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Glossary of terms

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Cancellation and termination of the company

Forms of company cancellation

1) Without liquidation

  • the wealth goes to legal successor company transformation) - 52
  • when submitting a petition for bankruptcy where:
  • proposal rejected for lack of property,
  • cancellation of bankruptcy following the completion of the resolutions
  • cancellation of bankruptcy where the assets of the bankrupt is insufficient to cover bankruptcy costs; provided that the company has no property (except for matters excluded from the merits); the approval of the tax authority is not required for the deletion of the SO;

2) With liquidation - the company is abolished already at the moment of entering the liquidation."

Ways to cancel

Voluntary - by agreement of all shareholders or by the decision of the body of the company (dissociation decision) - these may cancel their decision until the liquidation balance has been started (the date of effect of such decision the role of the liquidator ends; the company has to prepare interim financial statements)

Forced - by decision of the court (on a proposal of the body or person with a first interest, regional courts)

  • inactivity - no general meeting has been held in the past 2 years, or no statutory bodies of the company whose terms of office ended more than one year ago have been elected in the last year, or the company does not carry out activities for more than two years
  • loss of business authorization
  • the disappearance of the prerequisites required by the law for the company establishment or the company cannot be perform business for insurmountable conflicts between shareholders
  • violation of the obligation to create RF
  • violation of the obligation to pursue business activity through the natural persons specially authorized
  • breach of the obligation to sell part of the business or to divide it imposed by the competition authority
  • bankruptcy - see here above (if a bankruptcy petition is rejected for a reason other than for lack of property, the company is not cancelled, if the bankruptcy is determined, the liquidation will be carried out)
  • the court shall set a time limit for the removal of the ground of revocation if removal is possible

The company is cancelled as of the date of the deletion from the Commercial Register (similar to its origin - registration in the OR).

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Commercial Register

Commercial Register is a public list which shall contain the information concerning the entrepreneurs or organizational units of their companies for which it provides law. Commercial Register is kept by a court appointed by a special law (registration court). Commercial Register is a public list of entrepreneurs (but not all) and of basic and legally relevant data about them (the data that are important for flexible and secure business transactions).

The main function of Commercial Register is to provide  basic information on business partners in business.

Company foundation

It is a process leading to the founding of a trading company, usually a limited liability company or a joint stock company, but also other forms of company are established in certain cases. Founding a company in the Czech Republic is considered a very time-consuming and administratively demanding process and therefore more and more clients are using specialized advisory firms or law firms for this purpose.

Company name

A company name is a name under which the entrepreneur is incorporated and which therefore must be used in his/her business. It must meet the general legal requirements - e.g. uniqueness, unmistakability, truthfulness, etc. 

The company name consists of a business name and a supplement of the respective type or company (in the Czech Republic, for example s.r.o. for limited liability company or a. s. for joint-stock company).

Company registered office

Company registered office is the address that is registered as a seat in the Commercial Register or other legal records. The entrepreneur is obliged to state to the Commercial Register, a priori, his actual place of business. The seat of the organizational unit of the enterprise is the address of its location. Registered office is of fundamental importance in terms of the nationality of a legal person. It determines the law applicable to that person, juridical and defines who will give it diplomatic protection. The four criteria are distinguished - the seat, the state constitution, state of business, nationality of partners (directors).

Concern - holding-type group

Concern arises as a grouping of formally autonomous entities, some of which are in spite of their legal personality subordinate to another subject so that the group acts as a centralized entity comprising a single organization and unity of management.

Concern is defined by Commercial Code § 66a, paragraph 7: a group consists of a single business group of at least two persons, one of which is against the other person in controlling position. A concern may arise based on the simple fact of the existence of a controlling and controlled entities (rebuttable presumption) - then we are talking about a de facto concern. The group may be constituted on the basis of the controlling agreement - then we are talking about contracting concern.

Defining element of concern is the merger of several legally autonomous persons to the system allowing common management. Individual group companies are managed in the interests of the whole, which may not lead to the simultaneous benefits of each of the group companies.

