The term business corporation conversion refers to the process by which a business corporation is legally merged or divided into one or more successor companies. This term is also used to refer to a change in the legal form of a business corporation, i.e. a mere change in the internal conditions of the company. Thus, in practice, conversions find solutions for situations of a property nature, in particular in case of group companies.
The amendment to the Act on Conversions of Commercial Companies and Cooperatives primarily implements the Directive of the European Parliament and of the Council 20 19/2121 on cross-border conversions. It also introduces significant changes which are meant to increase the efficiency of the processes of company conversions.
In the following chapters, this article summarises the main milestones of the amendment that will be of interest with effect from 19 July 2024.
Division by separation
According to the current legislation, the conversion in the form of a division can be carried out in two basic ways:
division by spin-off
division by splitting (establishing new companies while itself dissolving)
The amendment newly introduces a division by separation, in which the company being divided, as in the case of a division by spin-off, does not cease to exist. However, unlike a division by by spin-off, the spun-off assets become the share that the original company acquires in the new/existing company.
In practice, for example, this will allow the company being divided to set up a subsidiary in this way, while preserving the tax advantages.
Business Bulletin
The amendment also removes the necessity to publish the conversion project in the Business Bulletin, for which a fee had to be paid. It is now sufficient to file the conversion project together with a notice to creditors, employees and shareholders in the collection of documents with the competent registry court at least one month before the date on which the conversion is to be approved.
Appointment of an expert
The expert for the valuation or examination of the assets was under previous legislation appointed by the court. With effect from 19 July 2024, the expert will be selected from the list of experts directly by the person involved in the conversion.
Cross-border conversions
The amendment incorporates the provisions of Directive 2019/2121 into Czech law, namely the harmonisation of the cross-border divisions and changes of registered office regulation at the level of the entire European Union.
It is the conversion by division (whether by spin-off, splitting and creating new companies or now also by separation) that has so far been complicated by different legal regulations in the individual Member States.
Thus, if a company intended to spin off part of its assets by way of a conversion into a company from another Member State, it was first necessary to carry out a national division and only then to proceed with a cross-border merger, which made the whole process very complex and costly.
Finally, reference should be made to the possibility of a cross-border change of registered office, which should now also be allowed to third countries. Until now, the law has provided for this possibility only to EU Member States.