First, it is necessary to differentiate two basic terms – dissolution and termination. A business corporation’s existence is terminated on the day of its erasure from the Commercial Register, however each such termination is preceded by a dissolution process, consisting of several sub-stages depending on whether the corporation is to be dissolved with or without liquidation.
The dissolution of a company without liquidation is generally understood as its smooth transition to its legal successor, whereas liquidation refers to such activities of a business corporation that follow the decision on the termination of its business activities.
The dissolution and liquidation of trading companies is described in Act No. 89/2012 Coll., the Civil Code (hereinafter referred to only as the “NCiCo“), Act No. 90/2012 Coll., on Commercial Companies and Cooperatives (hereinafter referred to only as the “Act on Business Corporations” or the “ABC”) and accompanying legislation relating to private law reform.
The general reasons for resolutions on dissolution of a business corporation, whether voluntary or involuntary, are newly regulated in Sections 171 – 173 of the NCiCo and Section 93 of the ABC, with the list of the most common ones being provided below.
Voluntary Resolution on Termination of Activities of a Business Corporation:
- Expiration of the period, for which the business corporation was founded,
- Achievement of the goal for which the business corporation was founded,
- A decision of the relevant body of the business corporation on its dissolution,
- A decision of the relevant body of the business corporation on its merger, transfer of assets to a shareholder, division of the company or its transformation to a different form of a trading company or cooperative.
Involuntary Resolution on Termination of Activities of a Business Corporation – to be decided by court at the proposal of the person with a legal interest in the matter or even without the proposal if:
- It carries out illegal activities at a degree seriously disturbing public order,
- It has stopped complying with the prerequisites required by law for the establishment of a legal entity (for example a public higher education institution),
- For more than two years its statutory body has lacked a quorum,
- The law so prescribes.
Subsequently, at the proposal of the person with a legal interest or the petition of the Public Prosecutor’s Office, should it ascertain serious public interest, the court will dissolve the business corporation and order liquidation, if:
- It has lost all of its trading licences – however this will not apply if it was founded also for the purpose of administration of its own assets or purposes other than business activities,
- For the period exceeding 1 year it has been unable to perform its activities and thus meet its purpose,
- It cannot carry out its activities due to unsurpassable disagreements among its shareholders,
- It performs activities, which pursuant to other legal regulations can be carried out only by physical entities, without the assistance of these persons.
Moreover, the court may declare a business corporation invalid, with or without a petition, if:
- The founding legal deeds are missing,
- The founding legal deeds lack the essentials necessary for the legal existence of the business corporation,
- The legal conduct of the founders contradicts the ban on founding a legal entity, whose purpose is the violation of a right or achievement of a goal in an illegal manner (for example supporting violence, spreading hatred and intolerance etc.),
- The business corporation was founded by fewer persons than necessary by operation of law,
- The Memorandum of Association has not been produced in the prescribed form,
- The provisions on the amount of the lowest settlement of the registered capital have not been complied with,
- All of the founding shareholders are discovered to lack the capacity to enter into legal acts.
Dissolution of a Business Corporation without Liquidation
The dissolution of a business corporation without liquidation is generally understood as its smooth transition to its legal successor – that is the case in the instance of the transformation of legal entities, i.e. by a merger, division, change of the legal form of the business corporation and moreover a transfer of assets to its shareholder and cross-border relocation of the registered office, including cross-border transformations, as well as in other cases provided for by law, e.g. in insolvency proceedings.
The general aspects of business corporation transformations are newly dealt with in the provisions of Sections 174 – 184 of the NCiCo. The more detailed regulations relating to transformations of business corporations are contained in Act No. 125/2008 Coll., on Transformations of Business Companies and Cooperatives (hereinafter referred to only as the “Act on Transformation“).
With respect to the transformation it is necessary to determine the decisive day from which the acts of the legal entity to be terminated are considered from an accounting point of view to be acts entered into on the account of the successor company. The decisive day is set so as not to precede the day of the filing of a petition to enter the transformation in the Commercial Register by more than 12 months. The business corporation transformation shall not become effective sooner than on the day of its entry in the Commercial Register.
- Transformations of Business Companies and Cooperatives (solely in Czech language)
Dissolution of Business Corporations with Liquidation (Sections 187 – 209 of the NCiCo)
Business corporations are dissolved with liquidation bar certain exceptions. If however it is not clear whether the business corporation is being dissolved with or without liquidation, it applies that it is being dissolved with liquidation. Furthermore, there is a general premise that it is possible to withdraw a resolution on the entry into liquidation until the point of time when its purpose is met; in this instance the purpose being to settle and adjust the assets of the dissolved business corporation (hereinafter referred to only as the “liquidated assets“), to satisfy creditors’ debts and to dispose of the net assets value, which is established from the liquidation procedures. Thus it represents an out-of-court settlement of the property relations of the dissolved business corporation.
- Detailed Information on Dissolution of a Company with Liquidation (solely in Czech language – use Google translator)
The dissolution procedures of a company may differ slightly depending on the type of the company. The links below provide information about the specific steps that need to be taken.
- Dissolution of a Limited Liability Company (in Czech language)
- Dissolution of a Joint Stock Company (in Czech language)
- Dissolution of a Public Trading Company (in Czech language)
Special forms for entering individual data concerning the company and its changes in the Commercial Register.
- Forms for Entering Changes in the Commercial Register (in Czech language)
In order to minimise the risks related to the dissolution of a company, and above all in order to ensure compliance with the legal conditions related to the protection of the company’s creditors and the legal responsibility of the statutory body or shareholders of the company, it is advisable to delegate these matters to solicitors specialising in these matters.
- Czech Bar Association (in Czech language)
The Commercial Register provides information on which stage of its existence the company finds itself in, whether it has been dissolved or whether it is in liquidation. The Commercial Register is a public list administered by relevant register courts where the information on entrepreneurs required by law is entered. The Commercial Register is also accessible by electronic means.
- Commercial Register – electronic access (in Czech language)
The following governmental and non-governmental institutions and web portals offer further information and useful services relating to the dissolution of trading companies.
- Portal of the Ministry of Justice – Justice (solely in Czech language)
- Notarial Chamber of the Czech Republic (solely in Czech language)
- Official Portal for Business and Export (solely in Czech language)
- Public Administration of the Czech Republic Portal (solely in Czech language)
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The document was produced by cooperation between the solicitor Mgr. Marek Doleček, a partner with the Legal Office of Doleček Kahounová Sedláčková, Your Europe – Business (EU portal for companies) and BusinessInfo.cz.