body one-tier system consisting of a board of directors and a statutory director. The latter (known as a CEO in foreign countries) is not typically a corporate body but “merely” the company’s executive.

The fact that two internal management bodies will exist in the Czech one-tier system may cause a number of problems. Since a statutory director and board of directors are both considered executive bodies, the question in a number of cases will be which body is responsible, for example, for preparing and approving the company’s financial statements or the report on relations between related parties. This lack of clarity will make implementing the system significantly more difficult, especially at the beginning.

The Czech one-tier board system also involves much trickier questions. For example, it is entirely unclear which body is responsible for electing the statutory director. The board of directors is responsible according to one provision, while the general meeting is responsible according to another. This plain inconsistency in the Act will cause significant legal uncertainty for many Czech businesses. Until the Act is amended, uncertainty about whether the statutory director was elected by the right body will persist.
Put simply, although the Act will enable Czech joint-stock companies to choose a one-tier board system, the system was introduced in a manner that will unfortunately lead to several problems of interpretation, which will make taking advantage of this system more difficult, particularly until a sufficient amendment is introduced.

KŠB Attorney Jan Lasák also contributed to this article.

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