Corporate / M&A
Czech Republic: New Ways of Cross-Border Transfer of Company Seat
→ Miroslav Pokorný
→ Helena Chadimová
On 1 January 2012, the Amendment to the Act on Transformations (the AT Amendment) came into force. In addition to major changes related to all types of transformations, the AT Amendment also introduced seat transfer within the EU out of and into the Czech Republic. Notwithstanding certain application challenges, companies are already using the new way of cross-border transfer of seat.
Before the new regulation, transfer of seat was legally possible only if there was a special international treaty in place with the respective state. As there is no such treaty, the AT Amendment established a new instrument under Czech law.
Transfers into and out of the Czech Republic differ in the documents required and in procedure. This is because, due to principle of sovereignty, the Czech law cannot completely regulate steps to be taken in other countries (eg, regarding project approval).
The transfer may also include a change of legal form of the company.
This instrument was introduced into Czech law on the basis of the Cartesio case, where the ECJ deduced the possibility of seat transfer within the EU. Such an initiative on the part of the Czech legislator is surprising, considering that it often has difficulties with mandatory transposition of directives.
Another possible cause is the fact that the European Parliament has been trying to persuade the European Commission to create a proposal of the 14th company law directive regulating the possibility of cross-border transfer of seat. It is therefore possible that the Czech legislator, predicting the necessity of future transposition of the prepared directive, has taken a proactive stance on this issue.
Transfer into the Czech Republic
Transfer of seat into the Czech Republic is subject to several requirements. The transfer must be possible under the law of the state in which the legal entity currently resides and under the law of the state governing the internal legal relations of the legal entity. The foreign legal entity must also change its legal form into one known under Czech law, and the company’s internal legal relations must be governed by Czech law. In addition, the AT Amendment requires the interested company to not be in liquidation or subject to insolvency proceedings.
The AT Amendment emphasises above all the principle of registered capital maintenance (verification of its existence/amount). If, as a consequence of the transfer, the company changes its legal form to a limited liability company or joint-stock company, the company’s assets must be evaluated by an expert. The amount of registered capital cannot be higher than the value of assets determined by the expert report. If the equity capital does not equal the amount of registered capital in the opening balance sheet on the date of incorporation, the shareholders must pay the difference without undue delay.
Transfer from the Czech Republic
For transfers abroad, the AT Amendment allows that the company’s statutes and legal form be governed by Czech law from the transfer onwards. This is of course only possible if there is no other legal regulation in the state of the new seat. Even in this case, it is necessary to change the legal form to one regulated by the state into which the company is transferring its seat. The AT Amendment prohibits transfer of seat if the company is in liquidation or insolvency proceedings.
Besides the standard requirements necessary for any company transformation, the AT contains special requirements. Among others, issues related to protection of employees, creditors and shareholders must be reflected in the transformation project. The time period for transformation project publication is double that of other kinds of transformations.
The opportunity to transfer company seat is certainly welcome. Clearly, some problems may arise in its application, especially in connection with the effects of seat transfer or changing founding documents. Its use is also limited by the legal regulations of other EU member states.
All the legal requirements in the AT Amendment are justified, adequate and proportionate in terms of legal certainty of companies in EU member states that have business relationships with the transferred company. Companies should also not be allowed to avoid their responsibilities in their state of origin.
Overall, the new instrument is an interesting option for cross-border seat transfer. The future will show whether companies will choose this path or the proven methods of cross-border merger or Societas Europaea.