Ley Nº 513/1991 Coll. de la Recop., Del Código de Comercio ('Obchodní zákoník'), República Checa

Commentary on section 1:

The Czech Commercial Code can be compared -to some extent - with the Companies Act and the Sale of Goods Act in the UK and the Uniform Commercial Code in the USA.

* The Czech word "podnikatele" is also translated as "businessmen" or "businesspersons" and refers to both legal
entities and individuals conducting business activity in accordance with section 2(2).
** The term "business activity" or "business activities" is sometimes also referred to as "entrepreneurial activity" or
"entrepreneurial activities"; in Czech "podnikani".

The Czech Commercial Code is primarily a legislative Act of private law, but the status of entrepreneurs is

also subject to public law

provisions (e.g. the Trades Licensing Act; see section 2). The scope of regulation outlined in subsection (1) is not exhaustive. Parts One and Two of the Commercial Code deal with "the status of entrepreneurs", including the regulation of partnerships, companies and co-operatives and also with "some other relationships connected with business activities" (e.g. unfair competition). The term "entrepreneur" is defined in section 2. Wholly or partly foreign-owned businesses in the Czech Republic and the protection of their property (sections 21-26) are also subject to the Commercial Code, which repealed the former Joint Venture Act. The Commercial Code further applies to "persons other than entrepreneurs" if the Commercial Code or some other Act so stipulates. The extensive Part Three of the Commercial Code regulates individual types of contracts. Legal relations under subsection (1) are subject to the Commercial Code, provided that such relations are not regulated in a particular Act. Should an issue not be regulated by the provisions of the Commercial Code or a particular Act, it is considered in accordance with the civil law provisions, mainly the Civil Code. The civil law provisions apply, for example to acts in law (also referred to as "legal acts" or "legal transactions"; in Czech "prdvni ukony"), ownership, etc. Where it proves impossible to resolve an issue according to the Commercial Code or civil law provisions, it is considered in the light of trade usage (i.e. the established practice in a particular trade and/or between the parties concerned). With regard to business (contractual) obligations, further details of the relationship between the Commercial Code and the Civil Code are stipulated in section 261 and the details of applicability of trade usage in section 264. Where an issue cannot be resolved according to trade usage, it is to be considered in accordance with the principles upon which the Commercial Code is based (e.g. the protection of fair trade practice)

Section 2

Business Activity

(1)

"Business activity" (also referred to as "entrepreneurial activity"; in Czech "podnikanf") is understood to be systematic activity which is independently carried on for the purpose of making a profit by an entrepreneur in his* own name, and at his own liability (responsibility).

(2)

Under this Code, an "entrepreneur" (also referred to as a "businessman"; in Czech "podnikatel") is deemed to be:

(a)

a person (natural or legal) recorded in the Commercial Register (in Czech "obchodnf rejstrflc"; in German "Handelsregister");

(b)

a person engaged in business activity on the basis of an authorization to practise a certain trade (referred to hereafter as a "trade authorization"; in Czech "zivnostenske' oprdvnSnf"; in German "gewerbliche Berechtigung");

(c)

a person engaged in business activity on the basis of an authorization issued under particular Acts or regulations different from the provisions governing the issue of a trade authorization;

(d)

an individual engaged in farming activity (agricultural production) who is recorded in an appropriate register (registry) under a particular Act or regulation.

(3)

The seat of a legal entity and the place of business of a natural person (an individual) shall be the address of such person's seat or place of business entered in the Commercial Register or in some other register (or registry) stipulated by law. The address shall mean the name of the city, town or village (and, where applicable, also the borough), postal code, cadastral registry number and, if available, the name of the street or square. Each entrepreneur shall register his (its) actual seat or place of business. The seat of an enterprise's organizational component (section 7) shall be the address of its location. The seat of a legal entity may be situated * "His" also refers to "her" and "its", and similarly "lie" to "she" and "it' in a flat (an apartment) only if the nature of such business activity so allows. The actual seat shall mean the place from which the legal entity concerned is managed by its statutory organ,

Commentary on section 2:

"Business activity" (also referred to as "entrepreneurial activity¹') means activity which is undertaken by an entrepreneur:

-systematically (i.e. regularly, even seasonally);

-independently (independent performance distinguishes business activity e.g. from employment under an employment contract);

-in own name (which, in the case of a business entity means its business name in accordance with section 8 et seq); -on own responsibility (i.e. liability; a legal entity is liable for its obligations with all its business property, while a partner of a general commercial partnership, or a general partner of a limited partnership, is liable for the partnership's obligations with all his property; each entrepreneur further bears business risks and liability for damage caused to a customer or an employee, delay in performance, faulty output, etc.); for the purpose of attaining a profit.

-Conducting a trade (which may be a craft, manufacturing or commercial activity) requires that the conditions laid down in the Trades Licensing Act (also referred to as the Tradesman's Act; in Czech "zivnostensky zdkon") are met. The Act lists activities which are subject to its provisions, such as forging, casting, motor vehicle repair and construction of civil engineering structures, and stipulates activities which are not regarded as trades, such as the professional activities of physicians, dentists, pharmacists and lawyers.

-Trades can be conducted by both Czech and foreign persons. The definitions of Czech and foreign persons are included in section 21 of the Commercial Code and section 5 of the Trades Licensing Act. For the purposes of these two Acts, foreign persons are those whose seat or residential address (abode) is outside the Czech Republic.

-The general conditions which must be met by any individual carrying on a trade are:

-a minimum age of 18 years-legal competence

-unimpeachability of character (in the sense of not having a criminal record).
An entrepreneur can carry on a trade through a responsible representative (also referred to as "a proxy"). A

responsible representative ("odpovedny zdstupce") is an individual who has been appointed by the entrepreneur and who is responsible for the proper conduct of the trade and compliance with trades licensing legislation. A responsible representative must stay in the Czech Republic and meet both the general and specific conditions for carrying on a particular trade. No one can act as a responsible representative far more than two entrepreneurs. If a responsible representative (or an entrepreneur who does not appoint a responsible representative) is not a citizen of the Czech Republic, he must prove his knowledge of the Czech language to the Trades Licensing Office. Citizens of the Slovak Republic are exempt from this rule. Foreign citizens must also have a residency (residence) permit. If a legal entity wishes to conduct a trade, it must always appoint a responsible representative, unless the Trades Licensing Act provides otherwise. The scope of a trade authorization (permission) is stated either in a trade certificate or in a trade licence.

Subsection (2) lists those who are considered to be entrepreneurs under the Commercial Code:

-an entity or an individual entered in the Commercial Register;

-

a person conducting activity on the basis of a trade authorization (in the form of either a trade certificate or a trade licence);

-

a person carrying on business activity on the basis of other than a trade authorization;

-an individual engaged informing activity and entered in the records in accordance with a particular Act.

-The newly-amended wording of subsection (3) emphasizes that the seat of a legal entity (or a sole proprietor's place of business), as stated in the Commercial Register, must be the address of the place from where the business in question is actually managed. Subsection (3) also lays down the particulars of such address.

Section 3

(1)

The following persons shall be recorded (i.e. registered or entered) in the Commercial Register:

(a)

business companies and partnerships¹, co-operatives, and other legal entities specified by law;

(b)

foreign persons under section 21(4).

(2)

~An individual who resides permanently (i.e. who has a permanent residential address) on the territory of the Czech Republic and who is an entrepreneur in the meaning of this Commercial Code [section 2(2)(b) to (d)] will be entered in the Commercial Register if he himself opts to apply for registration.

(3)

An individual who is an entrepreneur in the meaning of this Code [section 2(2)(b) to (d)] shall be entered in the Commercial Register if:

(a)

his net turnover, computed under special statutory provisions, in the last two accounting periods attained or exceeded the sum requiring the auditing of his financial statements audited;

(b)

he carries on a trade industrially (an industrial trade); or

(c)

special statutory provisions so stipulate. (4) An individual subject to registration in the Commercial Register under subsection (3) shall Hie an application (a petition) for his entry (registration) in the Commercial Register without undue delay after such obligation arises.

Commentary on section 3:

Based on an application (a petition), an entry is made into the Commercial Register by the registration court within whose jurisdiction the seat or place of business of the person lies. The first entry into the Commercial Register of a newly-formed entity is of particular importance, because the entity comes legally intoexistence upon incorporation (as of the effective day of the registration).

Foreign persons (section 21} can directly undertake business activities in the Czech Republic only after having been entered in the (Czech) Commercial Register (section 27), unless they are subject to an exemption from this obligation. As of I February 2001, such exemption applies e.g. to any individual who has a permanent residential address in one of the European Union s member states or in another state of the European Economic Area i.e. EEA [see section 21(5)] and who starts his business (trade) in the Czech Republic. Branches of foreign banks are also exempt from the obligation of entry in the (Czech) Commercial Register [section 27a(4)J. Otherwise, a foreign person not entered in the (Czech) Commercial Register may participate with his capital in a Czech entity (under section 24), become a Czech entrepreneur's silent partner (section 673 et seq) or establish co-operating relations here.

Individuals who have a permanent residential address in the Czech Republic or in a member state of the EV or EEA and who are entrepreneurs are not required to he recorded in the Commercial Register, but they may apply for registration voluntarily. All entrepreneurs recorded in the Commercial Register must use a double-entry bookkeeping system (section 36), whereas individuals not entered in the Commercial Register may use

a single-entry bookkeeping system.

Section 3a

Unauthorized Business Activity

(1)

The nature or validity of an act in law (transaction) shall not be affected by the fact that the particular person (who concluded the transaction) is forbidden to undertake business activity or lacks authorization for such business activity; this provision shall have no impact on section 49a of the Civil Code.

(2)

A person who effects an activity whose performance requires, under special statutory provisions, notification or authorization (licence), and who does so without such notification or authorization, as well as persons who effect this activity in another person's name

or on another person's account, shall be liable for damage caused thereby; the liability of such persons under special statutory provisions shall be hereby unaffected.

Commentary on section 3a:

Under this new section of the Commercial Code, a business transaction is valid even if concluded by a person (or on behalf of a person) who is not authorized to undertake such business activity.

Section 4 The relations of persons other than entrepreneurs are also subject to the provisions of this Code, if this Code or a particular Act so provides.

Commentary on section 4:

Section 4 supplements the provisions of section 1(1). It extends the applicability of the Commercial Code to persons other than entrepreneurs, such as "competitors" and "consumers" (see the provisions on economic competition and unfair competition). The provisions of Part Three (sections 261 to 755) apply not only to entrepreneurs but also to relations arising between state, municipal and district authorities (and their agencies), on the one hand, and entrepreneurs, on the other, when public supplies and services are provided [section 261(2)]. Section 261(3) stipulates which relationships are subject to the provisions of Part Three. Contracting parties to whom the Commercial Code applies may deviate from the provisions of Part Three if the parties so agree in writing, but they cannot exclude applicability of the mandatory provisions stipulated in section

263. See sections 261 to 263 and section 729 et seq.

Division II

Enterprises and Their Business Assets

Section 5

(1)

For the purposes of this Code, an enterprise is understood to be the aggregate of tangible, personal and intangible components constituting a business activity. Things, rights and other property values which belong to the entrepreneur and which are used to operate the enterprise, or which, because of their nature, are intended to serve this purpose, are appurtenant to the enterprise.

(2)

An enterprise is a collective thing (universitas rerum). Its legal relations shall be subject to the provisions concerning things in the legal meaning. This shall not affect the scope of specific statutory "provisions on real estate (immovables), objects of industrial intellectual (intangible) and other intellectual rights, motor vehicles, etc., if these form part of an enterprise.

Commentary on section 5:

Under the Commercial Code, an enterprise is regarded as an object of legal relations, and it corresponds

roughly to the French concept of "fonds de commerce".
The definition does not mention debts (liabilities) pertaining to an enterprise. Nevertheless, in the case of
sale of an enterprise (see section 476 et seq), debts pertaining to the enterprise are sold together with the
enterprise.

An entrepreneur may own more than one enterprise.

Section 6

(1)

For the purposes of this Code, "business property" (in Czech "obchodnf majetek") is deemed to be the sum of property values (things, receivables and other valuable rights as well as values appraisable in money) which belong to the entrepreneur and which serve, or are intended to serve, his business activity. The business property of an entrepreneur which is a legal (business) entity shall be all the entity's property.

(2)

For the purposes of this Code, "business assets" (in Czech "obchodnf jmenP* or in short "jmenP') means the aggregate of business property and liabilities incurred by an entrepreneur in connection with his business activity. The business assets of an entrepreneur which is a legal (business) entity shall be the aggregate of all

the entity's business property and liabilities.

(3)

"Net worth" (also translated as "net business assets"; in Czech "ciste obchodni jmenf') means business
property reduced by liabilities incurred by an entrepreneur in the course of his business
activity, if such entrepreneur is an individual (a natural person), or business property reduced by (all) liabilities,
if such entrepreneur is a legal entity.

(4)

"Equity capital" (or "equity"; in Czech "vlastni kapital") shall mean own resources used to finance an
entrepreneur's business property, shown in a balance sheet on the side of liabilities.