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Concerted practices

The term of concerted practices is regulated by the provisions of § 66b of the Commercial Code. Acting in concert is acting of independent persons made in mutual understanding to acquire, assign or exercise voting rights on particular person for the purpose of enforcing a common influence on its management, running a business, occupation statutory or supervisory body or else influence the behaviour of such a person. Those who act in concert are obliged to fulfil the obligations arising therefrom jointly and severally.

Concerted practices must be active, it may not be concluded a special agreement and must follow the legally relevant target. Not every action is automatically acting in concert.

Acting in concert is thus a deliberate alignment that may not be permanent. The law does not define exactly acting in concert, but establishes a rebuttable presumption.

  • persons who have a relationship with the company, i.e. legal person and its statutory authority, persons in their direct control scope, a member of the supervisory board, liquidator, bankruptcy, arrangement or forced administrator
  • controlling and controlled entities
  • persons controlled by the same person
  • entities constituting the Group
  • Ltd. and its partners, public trade company and its partners, limited partnership and general partners. These partners act as persons in concert
  • relatives - as Civil Code defines in § 116
  • investment company and its investment fund or pension fund

The burden of proof that the persons mentioned above are not acting in concert carries any person who testifies presumption.

Concerted practices have, according to the Commercial Code, inter alia, the following legal consequences:

  • constitutes control of the company, if the persons acting in concert have votes enough to promote decisive influence over the management and operation of the enterprise,
  • excludes the right to claim damages for non-payment of the harm that was caused by the implementation of the instruction of the controlling entity if all shareholders were acting in concert,
  • excludes the exercise of voting rights at the AGM in cases provided by law (when deciding whether to him or another person acting in concert to be excused duty or whether he or person acting in concert to be removed from office for the infringement) unless all shareholders are acting in concert,
  • constitutes an obligation to make a takeover bid for control of the company with registered participating securities except for exceptions set by law
  • constitutes reporting duty of voting rights
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Controlling agreement

The provisions of § 66a paragraph 7 characterizes the controlling agreement (agreement on dominant influence) as a contract under which different entities undergo  a common management. In the legislation concerning the joint-stock company, the controlling agreement is further defined in § 190b - controlled entity is committed to the managing person to undergo common management.

The component of the contract may also be a clause  on liability of the controlled entity to convert gain or its part to the managing entity - refers to the profit transfer agreement - § 190a. Controlling agreement must be in writing. Cancellation may only be to the end of the reporting period, but not retroactively.

Controlled entity may withdraw from the contract - if the controlling party failed to fulfil its obligations, or if the court deems compensation standing outside shareholders as unfair. Controlling agreement must be approved by the  General Assembly by ¾ majority (or higher - according to the Articles of Association) - the decision of the General Assembly must be a notarial deed.

Controlling agreement shall become effective on the  date of publication of the notice that the contract is based in the collection of documents at the Registry  Court. From this day, the time limit starts to exercise the rights standing outside shareholders to compensation if the contract restricts the option to exercise such rights by time limit.

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Cooperative

A cooperative is a community of an unclosed number of persons established for the purpose of mutual support of its members or third parties or for the purpose of conducting business.

 


According to the Business Corporations Act (in other words "ZOK"), the cooperative is a legal entity with an unclosed number of members. In the event of an increase in their number, there is no need to amend the statutes, as is the case with companies. The ZOK   regulates the minimum number of founding persons by setting it to 3 regardless of whether they are natural or legal persons.

Those interested in establishing a cooperative shall authorize the convener in writing (which may be only a natural person) to draw up the statute of the cooperative. The statute must be in the form of an authentic instrument (notarial deed) and must contain at least the obligatory particulars (company name, registered office, subject of business or activity, amount of the membership fee, method and term of its payment. Otherwise, the court will find it void on its own motion. The adoption of the statute and its amendment is decided by the member (or constitutive) meeting, which is always public.

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