The foreign transfer of a company seat: enforcement of the new Czech regulations

The principle of the freedom of establishment is provided for by the EC Treaty for both the persons and the companies, equalizing the ones to the others. With reference to the companies, the concrete implementation of such kind of freedom can be, in some case, poorly facilitated by the domestic regulations of the states.

In particular, regarding the foreign transfer of a company seat, the main problems arise because of the differences between the Member States about the connecting factors that are utilized in order to decide which law shall be applicable to the company. These factors can be traced back to:

  • the real seat theory; or
  • the incorporation theory.

The states which adhere to the first factor, in deciding the law applicable to the companies, make reference to the actual place where the administration of the company is. Then, they will apply the law of the state where the real seat is and where, therefore, the company’s business activity is carried on. On contrary, the states which adhere to incorporation theory will apply the law of the state where the company has been instituted, regardless to the actual place of the company’s administration.

In this specific case, the Czech Republic adheres to the incorporation theory, even if with some exceptions – about which we will speak later on – that create a hybrid system. Coming back to speak about the connecting factors, in general terms, according to the incorporation theory the transfer will not affect on the law applicable to the company, that will remain the one of the state of the departure; instead, the matter becomes more complicated in case of transfer from or in a state which adheres to real seat theory. In fact, the transfer causes the loss of the actual connection with the state of the departure and, then, the latter should not consider the company existing anymore. Besides, with reference to the transfer towards a state which adheres to real seat theory, in such a case the law of the state of arrival shall apply, since the necessary real presence of the company on the country.

Over the years, the case law of the European Court of Justice did not thrust itself forward to privilege the one or the other connecting factor, but has let to the state the maximum freedom in this field and, in this way, unfortunately, loosing the chance to fix some guide lines that could contribute to harmonize the different regulations of the Member States. Among the various decisions, the so called Cartesio which has been issued in the 2008 (case C-210/06) must be pointed out, since it has confirmed the discretion of the Member States on the power to rule, by the means of their own law, the events related to the life and to the extinction of the companies.

Speaking properly about the Czech system, it is the art. 26 of the Commercial code (Act. n. 513/1991) to provide the guide lines on the cross-border transfer of a company seat. The said article provides for by the following conditions that must be met in order to perform, effectively, the transfer of a company seat from a foreign country to the Czech Republic:

  • the transfer is provided for by international conventions ratified by the Czech Republic and by the other state involved; or
  • the transfer is provided for by the European union law; or
  • the transfer meets the conditions provided for by the special domestic law.

With specific reference to the third point, the attention must be surely moved to the law on the company’s transformations: the Act. n. 125/2008. In fact, such law has set the concrete principles and ways in order to perform the cross-border transfer of a company seat whether from or in the Czech Republic. Notwithstanding the above mentioned special law has been promulgated in the year 2008, the part that concerns and defines the main principles and the ways for the transfer in the Czech Republic of a foreign company’s seat has become effective only starting from the 01/01/2012. Therefore, the possibility to perform the transfer of a company seat was provided just theoretically and only starting from the 1st January 2012 it has been made actually realizable.

Then, by the means of its art. 384, letter a, the Act. n. 125/2008 on the company’s transformations has provided for by that:

  • a foreign company can transfer its own seat in the Czech Republic without the necessity to wind-up and institute once again the company itself; this is possible when there is no a prohibited whether by the regulations of the Member State in which the company itself has its seat, or by the regulations applicable to the internal relationships of the company itself;
  • should a company, by the means of the transfer, want to modify its own form and to assume one of the form provided for by the Czech system, such kind of company shall be subjected to the Czech law with reference to the discipline of its internal relationships.

Speaking about the duties of legal publicity required for the foreign transfer, they are partially coincident with the duties necessary for the registration of the company’s transformations provided for the Czech companies according to the Czech law (for example, transformation from a joint stock company into a limited liability company). However, a restriction is the one provided for by the art. 384 letter c of the said special law, which provides the prohibition to perform the transfer for those companies which are in liquidation or towards which a bankruptcy proceeding has been started.

The transfer in the Czech Republic becomes effective starting from the registration of the change in the commercial register kept by the competent Czech Commercial Court. The registration must be preceded by the drafting of the transfer project, by the drafting of the relevant public deed and by the valuation related to the estimate of the property of the transferred company. The valuation shall be performed by an expert properly appointed by the Court. The further formalities required are similar to those provided for in case of first registration in the commercial register of a new Czech company or of a new Czech cooperative. Anyway, the special law describes with details the content of the documents that must be filed as well as the form that they must have (for example, notary deed).

In conclusion, the Czech example shows how can be possible, notwithstanding the lack of a harmonized law in the EU area, to provide an organic discipline that is surely able to reduce, should not eliminate at all, the legal uncertainties as well as the doubts of interpretation in the matter of the foreign transfer of a company seat.