Commentary on section 6:

Under the Commercial Code, "business property" comprises the tangible and intangible items which are owned by a certain entrepreneur and which are used in his business activity. It also includes receivables (i.e. amounts due to the entrepreneur in connection with his business activity), his business name, know-how, etc. Items which are leased to the entrepreneur do not form part of his business property.

in the case of an entity which engages solely in business activity, its property is identical with its business property. In the case of an individual, who is a sole proprietor, only that portion of his entire property which is connected with his business activity is regarded as his business property. Nevertheless, he is liable for his business obligations with his entire property. His liability is restricted solely to business property if he has established a one-member limited liability company.

An entity's "business assets" are important if it is wound up without liquidation, when they are transferred to the entity's legal successor (see section 69 et seq). "Net worth" ("net business assets") means the value of an enterprise (a business) when all its debts (liabilities) are subtracted from its business assets. Net worth is used for computation of a settlement share and a liquidation share (section 61). Equity (capital) means funds furnished by the owners (partners, members, shareholders) of a business.

Section 7
Organizational Components of an Enterprise

(1)

A "branch" (in Czech "odstepn)' zavod", in German "Zweigbetrieb") is an organizational component of an enterprise which is entered as such in the Commercial Register. In its operations, a branch uses the commercial name (section 8) of the entrepreneur (enterprise) supplemented by an indication that it is a branch of the enterprise.

(2)

Another organizational component of an enterprise shall also have a status similar to that of a branch if the law requires that such organizational component be entered in the Commercial Register.

(3)

An "establishment" (in Czech "provozovna", in German "Betriebsstatte") is understood to be the space in which a certain business activity is performed. Such establishment must bear the entrepreneur's commercial name, to which the name of the establishment or another distinguishing designation may be added.

Commentary on section 7:

h is up to an entrepreneur to decide whether an organizational part of his enterprise will be entered in the Commercial Register. Where the name of the manager (head, director) of an enterprise's branch is recorded in the Commercial Register, he becomes the entrepreneur's statutory organ for the branch [see section 13(3)].

Division in Commercial Name

Section 8

(1)

"Commercial name" (also referred to as "business name"; literally "the name of the firm"; in Czech "obchodnf firma" or "firma") is the designation under which an entrepreneur is entered in the Commercial Register. An entrepreneur shall undertake acts in law under his commercial name.

(2)

An entrepreneur who is not entered in the Commercial Register shall not be subject to the provisions on the commercial name; if such entrepreneur is an individual (a natural person), he shall undertake acts in law (conclude legal transactions) under his full name, and if such entrepreneur is a legal entity, under its designation.

Commentary on section 8:

The new wording of section 8 initially caused confusion about its interpretation, and it is expected that some "technical provisions" will be added to the Code to emphasize that the new definition of the commercial name (in Czech "obchodni firma" or "firma") applies only to entrepreneurs entered in the Commercial Register and not to those entered only in other registers, (e.g. Trades Licensing Office Registers). Under the previous wording, effective until the end of 2000, "commercial name" (in Czech "obchodni jmeno") was defined as "the designation under which an entrepreneur undertakes acts in law when carrying on his business activity".

Section 9

(1)

The commercial name of an individual (sole proprietor) is the person's first name and surname (hereafter referred to as "the full name"). The commercial name of an individual may be supplemented to identify the person of the entrepreneur or the type of his business activity.

(2)

The commercial name of a business company, partnership or co-operative is the name under which it is entered in the Commercial Register. The commercial name of a legal entity which is subject to entry in the Commercial Register on the basis of special statutory provisions and which was established prior to such entry shall be its designation. The commercial name of a legal entity must also include an addendum designating its legal form.

Commentary on section 9:

The commercial name of a sole proprietor consists of his first name and surname and usually includes an
addendum describing his business (e.g. Jan Novdk - opravy aut, Jan Novdk - car repairs), or his place of
business (Jan Novdk, Studenov).
The commercial name of a business partnership, company or co-operative is the name under which such
entity is recorded in the Commercial Register and includes an addendum specifying itslegal form (e.g.
"akciovd spolecnost", "akc. spot." or "a.s.", meaning a joint stock company).

Section 10

(1)

A commercial name may not be such as to be open to confusion with the commercial name of another entrepreneur or misleading (deceitful). It shall not be sufficient to distinguish the commercial name of one legal entity from another by a different legal form, indicated in its addendum. Individuals who are entrepreneurs and have identical first names and surnames and carry on business activities in the same place shall distinguish their commercial names by an addendum under section 9(1).

(2)

Two or more persons who carry on business activity under a common name without having founded a legal entity shall meet obligations which arise in the course of their activity jointly and severally. A common name is not deemed to be a commercial name. Commentary on section 10:

The legal regulation of commercial names is based on several principles, such as:

-the principle of exclusiveness, which means that a new commercial name must differ sufficiently from existing commercial names. This principle is applied to the commercial names of legal entities carrying on identical or similar lines of business. In such a case, it is regarded as insufficient to distinguish the identical commercial names of two entities merely by adding a different addendum specifying their different legal forms. In the case of individuals who are entrepreneurs with identical names and who are engaged in the same or similar line of business, it is sufficient to distinguish their commercial names by indicating different places of business; ~ the principle of stringency, which means that the commercial name mast meet the requirements set out in section 9;

-

the principle of truthfulness, which requires that any information included in the commercial name and indicating a particular line of business reflects the entrepreneur's current business activity;

-

the principle of legality, which requires that the commercial name does not contradict the law;

-the principle of public interest, which means that the commercial name may not include any inadmissible expressions (e.g. those promoting fascism, vulgar terms, etc.). Subsection (2) applies to regulation of the "common" name of an association (a consortium) which is not a legal entity and whose members have concluded an association agreement in accordance with section 829 et seq of the Civil Code.

Section 11

(1)

A person who inherits an enterprise or acquires it on the basis of a contract may only continue to undertake such business activity under the existing commercial name with an addendum indicating the successorship if such person has the explicit consent of the testator or the heirs or his legal predecessor.

(2)

If an entrepreneur who is an individual has changed his name, he may use his previous name in his commercial name, provided that such commercial name is supplemented to include his new name.

(3)

The commercial name of a legal entity shall pass to the successor legal entity together with the enterprise if the original legal entity is wound up (dissolved) without liquidation and its legal successor takes over the commercial name. Should the successor legal entity have a different legal form from the original entity, the supplement indicating the legal form must be changed accordingly.

(4)

Transfer of a commercial name without simultaneous transfer of the enterprise in question is inadmissible. Transfer of a commercial name along with transfer of only a part of the enterprise is possible if the entrepreneur intends to operate the remaining part of the enterprise under another commercial name, or if

the remaining part is dissolved as a result of liquidation.

(5)

If the commercial name of a legal entity includes the name of a partner or member who has ceased to be a partner or member of the entity, the entity may continue to use his name only with his consent. In the event of the death or dissolution of such partner or member, his prior consent or the consent of his heir or his legal successor's consent is required.

(6)

Commercial names of enterprises which belong to one holding-type group [section 66a(7)] may contain some identical elements, provided that an addendum indicates that they belong to such group and their commercial names can be sufficiently distinguished one from another.

Commentary on section 11:

Section 11 regulates the transfer ("prevod"), transference or passage ("prechod") and alteration of commercial names. The transfer of a commercial name without the concurrent transfer of the enterprise, or at least its (organizational) component (part), is inadmissible. When only the organizational component of an enterprise is transferred, it is required that the remaining component of the enterprise operates under another commercial name or is dissolved. Recent amendments introduced regulation of the commercial names of enterprises belonging to one holding-type group (one holding company).

Section 12

(1)

Anybody whose rights have been affected by unauthorized use of his commercial name may demand that the unauthorized user desist from further use of his commercial name and eliminate such practice. He may also demand the surrender of unjust enrichment and the granting of appropriate satisfaction, which may be provided in money.

(2)

If damage has been caused by unauthorized use of a commercial name, compensation for such damage may be claimed under this Code.

(3)

In its judgment the (competent) court may award the plaintiff the right to have the court's judgment published at the defendant's expense, and, depending on the circumstances, the court may also determine the extent, form and manner of publishing such judgment.

Commentary on section 12:

Protection of a commercial name under section 12 is regulated similarly to protection against unfair competition (sections 44-55). Under amended subsection (I), unauthorized use of a commercial name entitles the aggrieved party to demand both the surrender of unjust enrichment and the granting of appropriate satisfaction.

Division IV

Entrepreneurial Conduct

Section 13

(1)

If an entrepreneur is an individual (sole proprietor), he shall act either in person or through his representative. A legal entity acts through its statutory organ or its representative.

(2)

The provisions of this Code on co-operatives and various legal forms of business companies and partnerships define the statutory organ whose acts in law (transactions) are deemed to be acts of the entrepreneur.

(3)

The head (manager, director) of an organizational component of an enterprise [section 7(1) and (2)] whose name is recorded in the Commercial Register is empowered to undertake all acts in law (transactions) concerning the organizational component on behalf of the entrepreneur.

(4)

If an entrepreneur is a legal entity, the entity shall be bound, in relation to third parties, by conduct performed by its statutory organ or liquidator even when such statutory organ or liquidator exceeds the entity's objects (scope of business activity), except when such conduct exceeds the powers entrusted by law, or permitted to be entrusted by law, to the statutory organ or the liquidator.

(5)

When the authorization for entrepreneurial conduct of a legal entity's statutory organ is restricted by the statutes, deed of association or a similar document, or by decisions adopted by the legal entity's organs, this restriction may not be applied in relation to third parties, even if the decisions (resolutions) were published.

Commentary on section 13:

The term "entrepreneurial conduct" or "entrepreneur's conduct" refers to acts in taw (legal acts, transactions) which give rise to, or which amend or discharge, the entrepreneur's obligations.An individual who is an entrepreneur (sole proprietor) may perform acts in law himself, unless his capacity to undertake such acts is restricted due to his being a minor or on the basis of a court decision. Should the latter be the case, the entrepreneur's legal representative will undertake acts in law for the entrepreneur. An entrepreneur who is an individual and fully capable of undertaking all acts in law may appoint a legal representative.

The conduct of a legal entity is subject to section 20(1) of the Civil Code, which states that "acts in law of a legal entity are performed in all matters by those authorized to undertake them, either on the basis of the founding agreement, the deed of formation or the taw" ("statutory organs", also referred to as "statutory bodies"; in Czech "statutdrni orgdny"). The Commercial Code similarly stipulates that the entity performs its acts in law either "through its statutory organ or its representative". Both an entity and an individual may have either a representative (or representatives) who is (or are) authorized to act for the entity or individual on the basis of the law, or a representative who is appointed on the basis of a power of attorney (in Czech "plnd moc"; section 31 et seq of the Civil Code). A power of attorney may be conferred on an individual or a legal entity. If the power of attorney is conferred upon a legal entity, the right to act for the person represented is acquired by the legal entity's statutory organ or the person to whom this statutory organ delegates the power of attorney.

A power of attorney may be conferred jointly upon two or more representatives. In this case, unless it is stated otherwise in the power of attorney, both or all of them must act jointly.

There are also forms of "indirect representation" (see e.g. commission agent's contract, section 577 et seq).

An entrepreneur who is entered in the Commercial Register may, by means of procuration (see section 14), empower the holder of the procuration to perform all acts in law which occur in the operation of the entrepreneur's enterprise. A procuration may only be conferred upon an individual or individuals (i.e. not a legal entity). The statutory organs of individual forms (types) of entities which are regulated by the Commercial Code are stipulated as.follows:

-in the case of a general commercial partnership (unlimited partnership), each partner forms its statutory organ or the partners form its statutory body; a partner may be an individual and/or a legal entity (section 85);

~ in the case of a limited partnership, its statutory organ is formed by the general partners and each general partner is entitled to act solely for the limited partnership, unless the partnership agreement provides otherwise (section 101);

-

in the case of a limited liability company, its statutory organ is one or more executive officers (also referred to as directors; in Czech "jednatele"; section 133);

~ in the case of a joint stock company, its statutory organ is the board of directors ("predstavenstvo"; section 191);

-

in the case of a co-operative, its statutory organ is the managing board ("predstavenstvo"; section 243), although, in the case of a co-operative having fewer than 50 members, the powers of the managing board may be exercised by the members' meeting (section 245).

If a branch or an organizational component of an enterprise, and the head (manager, director) of the branch or other organizational component, are entered in the Commercial Register, he is empowered to undertake all acts pertaining to the branch or organizational component.

Section 13a

Commercial Documents

(1)

Every entrepreneur shall state his commercial name, or name or designation, seat or place of business and identification number on all orders, invoices and business correspondence; persons entered in the Commercial Register or some other register (registry) shall also give details of such entry, including the relevant file number. Information about the amount of registered capital may be stated in commercial documents only if the registered capital has been fully paid up.

(2)

Orders, business correspondence and invoices concerning an organizational component of an enterprise or a foreign person's enterprise (undertaking) shall bear all the information under subsection (1), as well as information (data) on the entry (registration) of this organizational component or enterprise in the Commercial Register, including the relevant file number. (3) In the case of orders, business correspondence and invoices of an organizational component of a foreign person's enterprise or an enterprise of a foreign person, whose seat or permanent residential address is in a state which is not a member state of (he European Union and whose law governing such person's relations does not require business registration, information on the foreign person's registration need not be provided.

