In connection with the effect of Act No. 90/2012 Coll., on business corporations (hereinafter “ABC”), a controversial issue has arisen for joint stock companies with registered capital of less than CZK 2,000,000, as to whether they are required to increase their registered capital to the required level of CZK 2,000,000 in connection with the new legislation.

1. History of the registered capital of joint stock companies

As a reminder, this is an opportune moment to take a small historical excursion. Up until 31 December 2000, mandatory registered capital for joint stock companies was CZK 1,000,000. Capital assets were deemed the equivalent of registered capital under legislation at the time.

However, the transitional provisions of Article VIII, paragraph 18 of the amendment allowed joint stock companies with registered capital of CZK 1,000,000 to retain registered capital at this amount. The company was only required to increase registered capital to a minimum of CZK 2,000,000 if the company was considering any increase in registered capital at all.

In Section 246 (2), however, the ABC sets the minimum amount of registered capital for joint stock companies at CZK 2,000,000, i.e. the same as under the defunct Commercial Code. Unlike the Commercial Code, however, the ABC allows registered capital to be expressed in euros, namely EUR 80,000. This is undoubtedly a mandatory provision.

2. Obligation to increase registered capital?

Every company must amend its founding documents to comply with the mandatory provisions of the ABC, in accordance with Section 777 (2), by no later than 30 June 2014. Therefore, the question arises whether a joint-stock company with registered capital of CZK 1,000,000 is also obliged to increase its registered capital to the CZK 2,000,000 required by the ABC, as part of this compliance.

Interpretative Opinion No. 31 by the Expert Group of the Commission for the Application of New Civil Legislation (hereinafter “CANCL”) of the Ministry of Justice, dated 25 June 2014 (hereinafter the “Opinion”), attempts to answer this question.

The Opinion gives a relatively clear-cut conclusion, namely:

“Joint-stock companies established before 31 December 2000, whose registered capital is less than CZK 2 million as of 1 January 2014, shall continue to be subject to Article VIII, paragraph 18 of Act No. 370/2000 Coll. even after 31 December 2013, and therefore are not required to increase registered capital to CZK 2 million in the period specified in Section 777 (2) of the ABC.”

However, this relatively straightforward conclusion is based on strange legal grounds, namely that Act No. 370/2000 Coll. somehow “survives”, which exonerates joint stock companies with registered capital of CZK 1,000,000 of the obligation to increase their registered capital. While it is true that this amendment was not abolished by Act No. 89/2012 Coll., the Civil Code (hereinafter “NCC”) (or only partially abolished), the Commercial Code, which it amended, was abolished. The obligation to have registered capital of CZK 2,000,000 is now prescribed by the ABC, not the Commercial Code. The amendment specified an exemption specifically for the Commercial Code and does not affect the ABC in any way. No other legislation with a similar exemption for the ABC exists. On what basis CANCL inferred the ability to apply the amendment to the ABC is not indicated in the Opinion.

It is important to note here that the Opinion is not legally binding in any way and that no exemption to the requirement to have registered capital in the amount required by the ABC arises from current legislation. Any court may therefore call on a joint stock company with registered capital of CZK 1,000,000 to bring its registered capital in line with the mandatory provisions of Section 246 (2) of the ABC.

The Opinion lacks a rational legal justification for its conclusion and cannot be relied upon. For maximum legal certainty, it is therefore recommended that joint stock companies with registered capital of CZK 1,000,000 increase their registered capital to CZK 2,000,000, if possible.

It is also interesting to point out that the Opinion only considers the obligation under Section 777 (2) of the ABC, however, it says nothing of the possibility of exercising the right to conform to the ABC as a whole, in accordance with Section 777 (5) of the ABC.

The question therefore arises whether a joint-stock company with registered capital of CZK 1,000,000 can conform to the ABC as a whole, even though the ABC requires registered capital of CZK 2,000,000. Using the logic of the Opinion one would like to say yes, as this exemption is based on a hitherto valid amendment. However, as indicated above, such a conclusion is entirely unfounded and is not based on legislation, as mistakenly stated in the Opinion.

Therefore, if a joint stock company with registered capital of CZK 1,000,000 decides to conform to the ABC as a whole in accordance with Section 777 (5) of the ABC, and the registration court calls on it to bring its registered capital into line with the ABC, the  company will not be able to rely on the Opinion, which (i) makes no mention of the possibility of opting-in, in accordance with Section 777 (5) of the ABC, and (ii) presents an unfounded conclusion on an exemption for joint stock companies with registered capital CZK 1,000,000.

3. Conclusion

An amendment of the ABC is definitely in place with the incorporation of this exemption directly into the ABC. Until that happens, joint-stock companies with registered capital of CZK 1,000,000 remain in an uncertain legal position and run the risk that the courts will force them to increase their registered capital. Given that the time to adapt to the ABC has expired (30 June 2014), this requirement could get some companies that have relied on the Opinion into significant problems and non-compliance with a call to increase registered capital by the court could result in the forced dissolution of the company to (see Section 777 (2) of the ABC).

For more information, please contact our office’s partner, Mgr. Jiri Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: + 420 604 242 241.