Commentary on section 13a:

The provisions of section 13a were introduced by Act No. 370/2000 Coll. Under its Transitory Provisions, printed commercial documents not containing all the particulars prescribed by this Act may be used until 30 June 2001,

Section 14 Procuration

(1)

By means of "procuration" (in Czech "prokura"), an entrepreneur empowers the holder of the procuration (referred to hereafter as the "procurator"; in Czech "prokurista", in German "Prokurist") to perform all acts in law (transactions) which are involved in operating the enterprise, even though a special power of attorney might otherwise be required to perform such acts. A procuration may only be granted to an individual.

(2)

The procuration does not entitle the procurator to alienate (sell) real estate or encumber it, unless this is expressly authorized in , the procuration.

(3)

Limiting the scope of procuration by means of internal instructions has no legal consequences in relation to third parties. (4) A procuration may be conferred on more than one individual, in which case either each procurator is independently empowered to represent and sign for the entrepreneur (enterprise), or a concurrent affirmative manifestation of the will of all, or at least two, of theprocuratorsinvolved is required.

(5)

When a procurator signs documents for the entrepreneur he represents, he shall state the commercial name of the entrepreneur and in an addendum indicate his procuration, endorsing this with his signature.

(6)

A procuration becomes effective when it is recorded in the Commercial Register, If it has been conferred on more than one individual, the petition must specify whether each procurator may sign independently or, when applicable, how many procurators must act jointly.

Commentary on section 14:

A procuration is a special form of empowering an individual (a procurator) to undertake acts in law for an entrepreneur recorded in the Commercial Register. The scope of a procuration is stipulated by law, unlike a power of attorney. A procuration may be conferred on one or more procurators. In the latter case, the entrepreneur decides whether each procurator is empowered to represent and sign for him independently or whether a concurrent affirmative manifestation of the will of all, or at least two, of his procurators is required. Under subsection (2), procurators are not empowered to transfer or encumber the entrepreneur's real estate (immovables), unless the entrepreneur specifically empowers his procurator(s) to do so in the procuration. A procuration is effective as of the date of its entry in the Commercial Register.

Section 15

(1)

Anyone who has been entrusted with performance of a certain activity in the operation of an enterprise is empowered to undertake all acts (transactions) usually involved in the course of such activity.

(2)

If by his conduct (acts, dealings) an entrepreneur's representative exceeds the powers conferred on him under subsection (1), the entrepreneur shall only be bound by such conduct if the third party did not know that the representative had exceeded his powers (authorization) and in the light of all the circumstances of the case, the third party could not have been aware that the representative had exceeded his powers (authorization).

Commentary on section IS:

Acts in law on behalf of a certain entrepreneur may be undertaken by the head (manager, director) of the enterprise's organizational component if his name is recorded in the Commercial Register in accordance with section 13(3). Employees or other persons entrusted with performance of a particular activity in the operation of a certain enterprise may only undertake on the entrepreneur's behalf such acts in law as usually occur in the course of their activity. A power of attorney is to be conferred upon a person if the person is required to undertake an act in law that is outside the range of his usual activity on behalf of the entrepreneur (enterprise) concerned. The entrepreneur is only bound by acts undertaken by his representative on his behalf if the latter exceeded the powers conferred on him and the third party concerned did not know that the representative had exceeded his powers (authorization).

Section 16

The entrepreneur is also bound by a transaction carried out by another individual in the entrepreneur's establishment, provided that the third party involved could not have been aware that the said individual was not authorized by the entrepreneur to carry out such transaction.

Commentary on section 16:

Should a supplier deliver goods to a shop during a lunch break and an opportunist thief takes delivery of the goods and then steals them, the entrepreneur who owns the shop will have to pay far the goods. However, the entrepreneur can relieve himself of ihe obligation to pay for the goods if he proves that the person supplying the goods could have recognized that the goods had been handed over to an unauthorized individual.

Division V

Trade Secrets

Section 17

One of the rights appertaining to an enterprise involves trade secrets (also referred to as "business secrets" or "commercial secrets"; in Czech "obchodnf tajemstvf"). Trade secrets include commercial, manufacturing and technological facts relating to the enterprise which have actual or potential material or nonmaterial value, are not commonly available in the business circles in question, and are to be kept confidential at the discretion of the entrepreneur, who ensures that his enterprise's secrets are protected in a suitable manner.

Commentary on section 17:

The term "trade secret" is not identical with confidential information and facts whose disclosure could cause damage (detriment) to the entrepreneur concerned. Under the Czech Commercial Code a trade secret:

-

involves commercial, manufacturing and/or technological facts, -.pertains to the enterprise,

-

has a value, actual or potential,

-

is not commonly available in the appropriate business circles,

-

is required by the entrepreneur to be kept confidential, and

-

is secured in a suitable manner in accordance with the entrepreneur's instructions. A trade secret is not subject to registration.

Section 18

An entrepreneur operating an enterprise to which the provisions on trade secrets apply has an exclusive right to dispose of such secrets, including the right to grant permission to someone else to use a particular trade secret and to determine the conditions of such use.Commentary on section 18:

The right to a trade secret is construed as an exclusive right (like the right to ownership, patents, etc.). This right is effective against any person other than the entrepreneur operating the enterprise to which the trade secret pertains. The entrepreneur has the right to grant permission to someone else to use a particular trade secret of his and to determine the conditions for such use.

Section 19

The right to maintain a trade secret lasts as long as the facts referred to in section 17 above apply.

Commentary on section 19:

Protection of a trade secret is not limited to a specific period of time, It lasts as long as all the attributes of the particular trade secret are in effect. However, when a trade secret is transferred to a transferee (licensee) under a contract, the transferee may only acquire the right to make use of the trade secret for a fixed period of time.

An entrepreneur whose trade secret is disclosed without his permission (e.g. by publication) may demand damages from the party which disclosed the secret (see section 373 et seq and section 757).

Section 20

An entrepreneur has the right to legal protection against violation or jeopardising of his trade secrets, as in the case of unfair competition.

Commentary on section 20:

In the event that a trade secret is violated (breached) or jeopardized, the entrepreneur to whose enterprise such trade secret pertains also has the right to protect his trade secret under the provisions on protection against unfair competition (see sections 51, 53 and 55).

CHAPTER II
BUSINESS ACTIVITIES OF FOREIGN PERSONS

Division I Fundamental Provisions
Section 21

(1)

Foreign persons (individuals and entities) may engage in business activities on the territory of the Czech Republic under the same conditions and to the same extent as Czech persons, unless the law stipulates otherwise.

(2)

For the purposes of this Code, a "foreign person" (in Czech "zahranicnf osoba") is understood to be an individual whose residential address is outside the territory of the Czech Republic, or a legal entity whose seat is outside the territory of the Czech Republic. A legal person whose seat is in the Czech Republic is deemed to be a Czech legal entity (in Czech "ceska" pravnicka osoba").

(3)

For the purposes of this Code, "business activity by a foreign person on the territory of the Czech Republic" means business activity by a foreign person who has an enterprise, or an organizational component of such, located on the territory of the Czech Republic.

(4)

A foreign person's authorization to carry on a business activity on the territory of the Czech Republic takes effect on the day as of which that person, or that person's organizational component, is recorded in the (Czech) Commercial Register. Such foreign person is authorized to engage in the range of business activities specified in his (its) entry in the Commercial Register. The application for this is filed by the foreign person concerned.

(5)² The provisions of subsection (4) shall not apply to individuals (natural persons) who have a permanent residential address in a member state of the European Union or in some other state of the European Economic Area if such individuals carry on business activity on the territory of the Czech Republic.

² Subsection (5) is effective from 1 February 2001.

Commentary on section 21:

The Czech Commercial Code and the Trades Licensing Act (also referred to as the Trades or Tradesman's Act) distinguish foreign persons from Czech persons on the basis of the location of their seats or residential addresses (abode). A legal entity whose seat is outside the territory of the Czech Republic, or an individual whose (permanent) residential address is abroad, is considered to be a foreign person for the purposes of the Commercial Code and the Trades Licensing Act. A legal entity which has its seat in the Czech Republic, or an individual who has a permanent residential address in the Czech Republic, is regarded by these laws as a Czech person. A Czech citizen who lives permanently abroad is deemed to be a foreign person for the purposes of these laws, whereas a foreign citizen with a permanent residential address in the Czech Republic (i.e. a foreigner who has a permanent residence permit) is regarded as a Czech person [see also section 5(2)of the Trades Licensing Act],

For the purposes of the Foreign Exchange Act (No. 219/1995 Coll.), a resident is defined as an individual who has a permanent residence (abode) in the Czech Republic or a legal entity whose seat is located in the Czech Republic, whereas a non-resident is an individual or a legal entity other than a resident. This Act restricts acquisition of ownership title to real estate by non-residents who are not Czech citizens. A wholly foreign-owned company registered in the Czech Republic is considered to be a resident.

It is important to note the differences in definitions of who is regarded as a resident (fiscal domicile) and as a non-resident for tax purposes under the Income Taxes Act. Also of interest to non-Czech citizens is the Act on Foreigners' Stay and Residence in the Czech Republic. This Act stipulates tfuit, for its purposes, everybody who is not a citizen of the Czech Republic is a foreigner.

For the purposes of the Commercial Code and the Trades Licensing Act, a foreign person's business activity in the Czech Republic means that the foreign person has an enterprise or its component (permanent establishment) located in the Czech Republic. A foreign person may also decide to participate in the business activity of a Czech legal entity by acquiring a business share in it. Foreign persons may undertake business activities in the Czech Republic under the same conditions as Czech persons (the principle of equal treatment). However, particular Acts impose several restrictions on foreign persons' business activities in the Czech Republic and on foreign persons' ownership interests in Czech legal entities which undertake certain specific activities (see e.g. legislation on the stock exchange). The new provisions of subsection (5) enable individuals who have permanent residential address in an EU or EEA country to set up operations (as sole proprietors) in the Czech Republic on the basis of a trade authorization issued under the Trades Licensing Act.

Section 22

Under Czech law, the legal capacity of a foreign person other than a foreign individual (foreign national) is determined by the law under which such person was established. This law also governs the foreign person's internal legal relations and its members' or partners' liability for the person's obligations.

Commentary on section 22:

Some businesses (e.g. limited partnerships) established under the law of a foreign country are not deemed to be legal entities under that law. The legal capacity of a foreign business (firm), its internal relations and its partners' or members' liability are also governed by the foreign law.

Section 23

Foreign persons having the right to engage in business activities abroad are considered to be entrepreneurs under the provisions of this Code.

Commentary on section 23:

The provision that foreign persons authorized to carry on business activities abroad are also regarded as entrepreneurs under the Czech Commercial Code is important for commercial transactions between such entrepreneurs and their Czech counterparts. If Czech law iapplicable to a transaction between a foreign entrepreneur and a Czech entrepreneur, it will be subject to the Czech Commercial Code and not the Civil Code.

Division II
Foreign Persons' Capital Interests in Czech Legal Entities

Section 24

(1)

Under the provisions of this Code, a foreign person may participate in the forming (founding) of a Czech legal entity or become a partner or member in an already existing Czech legal entity for the purpose of engaging in business activity. A foreign person may be the sole promoter (founder) of a Czech legal entity or become the sole owner of a Czech legal entity, provided that this Code permits a sole promoter (founder) or a single owner (for such a form of legal entity).

(2)

A legal entity may be only established under Czech law.

(3)

Foreign persons enjoy the same rights and have the same obligations (duties) as Czech persons in the matters specified in subsection (1).

Commentary on section 24:
A foreign person (an individual or a legal entity) may participate with
his capital in Czech legal entities mainly in the following ways:

-

by establishing a wholly foreign-owned Czech legal entity (an individual may solely form a limited liability company, whereas a legal entity may solely form either a limited liability company or a joint stock company);

-

by becoming one of the founders (together with other Czech and/or foreign persons) of a partnership, company or co-operative;

-

by becoming a member or partner in an already existing partnership,company or co-operative.
A foreign person may also become a silent partner of a Czech entrepreneur (an individual or a legal entity)
under section 673 et seq, or participate in an ad hoc consortium, or participate with his capital
in a Czech legal entity established for some other purpose than carrying on business activity. A legal entity in

the Czech Republic (ie. a Czech legal entity) can now be formed only wider Czech law, whereas until the end
of 2000 it could also be formed under a foreign law.

Division III
Protection of the Capital Interests of Foreign Persons Carrying on Business Activities in the Czech
Republic

Section 25

(1)

The property of a foreign person involved in business activity in the Czech Republic, and the property of a legal entity which includes a foreign capital interest (property participation) under section 24(1), may only be expropriated in the Czech Republic, or restricted in respect of its ownership rights, on the basis of law and in the public interest, if such public interest cannot be otherwise satisfied. An appeal (a remedial instrument) against such decision may be filed with the court.(2) If measures under subsection (1) are taken, compensation must be provided without delay and equal to the full value of the property affected by such measures at the time of their enforcement. It must be

freely transferable abroad in a foreign currency.

(3)

International agreements (treaties, conventions) binding on the Czech Republic and published in the Collection of Laws ("Sbfrka zakonu") shall not be hereby affected.

Commentary on section 25:

Foreign persons' and Czech persons' proprietary interests are protected in the Czech Republic, regardless of whether such persons carry on business activities or not. However, the provisions of section 25 emphasize the protection of foreign persons' property in relation to their business activities. When expropriation of real estate is necessary in the public interest, it is subject to the provisions of the Building Code; compensation for the expropriated property must be provided. Bilateral (inter-governmental) agreements on investment promotion and protection regulate protection in the case of nationalization and repatriation of proi.ts. The Czech crown is now a convertible currency (Foreign Exchange Act, No. 2/9/1995 Coll.)

Division IV

Relocation of a Legal Entity's Seat

Section 26

(1)

A legal entity formed under the law of a foreign state (country) for the purpose of conducting business activity which has its seat abroad may relocate its seat to the Czech Republic if such relocation is permissible under an international treaty binding on the Czech Republic and promulgated in the Collection of Laws or in the Collection of International Treaties, The same shall apply to relocation of a Czech legal entity's seat to a foreign country.

(2)

Relocation (transfer) of a seat under subsection (1) becomes effective on the day as of which it is entered in the (Czech) Commercial Register.

(3)

The internal legal relationships of the legal entity referred to in subsection (1) shall continue to be governed by the law of the state under which the entity was originally established, even after its relocation to the Czech Republic. The same law shall govern liability of the entity's partners or members towards third parties; however, the scope of such liability may not be narrower than that stipulated for an identical or similar form of legal entity under Czech law. Commentary on section 26:

Czech law does not prevent a foreign legal entity which was formed for the purpose of carrying on business activity from relocating its seat to the Czech Republic. The relocation takes legal effect as of the date when this person is entered in the (Czech) Commercial Register and it thus becomes a Czech legal entity. Prior to entry of the entity's seat in the (Czech) Commercial Register, the entity must meet the requirements of Czech law (e.g. it must obtain a trade certificate or a trade licence, if applicable).

CHAPTER III

COMMERCIAL REGISTER

Section 27

(1)

The "Commercial Register" (in Czech "obchodni rejstfik") is a public list in which entries are made of legally required data pertaining to entrepreneurs or organizational components of their enterprises when this is stipulated by law. The Commercial Register is kept by the court (hereafter "the registration court"; in Czech "rejstfikovy soud") determined by another Act.

(2)

A person to whom an entry in the Commercial Register relates is not allowed to raise an objection against another party which acted on the basis of confidence in the entry in the Commercial Register that such entry did not correspond to the actual state of affairs, unless the law provides otherwise.

(3)

Facts (information) and the contents of documents whose publication is prescribed by law may be raised in objections against third parties by the person whom such entry concerns only as of the time of their publication, unless this person proves that the relevant facts were known to the third parties (party) in question. However, facts and the contents of documents cannot be raised in objections against third parties until the sixteenth day after their publication, if the third parties prove that they could not have known about them. Facts entered in the Commercial Register shall be effective in relation to anybody as of the day of their publication, but in relation to a party which was aware of an entry in the Commercial Register such facts are effective as of the day of the entry.

(4)

If there is a discrepancy between facts entered (registered) and those published, or between deposited documents and their published text, the person concerned cannot base his objections against third parties on such published text; however, third parties may refer to the published text, unless the person entered in the Commercial Register proves that the third parties knew the facts as entered in the Commercial Register or

the contents of documents deposited with the Commercial Register.

(5)

Third parties may always refer to the contents of documents and facts in respect of which the obligation of their entry in the Commercial Register and their publication was not yet complied with, provided that effectiveness or validity of such documents is not precluded by their non-entry in the Commercial Register.

(6)

As of the entry into the Commercial Register of persons authorized to bind (he legal entity as its organs, or as members of its organs, no one can claim against third parties violation (breaches) of the statutory provisions, deed of association or statutes with regard to the election or appointment of these organs or their members, unless it is proved that the third person knew of such breach. The provisions of sections 131, 183 and 242 shall not be hereby affected.

(7)

If the (competent) registration court rejects an application (a petition) for entry into the Commercial Register of a person entrusted to bind the legal entity as its organ or as a member of its organ, the election or appointment of such person shall be annulled as of its inception. This shall not affect third parties' rights acquired in good faith. The registration court's decision (ruling) to reject such entry shall be published after it becomes final. Until its publication, the legal entity may not raise the annulment of the (person's) election or appointment as an objection against third parties, unless it proves that they were aware of the said annulment (nullification).

Commentary on section 27:

The Commercial Register is a public list of entrepreneurs. Section 3 generally regulates who can be entered in the (Czech) Commercial Register. Section 28 prescribes the particulars to be recorded, while sections 27a to 27c include provisions on the registry of documents which is to be kept in support of the entries made.

Commercial Registers are kept by regional courts in accordance with section 200d of the Civil Procedure Code. Each regional court makes entries in the Commercial Register relating to those entrepreneurs who are within its jurisdiction (depending on the location of an entity's seat or an individual's place of business).

Section 27a

(1)

The Commercial Register is accessible to everybody. Anyone may inspect any Commercial Register and make copies of the entries therein and abstracts (excerpts) therefrom. On request, the registration court shall make a full copy or a partial copy of an entry or document kept in the registry (collection) of documents, or provide an abstract or confirmation of a particular entry, or issue written confirmation that a particular entry has not been made in the Commercial Register. Official authentication shall confirm that a copy or an abstract (excerpt) is identical to the entry in the Commercial Register or the document deposited in the registry of documents.

(2)

The Commercial Register also includes a registry of documents which must contain the following:

(a)

the deed of association or partnership agreement or some other deed of corporate formation, a copy of the notarial deed containing the resolution of the constituent general meeting of a joint stock company or of the constituent members' meeting of a co-operative, the statutes of a joint stock company, limited liability company or co-operative, if according to the relevant deed of association or a similar deed, statutes are to be issued, and the founding (formation) deed of a state enterprise (hereafter collectively "documents of formation"), together with documents recording subsequent changes thereto; in the case of subsequent changes (alterations) to the documents of formation or statutes, their full effective (valid) wording must be kept in the registry;

(b)

any resolution electing or appointing, or recalling or otherwise terminating the office, of persons who are the statutory organ or a member of such, liquidator, bankruptcy trustee, composition trustee (settlement administrator) or trustee (administrator) concerned with enforced administration, or the head (manager, director) of the enterprise's organizational component [section 13(3)], or any organ regulated by law or members of such authorized to commit (bind) the company or represent it before a court or participate in the management or supervision of the company;

(c)

annual reports, ordinary, extraordinary and consolidated financial statements, unless they are included in the annual report, and, if the financial statements are subject to auditing, also an auditor's report on such statements, and interim financial statements, if their compilation is required by this Code; a balance sheet must be provided with the identification data of the persons who audited it in accordance with the law;

(d)

the resolution winding up a legal entity, any (subsequent) resolution cancelling either the

(previous) resolution on winding up the legal entity or the (previous) resolution on such entity's conversion, the judicial ruling (judgment) nullifying a company (section 68a), the report on liquidation under section 75(1), the list of members under section 75a(l) or the report (statement) on disposal of property under section 75(6);

(e)

the resolution on conversion of legal form and the report on such conversion, the contract on merger, transfer of assets or division or its written draft terms, the draft terms of an entity's division; the report on a merger, transfer of assets (property) or division, and a written report drawn up by an expert on a proposed merger, transfer of assets or division;

(f)

the judicial ruling (judgment) nullifying a general meeting's resolution on the conversion of legal form, a merger, transfer of assets or division (of a company) or nullifying the contract on merger, transfer of assets or division;

(g)

the report drawn up by an expert or experts on the valuation of a non-monetary (i.e. in-kind) investment contribution when a limited liability company or joint stock company is formed, or when such company's registered capital is increased, an expert's report or experts' report on the valuation of a non-monetary (in-kind) investment contribution provided by a limited partner to a limited partnership, an expert's

(h)

report on the valuation of assets on conversions of legal entities (section 69), and the valuation of property under section 196a(3);

(li) the judicial ruling (judgment) issued under the Bankruptcy and Composition Act;

(i)

the contract on transfer of an enterprise or a part of such, the contract on lease (rent) of an enterprise or its part, including the notification of extension (prolongation) of such contract under section 488f(l), and, as appropriate, the deeds proving termination of such lease, and the judicial ruling (judgment) on acquisition of an enterprise by inheritance;

(j)

the relevant controlling contract (section 190b) and the contract on profit transfer (section 190a), including amendments thereto, and, if appropriate, deeds documenting the cancellation of such contract;

(k)

the document of the other spouse proving such spouse's consent to the use of property in joint ownership of the spouses (under other statutory provisions) for business activity, a copy of the notarial deed (record) on an agreement (contract) concerning a change in the scope of joint property or a reservation which concerns the establishment of such joint property (under other statutory provisions), if such agreement was concluded or if a judicial ruling narrowed the joint property of the spouses or, when appropriate, the agreement on income division (under other statutory provisions); in the case of their divorce, the agreement on settlement of their joint property under other statutory provisions, or the judicial ruling (judgment) on the same, or the declaration by an entrepreneur that no such agreement or judicial ruling is yet available;

(l)

the contract on pledging a business share (ownership interest or holding), or a document on transfer of such business share;

(m)

the list of dealings (transactions) under section 64(3);

(n)

the general meeting's resolution under section 210

(o)

the judicial ruling (judgment) ordering execution by distraining a member's (partner's) business share in a company (partnership), or by the sale of an enterprise or part of such, or the judicial ruling (judgment) on discontinuance of such execution, the writ of execution issued on a certain member's business share or ordering the sale of an enterprise or part of such, and the ruling (judgment) halting and cancelling such execution;

(p)

the decision of the Ministry of Education, Youth and Physical Education on giving state approval for the operation of a private university-level educational establishment by a particular person;

(q)

other documents required by law.

(3)

Where the organizational component of an enterprise or a foreign person's enterprise is entered in the Commercial Register, the following documents must be filed in the registry of documents:

(a)

accounting (financial) documents concerning the activity of such organizational component or enterprise in compliance with the duty to supervise, prepare and publish these in accordance with the law governing such foreign person; should such regulation not comply with the requirements of this Code and other statutory provisions, the accounting (financial) documents relating to the activity of an organizational component under section 27a(2)(c) must be filed in the registry of documents;

(b)

the deed of association or partnership agreement, statutes and similar deeds relating to the formation of the foreign person, including amendments (alterations) to these and their full wording;

(c)

the certificate issued by the Commercial Register, or a similar register (registry) in the country where the foreign person has his seat, confirming this foreign person's entry in such register (registry);

(d)

information or a document on the encumbrance of a company's property in another country (state), if

(e)

the validity of such encumbrance is dependent on its publication.

(4)

³ If an enterprise's organizational component or a foreign person's enterprise is entered in the Commercial Register and such foreign person's seat is in an EU member state (country), only the documents under subsection (3)(a), (b) and (c) will be filed in the registry of documents.

(5)

The duty under subsection (3)(a) does not apply to branches of foreign banks.

(6)

Specimen signatures of the persons authorized to commit (bind) a company (entity) under subsection (2)(b) and of the heads (managers) of organizational components of foreign person's enterprises and also of foreign person's enterprises must be filed in the registry of documents.

(7)

Every entrepreneur entered in the Commercial Register shall submit without undue delay, to the registration court two copies of the documents which are to be filed in the registry of documents. Judicial rulings (judgments) which are to be filed in the registry of documents shall be supplied by the court. Where a certain fact is entered in the Commercial Register and the corresponding document is not filed in the registry of documents, and the registration court ascertains this, the registry of documents shall note this and the entrepreneur concerned shall be invited to file such missing document in the registry of documents without undue delay.

Commentary on sections 27a to 27c:

Sections 27a to 27c were added to the Commercial Code as part of the process of harmonization with EU legislation. Both the Commercial Register and documents relating to entries made in the Commercial Register are available to the public and a legal interest need not be proved when requesting information from the Commercial Register or registry of documents.

Section 27b

The registration court shall keep a separate file for each entrepreneur, each organizational component of an enterprise or each foreign person's enterprise in the registry of documents.

Section 27c

If two or more organizational components of one foreign person's enterprise operate on the territory of the Czech Republic, the documents under section 27a(3) may be deposited on file in only one registry of documents, chosen by such foreign person. In this case, the files in the other registries of documents must include a cross-reference to the registry of documents (chosen by the foreign person), including the file number.

Section 28

(1)

The following information shall be entered in the Commercial Register:

(a)

the commercial name of the person, in the case of legal entities, their seat, and, in the case of individuals, their residential address and place of business, if the latter differs from the former;

(b)

its identification number ("identifikacni cislo", or "ICO")?

(c)

the objects (scope of its business activity);

(d)

the legal form of a legal entity;

(e)

the name(s) and residential address(es) of the individual(s) forming its statutory organ or the members of such, including the manner in which such individual(s) will act in the name of the legal entity, and the effective day of commencement, or termination, of their office; where a legal entity is the statutory organ or a member of such, also the full names and residential addresses of the persons (individuals) who are such legal entity's statutory organ or members of such;

(f)

the designation, seat and objects of a branch of an enterprise or of another organizational component of such enterprise [section 7(2)], the name of its head (manager) and his residential address;

(g)

the name of the procurator, his residential address and the manner of his acting for the entrepreneur;

(h)

any other facts required by law.

(2)

The following additional information shall also be entered in the Commercial Register:

(a) in the case of a general commercial partnership (i.e. an unlimited partnership, in Czech "vefejna obchodni spolecnost")) the names and addresses of the partners (individuals) and the commercial name or designation and seat of any legal entity which is a partner in the general commercial partnership;

(b)

in the case of a limited partnership ("komanditni spolecnost")» the names and residential addresses of the individuals who are partners, as well as the commercial name or designation and seat of any legal entity which is a partner in the limited partnership, together with an indication of the identity of the general partner ("kom piemen tar") and the limited partner ("komanditista"), the amount of each limited partner's investment contribution into the registered capital and the extent to which it has been paid up;

(c)

in the case of a limited liability company ("spolecnost s rucem'm omezenym"), the names and addresses of the individuals who are members of the company, as well as the commercial name or designation and seat of any legal entity which is a member of the limited liability company, the amount of the registered capital, the individual amount of each member's investment contribution in the registered capital, and the extent to which each member's contribution has been paid up, the amount of each member's business share (ownership interest, holding), as well as the names and residential addresses of the members of the supervisory board, if established, and the date of commencement, or termination, of their office, and any lien encumbering particular business share, where relevant;

(d)

in the case of a joint stock company ("akciova spolecnost"), he amount of its registered (share) capital and the extent to which it has been paid up, the number, class and type of hares, an indication of whether these are certificated or uncertificated, and their nominal value, and any restrictions applying to the transferability of shares registered in name, and also the names and residential addresses of members of the supervisory board and the date of commencement, or termination, of their office; should the joint stock company have a single shareholder, such shareholder's commercial name or designation and seat or his full name and residential address, shall also be recorded;

(e)

in the case of a co-operative ("druzstvo"), the amount of its registered capital ("recorded basic capital"), as well as the amount of its basic membership contributions;

(f)

in the case of a state enterprise ("statm podnik"), the name of the founder and the amount of the enterprise's basic capital which it is required to maintain, and its determined property (assets).

(3) In the case of a foreign person's enterprise and an organizational component of a foreign person's enterprise, the following information shall be entered in the Commercial Register:

(a)

the designation and seat of the organizational component of the enterprise or the foreign person's enterprise and its identification number;

(b)

the objects (business activity) of the enterprise's organizational component or foreign person's enterprise and its identification number;

(c)

the law of the state (country) governing the relations of such foreign person;

(d)

if the law under letter (c) so provides, the Commercial (Companies) Register or similar register (or registry) where the foreign person is entered, and the number of such registration;

(b)

the commercial name or designation of the foreign person, its legal form, the objects (business activity), and also, if appropriate, the amount of its subscribed registered (share) capital in the foreign currency concerned;

(e)

the information under (l)(e) and the full name and residential address, or place of stay, of the head (manager, director) of the enterprise's organizational component or of the enterprise;

(f)

the winding-up of the foreign person, the appointment of and information identifying the liquidators and their powers, and completion of the foreign person's liquidation;

(g)

the issue of a bankruptcy order, confirmation of the start of composition proceedings or similar proceedings concerning such foreign person;

(h)

the closure of the enterprise's organizational component or the foreign person's enterprise in the

Czech Republic. (4)⁴ In the case of a foreign person's enterprise or an organizational component of a foreign person's enterprise when such person has its seat in a member state of the European Union, only the following information shall be entered in the (Czech) Commercial Register:

(a)

the seat of the enterprise's organizational component or the foreign person's enterprise and its identification number;

(b)

the objects (business activity) of the enterprise's organizational component or the foreign person's enterprise;

(c)

the register in which the foreign person is entered, and the registration number;

(d)

the commercial name and legal form of the foreign person and the designation of the organizational component, if the latter is different from the commercial name;

(e)

the information under subsection (l)(e) and the full name and residential address of the head of the enterprise's organizational component or of the enterprise;

(f)

the \vinding-up of the foreign person, the appointment of liquidators and information about their identity and powers, and completion of the foreign person's liquidation;

(g)

the issue of a bankruptcy order, confirmation of the start of composition proceedings or similar proceedings concerning the foreign person;

(h)

the closure of the enterprise's organizational component or the foreign person's enterprise in the Czech Republic.

(5)

If there is a discrepancy between, on the one hand, the published documents and the information (facts) relating to a foreign person's registration (abroad) and, on the other, the entered information (facts) or published documents relating to the organizational component of the foreign person's enterprise or to this person's enterprise, the texts of the published documents and the entered information concerning the enterprise's organizational component or the enterprise shall take preference in the case of transaction effected with them.

(6)

An entry in the Commercial Register shall also be required when a legal entity is wound up, with the legal ground (reason) for such winding-up stated; when an entity goes into liquidation, with the full name and residental address of the liquidator (or liquidators) being stated, or giving the full name and residental address of the individual who will act as liquidator for the legal entity; when a bankruptcy order is adjudged, with the full name and residental address or the commercial name and seat of the bankruptcy trustee being stated, or the full name and residental address of the person (individual) who will act as such trustee for the legal entity; when a petition for a bankruptcy order is dismissed due to the debtor's lack of sufficient assets to cover the cost of the bankruptcy proceedings; when a judical ruling (judgment) is issued nullifying a legal entity; when a legal entity's liquidation is completed, stating the legal ground for the entrepreneur's striking off the Commercial Register. If an entry in the Commercial Register is based on a judicial ruling (judgment), the relevant entry is made in the Commercial Register without a ruling by the registration court on such entry.

(7)

An entrepreneur shall file a petition for the alteration of a specific entry (fact) or advising the lapse of a certain fact without undue delay after its occurrence.

(8)

An identification number shall be assigned to the entrepreneur by the registration court. The necessary identification numbers shall be communicated to the registration court by the competent state administrative authority.

(9)

In the case of an individual (natural person), his personal number shall also be entered in the Commercial Register, but if a personal number has not been assigned to the individual, the date of birth of such individual shall be entered, irrespective of the reason for which the individual is being recorded therein. If a legal entity is entered in the Commercial Register because such entity is a member of another entity, its identification number shall also be entered, if assigned.

Commentary on section 28:

Entrepreneurs are distinguished one from another by their commercial names.
A legal entity entered in the Commercial Register may also undertake activities other than business activities
and these are recorded in the Commercial Register. An entry concerning a legal entity must always include
the entity's legal form, which determines its statutory organ. The statutory organ's members are also recorded in
the Commercial Register.
Individuals who are regarded as Czech entrepreneurs will be recorded in the Commercial Register if they apply

for such entry.
Identification numbers are assigned to entrepreneurs by the registration court, unless they have already been
assigned.

Section 28a

Entries of Conversions of Legal Entities

(1) In the case of a merger [section 69(3)] of legal entities, an entry shall be made in the Commercial Register (hereafter only "entry of a merger") in respect of a legal entity which is being wound up stating it is due to a merger by acquisition or a merger bythe statutory organ or members of the statutory organ of the successor

persons (entities). The application (a petition) for entry of the transfer of business assets shall be filed jointly by the entity being wound up and the member (partner) to whom (which) the business assets of the entity being wound up are being transferred. An application (a petition) for entry of a conversion of legal form shall be filed by the entity whose legal form is being changed.

(6)

If the seats of the entities being wound up and their successor entities fall within the jurisdiction of different registration courts, the application under subsection (5) may be filed with any of them. A single ruling by the registration court shall contain all the information which is to be entered in the Commercial Register as at the same date. After the ruling permitting such entries takes legal effect, the other registration courts within whose jurisdiction the seats of the persons (entities) concerned fall shall make the relevant entries in the Commercial Register which they keep.

(7)

A merger, transfer of business assets or division shall only be authorized for entry by the court in respect of the entity being wound up (dissolved) and the successor entity as at the same day (date).

Commentary on section 28a:

Section 28a relates to the new regulation of conversion of business entities and changes of their legal forms (subject to sections 69 to 69h and specific provisions on individual legal forms).

Section 29

A branch shall be recorded in the same Commercial Register as the entrepreneur, according to the location of his seat or place of business, or his residential address. If the branch is located within the jurisdiction of another registration court, it must also be entered in the Commercial Register of that court. The same shall apply to any other organizational component, as specified in section 7(2).

Commentary on section 29:

The entry of a branch or another organizational component [section 7(1) and (2)J is part of the entrepreneur's entry in the Commercial Register within whose jurisdiction such entrepreneur has his seat, place of business [section 2(3)] or residential address (Civil Procedure Code, section 200d). If a branch or an organizational component is located within the jurisdiction of another registration court, it must also be entered in the Commercial Register of that court.

Section 30

(1)

Unless a particular Act stipulates otherwise, an applicant (petitioner) for registration in the Commercial Register is required to prove that he has valid trade or other authorization (permission, licence) to engage in the activity which is to be entered in the Commercial Register as his business activity, and this no later than the day the entry is to be made.

(2)

Business activity which, under specific statutory provisions, may only be carried out by individuals shall only be entered in the Commercial Register as the objects (business activity) of a particular business company, partnership, or co-operative if the applicant proves that this activity will be performed by individuals authorized to do so under such provisions.

(3)

A foreign individual whose name is to be entered in the Commercial Register as a person authorized to act for an entrepreneur is required to submit a residence permit (permit for stay) valid for the Czech Republic.

(4)

Before entry in the Commercial Register, the petitioners shall prove the legal ground for use of the premises stated (proposed) as the seat or place of business of the person to be entered in the Commercial Register. A foreign person shall similarly prove the legal ground for use of the premises stated as those where such a person will locate his (its) enterprise or the organizational component of the enterprise. The same shall apply in the case of a change of seat or place of business.

Commentary on section 30:

In the case of a newly-formed Czech business, the persons authorized (empowered) to act on its behalf before its incorporation can obtain the required trade certificate and/or trade licence from the Trades Licensing Office in accordance with the Trades Licensing Act. A residence permit is issued (or not) under the Act on Foreigner's Stay and Residence in the Czech Republic. Written confirmation of lease of the premises (or another document, e.g. confirming ownership title to the premises) where the proposed seat or place of business is to be located, must be submitted to the Commercial Register (registration court).

Section 31

(1)

An application for entry in the Commercial Register shall be filed either by the entitled person whom the entry concerns or by persons so authorized ex lege (in accordance with law), or by persons who have been so empowered in writing by the persons concerned.

(2)

An application for entry into the Commercial Register must be accompanied by documents verifying the

facts which are to be entered in the Commercial Register and by documents which are to be deposited in the registry of documents.

(3)

The entrepreneur shall fulfil his obligations (duties) relating to the Commercial Register without undue delay after a decisive fact (to be entered or amended in the Commercial Register) occurs. In the case of entry of an organizational component of an enterprise or a foreign person's enterprise, such obligation pertains to its head (manager, director).

(4)

The entry shall be made as of the day determined in the application (petition). If the decision (ruling) on entry takes legal effect at a later date, or if the appliction does not include the date as of which the entry should be made, the entry shall be made as of the date when the decision (ruling) concerning such entry takes legal effect.

(5)

The signatures of the persons (individuals) applying for entry into the Commercial Register and the signatures on the power of attorney [under subsection (1)] must be authenticated.

Commentary on section 31:

Documents in support of the data (facts) to be entered in the Commercial Register must he enclosed with the application. The signatures of authorized (empowered) individuals must he authenticated; foreign documents must he legalized and accompanied by official Czech translations.

Section 31a

(1)

A person who has performed the office of statutory organ or member of the statutory or another organ of a legal entity for one year before a bankruptcy petition (relating to such legal entity) was filed, or before the day when the duty to file it arose, but who has not performed the said office with due managerial care, may not be the statutory organ, a member of the statutory or another organ of any legal entity for a period of three years after termination of bankruptcy, or for a period of three years after desmissal of a bankruptcy order due to the entity's lack of assets. This shall not apply if the bankruptcy order was annulled by the appellate court which amended or cancelled the order (ruling, judgment) of the court of first instance on the grounds ,that the conditions for adjudgement of bankruptcy were not met (and this was not due to the legal entity's lack of assets).

(2)

An impediment under subsection (1) shall not be taken into account if the insolvency (bankruptcy) of the legal entity concerned occurred due to a breach of duty by a third party, or if the person concerned is a liquidator who filed a petition for a bankruptcy order when he ascertained that the entity was overburdened with debts. If there are doubts whether the person under subsection (1) performed his office with all due managerial care, it is for this person to prove that he exercised such care.

(3)⁵ If a fact under subsection (1) occurs at a time when the person to whom such fact relates is the statutory organ, or a member of the statutory or another organ of another legal entity, the competent organ (body) of this entity shall either recall the person from office as soon as it learns of the said fact or confirm this person's election or appointment. A majority of at least two-thirds of the votes of attending members or the supervisory board's members shall be required for confirmation of such election or appointment.

Commentary on section 31a:

Section 31a was introduced under Act No. 105/2000 Coll. and its subsection (3) was subsequently amended by Act No. 370/2000 Coll.

Section 32

Courts and other authorities must notify the competent registration court of any discrepancy between the actual legal position (state of affairs) and an entry in the Commercial Register as soon as they become aware of it. Where the content of the entry in the Commercial Register conflicts with mandatory provisions of this Code and no remedy is attained under a procedure contained in other statutory provisions, the registration court shall invite the person concerned to remedy the irregularity himself. If such person is a legal entity and fails to arrange for the necessary remedy, the court may, even without a petition to that effect, decide to wind up and liquidate the entity, if such a step is necessary to protect third parties. This shall not affect the provisions of sections 131, 183 and 242.

Commentary on section 32:

Amendments to facts entered in the Commercial Register may be applied far by an involved person (a legal entity or an individual) or initiated ex officio. The registration court must ascertain whether the legal

requirements for amending the entered facts (particulars) are met.

Section 33

(1)

Any entry made in the Commercial Register and the deposit of a document in the registry of documents shall be published by the registration court without undue delay.

(2)

The registration court shall notify entry of an entrepreneur and the scope of his business activity, as well as amendments and deletions of facts previously entered into the Commercial Register, to the competent tax authority, the statistical authority and the authority which issued the trade or a similar business authorization to the entrepreneur. The registration court shall notify these authorities no later than one week after the making of such entries.

Commentary on section 33:

Registration courts meet the requirement under subsection ( J ) by publishing the required information in the Commercial Bulletin ("Obchodni vestm'k").

Section 34 Implementing provisions shall regulate the scope and manner in which notification of the depositing of a document in the registry of documents are published.

Commentary on section 34:

The present wording of section 34 complies with EV legislation.

CHAPTER IV

BUSINESS ACCOUNTING

Section 35

Entrepreneurs shall keep accounts in the scope and manner stipulated in a particular Act.

Commentary on section 35:

The general principles of bookkeeping are prescribed in the Accounting Act, while_ the detailed provisions are set out in the Accounting Procedures for Businessmen (Entrepreneurs). Accounts must be in Czech crowns and in some specified cases also in a foreign currency.

Section 36

Entrepreneurs entered in the Commercial Register (referred to as "registered entrepreneurs" or "recorded entrepreneurs"; in Czech "zapsanf podnikatele'") shall use a double-entry bookkeeping system which reflects the position of, and movements in, their business property and liabilities, and the net business assets (net worth), costs (expenses), income (revenues) and trading result (profit or loss) of their enterprise.

Commentary on section 36:

The Accounting Act requires consistency. An accounting unit may not change its methods of valuation or depreciation during the same accounting period. Most entrepreneurs are required to draw up the following financial statements: a balance sheet ("rozvaha"), a profit and loss account (or income statement; "vysledovka") and footnotes (or notes; "pfiloha").

A double-entry bookkeeping system must be used by all persons entered in the Commercial Register {and by some others in accordance with the Accounting Act).

Section 37

(1)

Unless a particular Act provides otherwise, entrepreneurs who are not entered in the Commercial Register shall use a single-entry bookkeeping system to document their receipts and expenditure and business property and liabilities in such a manner as to enable determination of their net business assets (net worth) and the financial results of their business activity,

(2)

Entrepreneurs who are not entered in the Commercial Register may use a double-entry bookkeeping system instead of a single-entry bookkeeping system provided that they use it for the entire accounting period.

Commentary on section 37:

A single-entry bookkeeping system is used by sole proprietors (sole traders) who are not entered in the Commercial Register and by various "not-for-profit" organizations with relatively low expenditure and/or income.

Section 38

The accounting period shall be one calendar year. Commentary on section 38:

As of I January 2001, the accounting period, and also the taxable period (for income taxes) may differ from the calendar year if there are valid reasons for this and the competent financial office (tax administrator) approves. The wording of the Commercial Code is expected to be amended accordingly.

Section 39

(1)

A joint stock company must have ordinary and extraordinary financial statements audited under other statutory provisions. Other business companies, partnerships and co-operatives have this duty only if a particular Act so requires.

(2)

An entrepreneur shall provide the auditor with all accounting documents and necessary explanations for the purpose of the audit under subsection (1) above.

(3)

The cost of the audit shall be borne by the entrepreneur whose financial statements are audited.

Commentary on section 39:
Section 30 of the Accounting Act sets out the requirements of auditing for:

- accounting units (entities) which are subject to particular statutory provisions, such as joint stock companies, banks and insurance companies;

- other business entities if, in the year prior to the year for which the financial statements are prepared, their net turnover exceeded CZK4Q million (about USD IJ 5 million) or their net business assets (net worth) exceeded CZK 20 million (USD 575,000);

- consolidated financial statements, in the case of a consolidated group whose net assets exceed CZK 300 million and net turnover exceeds CZK 600 million.

Section 40

Joint stock companies shall publish data from their audited financial statements; other business companies, partnerships and co-operatives must have their financial statements audited only if this is required by a specific Act.

Commentary on section 40: Joint stock companies whose financial statements must be audited are also required to publish the data from these financial statements. In accordance with section 769 of the Commercial Code, such information is published in the Commercial Bulletin Financial statements, together with the auditor's report (if the latter is compulsory), are filed in the registry of documents kept by the registration court.

CHAPTER V

ECONOMIC COMPETITION

Division I

Participation in Economic Competition

Section 41

Individuals and legal entities taking part in economic competition (hereafter referred to as "competitors"), even though they are not entrepreneurs, have the right freely to develop their competitive activity in order to achieve economic benefits and to associate for the pursuit of such activity. However, they shall observe the legally binding provisions on economic competition and may not abuse their participation in such economic competition.

Commentary on section 41:

The term "competitor" is wider than "entrepreneur", but it is not defined. The Czech statutory provisions also do not include a definition of "economic competition".

Section 42

(1)

Abuse of participation in economic competition means unfair competitive conduct (hereafter referred to as "unfair competition") and unpermitted restriction of economic competition.

(2)

Unpermitted restriction of economic competition is regulated by a particular Act.

Commentary on section 42: The general provisions on unfair competition are included in the Commercial Code (sections 44 to 55), The Act on Protection of Economic Competition (also referred to as the Antitrust Act) is intended to protect economic competition of products and services on the market

against restriction, distortion or elimination (referred to as "interference"). The Office for the Protection of Economic Competition, which succeeded the Ministry for Economic Competition, has extensive powers in protecting economic competition.

Section 43

(1)

Unless it is stipulated otherwise in international treaties binding on the Czech Republic and promulgated in the Collection of Laws or the Collection of International TYeaties, the provisions of this Chapter shall not apply to business conduct having effects abroad.

(2)

Foreign persons who carry on business activity in the Czech Republic under this Code shall have equal status with Czech persons in respect of protection against unfair competition. In addition, foreign persons may seek protection on the basis of international treaties (agreements) binding on the Czech Republic, provided that these treaties have been promulgated in the Collection of Laws or the Collection of International IVeaties; or if there are no such treaties, they may do so on the basis of reciprocity.

Commentary on section 43:

Subsection ( 1 ) restricts the applicability of the (Czech) provisions on competitive conduct to the territory of the Czech Republic. The Czech Republic is harmonizing its statutory provisions on interference in economic competition with the EU legislation.

Division II

Unfair Competition

Section 44

Fundamental Provisions

(1)

"Unfair competition" (in Czech "nekala soutez") means conduct in economic competition which conflicts with the accepted practices of competition and which may be detrimental to other competitors or customers. Unfair competition is prohibited.

(2)

Unfair competition under subsection (1) means in particular thefollowing:

(a)

misleading advertising;

(b)

misleading marking of goods and services;

(c)

conduct contributing to mistaken identity;

(d)

parasitic use of the reputation of another competitor's enterprise, products or services;

(e)

bribery;

(f)

disparagement;

(g)

comparative advertising;

(i)

violation of trade secrets;

(j)

endangering the health of consumers and the environment.

Commentary on section 44:

The general definition of unfair competition covers instances of unfair competition outlined in particular in subsection (2).

Section 45

Misleading Advertising

(1)

"Misleading advertising" (in Czech "klamava reklama") is the dissemination of information by a competitor about its own or someone else's enterprise, products or services, with the aim of creating misleading perceptions as to the advantage of its own or someone else's enterprise at the expense of other competitors or consumers.

(2)

"Dissemination of information" (in Czech "sffeni udaju") is deemed to be communication through the spoken or written word, the press, pictures, photographs, radio or television broadcasts or other communications media.

(3)

The use of a fact which in itself is true but which, owing to the circumstances or context in which it is presented, may be misleading, is also considered to be misleading.

Commentary on section 45:

In addition to the Commercial Code's provisions, the Consumer Protection Act stipulates that "no one may mislead a consumer, particularly by providing untruthful, unsubstantiated, incomplete, inaccurate, unclear, ambiguous or exaggerated information, or by concealing information about the real properties of products or services". Compliance with the Consumer Protection Act is mainly supervised (monitored) by the Czech Commercial Inspectorate ("Ceskd obchodni inspekce"). Advertising is also subject to the Radio and Television Broadcasting Act.

Section 46
Misleading Marking of Goods and Services

(1)

"Misleading marking of goods and services" (in Czech "klamavé označení zboží a služeb") means the marking of goods and services in such a way as to create an erroneous impression in the market place about the country, region or location where the goods or services so marked originated or are made by a certain manufacturer (producer), or the special characteristics or quality of such goods or services. It is irrelevant whether such markings appear on the goods, the packaging, or in commercia! documentation, etc. It is also irrelevant whether the misleading marking was provided directly or indirectly, or by what means. Section 45(3) applies as appropriate (mutatis mutandis).

(2)

Misleading marking also means incorrect marking of goods or services with expressions such as "(of) the kind", "(of) the type", or "(using) the method" in order to distinguish such goods or services from an authentic original, if such marking is capable of creating an erroneous impression with regard to the origin or nature of the goods or services involved.

(3)

The marking of goods and services which is commonly used in business to describe a particular kind or a particular quality is not considered misleading, unless accompanied by additional words which might be misleading, e.g. "genuine", "original", etc.

(4)

The above provisions do not affect rights and duties ensuing from the registered designation (marking) of products, trademarks, protected plant varieties and livestock (animal) breeds, as stipulated by particular Acts.

Commentary on section 46:

In addition to the provisions of the Commercial Code, the misleading (deceptive) marking of goods and services may also be subject to the provisions of particular Acts, such as the Act on Protecting the Designation of the Origin of Products, the Trademarks Act, etc. The Czech Republic has adopted the international regulation of trademarks laid down in the Madrid agreement, the registration of the origin of goods set out in the Lisbon agreement and the protection ofintellectual property as defined in accordance with the Paris agreement.

Section 47

Conduct Contributing towards Mistaken Identity

"Conduct contributing towards mistaken identity" (in Czech "vyvolavání nebezpečí záměny") means:

(a)

using a commercial name or designation or the special designation of an enterprise which is already legitimately being used by another competitor;

(b)

using the special designation of an enterprise, a special marking or a specific design related to products, services, or commercial materials which customers associate with a particular enterprise, or a particular branch of an enterprise (e.g. packaging, printed matter, catalogues, advertising materials, etc.);

(c)

imitating a competitor's products, packaging or performance, unless this imitation involves elements which are predetermined functionally, technically or aesthetically, and the imitator has taken every possible measure which could be required of him to avoid the danger of mistaken identity, or at least has substantially restricted such danger; if such conduct is capable of creating the danger of mistaken identity or a misleading notion about a particular enterprise, its commercial name or special designation, by using such designation or by imitating the products or services of another competitor.

Commentary on section 47:

The use of one and the same commercial name by two different entrepreneurs is also subject to the provisions of sections S 10 12. In the case of use of a competitor's special enterprise markings, the decisive consideration is whether customers associate them with a particular enterprise. Protection is also granted when the imitation of a competitor's products and/or their packaging creates, or contributes to, mistaken identity.

Section 48
Parasitic Use of Reputation

"Parasitic use of reputation" (in Czech "parazitovam na povesti") means the use by a competitor of the reputation of another competitor's enterprise, products or services to gain extra benefits for its own or a third party's business activity which would not otherwise have been achieved by such person.

Commentary on section 48:

Parasitic use of reputation often takes the form of expropriating another competitor's goodwill.

Section 49

Bribery

Under this Code, "bribery" (in Czech "podplaceni") means conduct whereby.

(a)

a competitor offers, promises or renders benefits, directly or indirectly, to an individual who is a member of another competitor's statutory or similar organ or employee (or an individual of similar status) to gain an advantage by means of unfair conduct for himself or a third party (another competitor) to the detriment of other competitors, or an illegal competitive advantage; or

(b)

an individual under letter (a) directly or indirectly demands or solicits or accepts any kind of benefit for the same purpose.

Commentary on section 49:

A benefit (bribe) under section 49 may be material (e.g. money) or non-material (e.g. honorary membership). Bribery is further subject to the provisions of the Criminal Code.

Section 50

Disparagement

(1)

"Disparagement" (or "disparaging"; in Czech "zlehcovanf") means conduct whereby one competitor states or disseminates false information about the circumstances, products or services of another competitor, such false information being likely to be detrimental. (e)

(2)

Disparagement also involves stating and disseminating truthful information about the circumstances, products or services of another competitor, if such information is capable of causing detriment to that competitor. However, it is not considered unfair competition if a competitor is forced by circumstances to such conduct (e.g. in justified defence).

Commentary on section 50:

Non-material detriment caused by disparagement usually involves jeopardizing a particular competitor's reputation and goodwill. Section I9h of the Civil Code also includes a provision intended to prevent "unjustified interference which harms the good name of a particular legal entity".

Section 50a

Comparative Advertising

(1)

Comparative advertising" ("srovnavaci reklama") means any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor,

(2)

Comparative advertising shall be permitted when:

(a)

it is not misleading;

(b)

it compares only goods or services meeting the same needs or intended for the same purpose;

(c)

it objectively compares only such features of the goods or services which are fundamental (material), relevant, verifiable and representative; as a rule, several features must be compared and these may include the price; only exceptionally may comparison of one feature be permitted, provided that such comparison fully meets all the stipulated conditions;

(d)

it does not create confusion in the market place between the advertiser and a competitor or between their enterprises, goods or services, or trademarks, commercial names or other distinguishing marks typical of one or the other;

(e)

it does not discredit a competitor's enterprise, goods or services, or trademarks, commercial name or other distinguishing marks which are typical of the competitor or of its activity, relations or other related circumstances;

(f)

in the case of products for which a competitor is entitled to use a protected designation of origin, it relates in each case to products with the same designation;

(g)

it does not take unfair advantage of the reputation of a competitor's trademark, commercial name or other distinguishing marks which have become typical of such competitor, or of the designation of origin of competing products;

(h)

it does not present goods or services as imitations or replicas of goods or services bearing a protected trademark or trade name or commercial name.

(3)

Any comparison referring to a special offer shall indicate in a clear and unequivocal way the date on which the offer ends or, where appropriate, that the special offer is subject to availability of the goods or services which are offered. When the special offer has not yet begun, the competitor must also state the date of the beginning of the period during which the special price or other specific conditions shall apply.

Commentary on section 50a:

Section 50a has been added to the Commercial Code to include the provisions on comparative advertising in the process of harmonization with the EU legislation.

Section 51

Violation of Trade Secrets

"Violation of a trade secret" (in Czech "poruseni' obchodnftio tajemstvi") means conduct whereby an individual illegally informs another person about a trade secret (section 17), or provides him with access to it, or exploits it for his own or another person's benefit, using it in competition, and of which the individual learned of:

(a)

as a result of having been entrusted with that secret, or by having gained access to it through technical documentation, instructions, drawings, models or patterns) on the basis of an employment or other relationship with the competitor, or while performing a function to which the individual was appointed by a court or other authority; or

(b)

through his own or another person's illicit conduct.

Commentary on section 51:

A trade secret is defined in section 77 of the Commercial Code. The right (title) to it is regulated in sections 18 to 20. Section J/ also enables other persons (e.g. a licensee) to claim protection for a particular trade secret.

Section 52

Endangering the Health of Others and the Environment

"Endangering the health of others and the environment" (in Czech "ohrožování zdraví a životního prostředí") is conduct whereby a competitor distorts the conditions of economic competition by manufacturing and marketing products, or by carrying on activities, which endanger health or the environment as protected by law, in order to acquire benefits for himself or for another person at the expense of other competitors or consumers.

Commentary on section 52:

Section 52 applies to conduct whereby a competitor benefits from not observing a particular limit (standard) set for manufacturing (processing) or the sale of certain products.

Division III

Legal Protection against Unfair Competition

Section 53

Persons whose rights have been violated or jeopardized as a result of unfair competition can demand that the offender desists from such conduct and eliminate the improper state of affairs (resulting from it). They can also demand appropriate satisfaction, which may be rendered in money, compensation for damage (i.e. damages) and the surrender of unjust enrichment.

Commentary on section 53:

Section 53 specifies what can be claimed by a person whose rights have been violated or jeopardized as a result of unfair competition. Under section 149 of the Criminal Code, "an individual who \vilfidly harms the reputation or jeopardizes the operation or development of a competitor's company (enterprise) by conduct which is contrary to the provisions on economic competition or the practice of competition, will be punished by imprisonment for a period of up to one year, or by the, imposition of a pecuniary penalty or forfeiture of a specific thing."

Section 54

(1)

The right to demand that an offender desists from his illicit conduct and eliminates the improper state of affairs may also be asserted, except for the cases referred to in sections 48 to 51, by a legal entity authorized to protect the interests of competitors or consumers.

(2)

If the right to require that the offender desists from his illicit conduct or eliminates the improper state of affairs is claimed in the cases stipulated in sections 44 to 47 and in section 52 by a consumer, the offender must prove that he did not behave in a way contrary to the provisions on unfair competition. The same shall apply to the duty of the offender to damages (i.e. compensation for damage) if clarification is needed as to whether damage was caused by conduct regarded as unfair competition and to the other party's right to appropriate satisfaction and the surrender of unjust benefit; however, the amount of damage caused, the significance and extent of other detriment, the nature and extent of unjust enrichment must always be proved by the claimant, even if he is a

consumer.

(3) After the initiation or final conclusion of litigation relating to an improper state of affairs or the requirement to desist from certain conduct, claims for damages made by other entitled persons which are identical and arose from the same conduct shall not be admitted; this shall not affect the right of such other persons to join the initiated litigation as subsidiary (secondary) parties under the general statutory provisions. A final judgment issued on such claims for damages filed by a single entitled person ("class actions") shall also be effective with regard to the other entitled persons.

Commentary on section 54:

The right to defend the interests of competitors or consumers also pertains to a legal entity, such as an entrepreneurs' association, a consumers' union, etc.

Section 55

(1)

In the case of hearings during litigation (disputes) pursuant to the preceding provisions, the court may rule on the basis of a motion or ex officio that the public shall be excluded, if a public hearing would jeopardize a trade secret or the public interest.

(2)

The court may rule in its judgment that the party whose motion is granted has the right to publish the judgment at the expense of the party which lost the case and, depending on the circumstances of the case, the court may rule on the extent, form and method of publishing such judgment.

Commentary on section 55:
Subsection (1) above relates to the provision of section 1/6(2) of the Civil Procedure Code, which similarly
stipulates that the public can be excluded from hearings "if a public hearing would jeopardize a state,
economic, commercial or official secret...".

PART TWO
BUSINESS COMPANIES, PARTNERSHIPS AND CO-OPERATIVES

CHAPTER I BUSINESS COMPANIES AND PARTNERSHIPS

Division I General Provisions

Section 56

(1)

A business company* (hereafter referred to as "a company", in Czech "spolecnost") is a legal entity formed for the purpose of carrying on business activity. The term "company" (in this chapter) refers to a general commercial partnership (i.e. an unlimited partnership; in Czech "verejna obchodni spolecnost"), a limited partnership ("komanditni spolecnost"), a limited liability company ("spolecnost s rucenim omezenym") and a joint stock company ("akciova spolecnost"). A limited liability company and a joint stock company may also be formed for another purpose, unless a particular Act prohibits it.

(2)

Individuals and legal entities'may be promoters (founders) of a company and participate in its business activity, unless the law provides otherwise.

(3)

The activity defined in section 30(2) may be carried on only by a company through the individuals referred to in that section. The responsibility (liability) of these individuals under particular statutory provisions remains thereby unaffected.

(4)

An individual or a legal entity may become a member* with unlimited liability only in one company (entity).

(5)

The provisions on individual forms of companies stipulate the extent of the members' liability for their company's (partnership's) obligations. Their liability is governed mutatis mutandis by the provisions on suretyship (section 303 et seq), unless other provisions of this Code imply otherwise. If the property of a company is subject to a bankruptcy order, the members are liable for those of the company's obligations (debts) which have been claimed in time by creditors and which have not been satisfied during the bankruptcy proceedings.

(6)

After the dissolution of a company, its members remain as liable for such company's obligations as they were during its existence. Should the winding-up of a company be associated with its liquidation, the company's members shall be liable for its obligations (debts) up to the extent of their share in the liquidation remainder [section 61(4)], but at least to the same extent to which they were liable while the company was in existence. The members shall reach a settlement among

*

"Obchodni" spolefinost", which is translated in this publication as "a business company", is also referred to as a "commercial company". It should be remembered when reading sections 56-75 that the term "company" also refers to a general commercial partnership and a limited partnership.

*

The term "member", in Czech "spolecnik", refers in this chapter collectively to a partner of a general commercial partnership, a general partner and a limited partner of a limited partnership, a member of a limited liability company and a shareholder of a joint stock company.themselves in the same manner as in the case of their liability during the existence of the company.

Commentary on section 56:

Under Czech law, general commercial partnerships (unlimited partnerships), limited partnerships, limited liability companies and joint stock companies are all regarded as legal entities (being referred to in this Chapter collectively as "companies"). Under laws of some other countries partnerships are not legal entities.

The Commercial Code includes detailed provisions on general commercial partnerships (sections 76-92e), limited partnerships (sections 93-104e), limited liability companies (sections 105-153e) and joint stock companies (sections 154-220zb) and also on co-operatives (sections 22}-260). A limited liability company can even be formed and owned by a single individual or legal entity; the maximum number of the company's members is 50. A joint stock company can be founded by a single legal entity (but not by one individuan( � the number of founders is not otherwise restricted.

The legal farm of entities for certain business activities is stipulated by other Acts (e.g. in the case of a stock exchange).

In addition to business companies (entities), there are also public service companies which are subject to the Act on Public Service Companies (No. 248/1995 Coll.) and which provide "publicly beneficial services". Public service companies are entered in the Register of Public Service Companies. Business activity which, under the Trades Licensing Act, can only be carried out by individuals is entered in the Commercial Register as a particular company's (entity's) business, if the applicant proves that the business activity will be carried on by individuals who have the required trade certificate or trade licence.

Although all partnerships and companies are regarded as legal entities, there are differences in their income tax regime.

Individuals are generally liable to Czech personal income tax if they spend at least 183 days in a single year (12 months) in the Czech Republic, whereas individuals who are domiciled abroad are liable to (Czech) tax on income generated solely from sources in the Czech Republic. An individual or an entity may bear unlimited liability only in one entity. Under Czech law, unlimited liability for the entity's obligations is borne by any partner in a general commercial partnership and any general partner in a limited liability partnership.

Section 56a

(1)

Misuse of a majority or a minority of votes in a company is prohibited.

(2)

Any conduct which is intended to put some of the company's members at a disadvantage by means of malpractice shall be prohibited.

Commentary on section 56a:

Subsection ( ! ) should help to protect investors' interests in general terms, while subsection (2) can be referred to in specific cases of business malpractice which are not otherwise legally regulated.

Section 57

Formation of a Company

(1)

Unless other provisions of this Code stipulate otherwise, a company is formed (founded) on the basis of a deed of association, signed by all of the promoters (founders). The promoters' (founders')signatures must be officially authenticated. The deed of association of a limited liability company or a joint stock company must be in the form of a notarial deed.

(2)

The deed of association may also be signed on behalf of the promoter (founder) by a person authorized to do so by a power of attorney ("p!na moc"), accompanied by the officially authenticated signature of the promoter. Such power of attorney must be enclosed with the deed of association.

(3)

Where this Code permits the formation of a company by a single person, the deed of association shall be replaced by a founder's deed (or deed of formation; "zakladatelska listina") in the form of a notarial deed. The founder's deed must include the same essential data as the deed of association.

Commentary on section 57:

The Commercial Code describes the formation of a company as a process in which promoters (founders) aim at incorporation (registration or entry) of a newly-formed company (or partnership) in the Commercial Register.

The effective day of incorporation is the day when the company (or partnership) officially comes into being.

Section 58

Registered Capital

(1)

The registered capital (also referred to as "share capital"; in Czech "zdkladnf kapital") shall mean the total of all its members' monetary and nonmonetary investment contributions a member's "investment contributions"; in Czech "vklad") to its registered capital and expressed in pecuniary terms (in units of Czech currency). A member participates in the registered capital by his investment contribution.

(2)

It is mandatory for a limited partnership, a limited liability company and a joint stock company to have registered capital. Its amount shall to recorded in the Commercial Register when the law so stipulates.

Commentary on section 58;

Registered capital ("share capital", "capital stock" or "basic capital") expresses the monetary amount of assets invested in a company (entity). Its registered capital must be distinguished from its net worth [net business assets ~ see section 6(3)]. In the case of a profitable company, its net worth is higher than its registered capital, whereas the net worth of a loss-making company falls below the level of its registered capital on incorporation.

As of I January 2001 new amounts of registered capital are prescribed for a limited liability company and a joint stock company.

Section 59
Investment Contributions

(1)

A member's investment contribution in a company shall be the aggregate of his pecuniary funds ("a monetary investment contribution) and (or) another asset appraisable in money ("a nonmonetary investment contribution" or "in-kind investment contribution") which a particular person undertakes to invest in the company in order to acquire an ownership interest (i.e. a business share) in such company or to increase such ownership interest.

(2)

A nonmonetary (in-kind) contribution may only be an asset with an economic value which can be ascertained and which the company can utilise in pursuing the object of its activity. It is prohibited to make investment contributions in the form of an undertaking to perform some work or supply a service. A nonmonetary contribution must be provided before the amount of the registered capital is recorded in the Commercial Register. Should the company not acquire ownership title to a particular object of a nonmonetary investment contribution, even though such nonmonetary contribution is regarded as paid up, the member who undertook to provide such contribution must pay its value in money and the company must return such nonmonetary contribution to this member, unless the company is under obligation to surrender it to the entitled person. If a member transfers his business share in the company to another person, the transferee shall be liable to pay the value of the nonmonetary contribution in money, unless such business share was acquired on a public market,

(3)

The value of a nonmonetary contribution must be stated in the deed of association or the deed of formation (founder's deed), unless this Code provides otherwise. The value of a nonmonetary contribution to a limited liability company or a joint stock company, or of a nonmonetary contribution made by a limited partner to a limited partnership, shall be based on a report drawn up by an expert who is independent of the company (partnership) and appointed by a court. If the value of a nonmonetary investment contribution exceeds CZK 10 million, or if the object of such contribution is an enterprise or a part of such, know-how, or if the company is formed by one promoter (founder) or has one member, a joint report drawn up by two independent experts, appointed by the court, shall be required. A petition (proposal) for appointment of an expert or experts shall be Hied by the promoter or future founder or the company (hereafter only "the petitioner"). The parties to such proceedings shall be the petitioner and an expert, and the proceedings shall be held at the court which has general jurisdiction over the petitioner. The court shall not be bound by the petitioner's proposal. The court shall recall an expert, acting on the basis of a petition filed by the company concerned, if the expert fundamentally breaches his duties. The court shall rule on the determination of a particular expert or his recall within 15 days of delivery (receipt) of the petition. Remuneration for the drawing up of an expert's report shall be paid by the company on the basis of a contract. Should the company not come into being, such remuneration shall be paid jointly and severally by the promoters. Should the parties fail to agree on the amount of remuneration, the court which appointed such expert shall determine its amount, acting on the basis of a petition filed by any of the parties.

(4)

The expert's report shall contain at least:

(a)

a description of the nonmonetary contribution;

(b)

the methods of valuation used, stating whether the value of such nonmonetary investment contribution established by use of these methods is equal to at least the total issue price of the shares to be, issued as counterperformance for the nonmonetary contribution, or to the amount which is to be counted as (part) payment in respect of a particular member's contribution to the limited liability company's registered capital;

(c)

the amount at which such nonmonetary contribution is valued.

(5)

If a contribution is in the form of an enterprise or a part of such, the provisions on the contract of sale of such
enterprise or its part shall apply as appropriate; if such enterprise includes real estate,
the agreement (contract) on the member's contribution must also contain a statement under section 60(1).

(6)

If an investment contribution or its part is in the form of assignment (transfer) of a receivable, the provisions on assignment of receivables shall apply as appropriate. A member who assigns a receivable to a company as his investment contribution is liable for payment of such receivable up to the amount of its valuation.

(7)

If the value of a nonmonetary contribution does not reach the originally agreed amount by the time of the company's incorporation, the member who made such nonmonetary contribution must pay the difference in cash, unless the deed of association or statutes indicate another manner of settling the difference. The same shall apply to a member who makes a nonmonetary contribution after incorporation of the company, should the value of this not reach the valuation amount by the time when investment contributions are to be fully paid up. If a member's contribution is in the form of establishment or assignment of the right to use something for a fixed period and such right extinguishes prior to expiry of the agreed fixed period, the member shall pay cash for the detriment thus caused. If a member transfers his business share to another person, the transferee shall be liable for fulfilment (discharge) of this duty, unless such business share is acquired on a public market.

(8)

A receivable from a company cannot be used as an in-kind investment contribution. Such receivable may only be off-set against a company's receivable when it is in the form of a member's paying-up of an investment contribution or the issue price (of a share) if this possibility is stipulated by law.

Commentary on section 59:

The features of an investment contribution are that:

-

it is an asset in cash or in other forms, such as a thing, know-how, etc.;

-

it has a value which can be expressed in money terms; -it is transferableA nonmonetary investment contribution must he provided prior to entry of the registered capital in the Commercial Register i.e. prior to either the first entry or any subsequent entry of the new amount of

the registered capital. Subsection (4) stipulates the particulars to be included in an expert's report on the valuation of an in-kind investment when such report is required.

In the case of real estate which is to be registered in the Real Estate Cadastre (Land Registry), an investment contribution is regarded as paid up (i.e. provided) when the member makes a written statement on the transfer and hands over the real estate to the administrator (manager) of investment contributions. However, the transferee (the company) only legally acquires title to the real estate on registration of this transfer in the Real Estate Cadastre.

In the case of movables, the right is usually acquired when the thing is handed over (i.e. on receipt of the movable asset).

Section 60
Administration and Payment of Investment Contributions Before Incorporation

(1)

Prior to the legal existence (incorporation) of a company, the promoter so entrusted in the deed of association shall administer (manage) the paid-up investment contributions or portions thereof. The administration of monetary investment contribution may also be entrusted to a bank, even if the bank is not one of the promoters (founders). Ownership title to these contributions or portions of such which were paid up prior to incorporation of the company, or, any other right to such contributions, shall pass to the company on the day of its incorporation (registration, i.e. entry in the Commercial Register). Ownership title to real estate shall be acquired on the basis of registration of such title in the Real Estate Cadastre or of a written statement by the party (person) investing such real estate. The signature on the statement must be authenticated. Other property values to which a right is acquired on entry in a special registry (register) shall only pass to the company on the effective date of such entry.

(2)

If a nonmonetary investment contribution is in the form of real state, the investor concerned shall hand over

a written statement under subsection (1) to the person administering paid-up contributions ("the administrator of contributions" or "contributions manager"; in Czech "spravce vkladu") before the company's registration in the Commercial Register. On the handing over of the said statement, together with the real estate concerned, to the administrator of contributions, such contribution is regarded as paid up. The provisions of section 59(2) shall not thereby be affected. If a nonmonetary contribution is a movable thing, such contributions is regarded as paid up on the handing over of such thing to the administrator (manager), unless the deed of association or deed of company formation stipulates otherwise. In the case of other nonmonetary (in-kind) investment contributions, they shall be considered as paid up on conclusion of a written contract (agreement) on such contribution with the administrator acting on behalf of the company. This contract shall clearly state that it is the administrator who is responsible for supervision of performance of the contract until incorporation of the company. Where an in-kind investment contribution involves know-how, the appropriate documentation must be handed over. Where an in-kind investment contribution is in the form of supply of an enterprise or a part of such, enterprise or its part must be handed over to the administrator of investment contributions. A record of its transfer shall be drawn up by the administrator and the person (member) handing over the enterprise or part of such or documentation on know-how as his in-kind investment contribution.

(3)

After the company's incorporation, the administrator of the contributions shall, without undue delay, hand over the paid-up contributions together with the yields (fruits) and benefits to the company except in the case of monetary contributions deposited in a special account opened for a company at a bank prior to its incorporation. If the company is not incorporated (i.e. if it fails to come into existence), the administrator of the contributions shall return them together with their yields (fruits) and benefits without undue delay. The promoters shall be jointly and severally liable for the discharge of this obligation (duty).(4) The administrator of the investment contributions shall issue a written statement confirming that the contributions or portions thereof have been paid up by the individual members. This statement shall be enclosed with the petition (application) for registration in the Commercial Register (incorporation). An administrator whose statement shows a total (of paid-up contributions) greater than that actually paid up shall be responsible to the company's creditors for company liabilities up to the amount of the difference (between the total shown and the total actually paid up) for a period of five years from the date of the company's incorporation.

Commentary on section 60;

The administration of investment contributions means taking care of the assets making up contributions. Under section 576, the provisions of sections 567 to 575 on mandate apply to such management as is appropriate. The administrator (manager) is usually one of the promoters, although it can be a bank even if it is not a promoter. When real estate is handed over as a nonmonetary investment contribution, the signatures on the protocol recording the handing over of the real estate must be authenticated.

On the company's incorporation, ownership title to the assets winch are the objects of the investment contributions is transferred to the company. However, ownership title to real estate is only acquired on registration in the Real Estate Cadastre. The administrator must hand over the assets to the company \vithout undue delay and within the time-limit agreed in the deed of association.

Section 61

Business Share

(1)

A business share ("an ownership interest" or "holding") represents the proportion (size) of a particular member's participation in the company and the rights and obligations (duties) derived therefrom. A member (partner) may have only one business share in one company (partnership), except in the case of a joint stock company. A business share in a company (partnership) is not represented (expressed) by a security, except in the case of a joint stock company. For the purposes of this Code, a member's (partner's) business share represents the extent of a member's (partner's) proportionate participation in the net worth (net business assets) of the company (partnership), unless the law provides otherwise.

(2)

On termination of a member's participation in a company during such company's existence in a manner other than by transfer of such member's business share to another person, the member becomes entitled to a settlement ("a settlement share"; in Czech "vypofadaci podfl"). The amount of a settlement share shall be computed as at the day of termination of the member's participation as a proportion of the equity capital, ascertained on the basis of interim, ordinary (annual) or extraordinary financial statements drawn up as at the day of termination of the member's participation in the company, unless the deed of association provides that it is to be ascertained from the company's net worth (net business assets) on the basis of a report by an expert appointed under section 59(3). A settlement share is paid in cash, unless the deed of association or statutes stipulate otherwise.

(3)

The right to payment of a settlement share matures three months after the approval of financial statements under subsection (2) or after delivery (receipt) of an expert's report under subsection (2) to the

company, unless the law, the agreement of the parties or the deed of association provides otherwise. If the members (partners) or the competent organ of the company fail(s) to approve the financial statements without good reason, the right to payment of a settlement share matures three months after the day when such financial statements should have been approved.

(4)

If the winding-up of a company is associated with the company's liquidation, its members are entitled to receive a share of the property remainder resulting from the liquidation ("a liquidation share"; in Czech "podfl na likvidacnim zustatku").

Commentary on section 61:

A member's "business share" or "ownership interest" or "holding", represents the portion (percentage) of the company's net worth (net business assets) which the member acquires in the company in return for his investment contribution. The Commercial Code stipulates that in a limited liability company one member may only own one business share (one holding). In the case of a joint stock company, the extent of a shareholder's rights in the company is determined by the ratio between the nominal value of his shares (stock) and the company's registered (share) capital.

Business shares in a company or partnership remain relatively stable, but their value changes in accordance with the company's trading results (net worth). Net worth may be established from the accounts, which enable the accounting value of a business share to be determined. If on the day on which the value of the business share is to be established, the company's (or partnership's) assets and liabilities are ascertained (or the value of the enterprise is assessed), and the value of (he business share is derived from such amount, the result is referred to as the book value of the business share. When a business share is transferable, it is sold at the market price (the market value of the business share).

When a member terminates his participation in a company while it is still in existence, he is entitled to payment of an amount corresponding to his business share (a settlement share). When a company is wound up and liquidated, he is entitled to receive a share of the liquidation remainder (a liquidation share).

Section 62

Incorporation

(1)

A company officially comes into being on the day as of which it is entered in the Commercial Register (incorporation). A petition (an application) for entry in the Commercial Register must be filed (with the registration court) within 90 days of the company's formation (section 57), or within 90 days of the date on which a trade or similar business authorization is delivered. If a petition is filed within the said time-limit, a petition for entry in the Commercial Register cannot be any longer submitted on the basis of such trade (or similar business) authorization.

(2)

Unless it is explicitly stated that a company is formed (established) for a fixed period of time, it is assumed that the company has been formed for an indefinite period. Commentary on section 62:

A company or partnership becomes a legal entity as of the day of its incorporation, i.e. as of the effective date of its entry in the Commercial Register (see also section 27 et seq). It can carry on the business activity or activities recorded in the Commercial Register and employ employees. At the same time it has to meet the legal requirements relating to social security and health insurance contributions (premiums), taxes, etc.

Section 63

All acts in law (legal transactions) involving the formation, incorporation, change, winding-up or dissolution of a company must be in writing, with authenticated signatures; the law determines which acts in law are required to be in the form of a notarial deed. Should the law require a notarial deed for the act in law by which a particular company is formed, any alteration of its content must also be in the form of a notarial deed.

Commentary on section 63:

Section 63 deals generally with the acts in law required by the formation, incorporation, change, winding-up and dissolution of a company or partnership. The provisions of this section apply if the Commercial Code does not include more specific provisions on such acts in law.

Section 64

Transactions on behalf of a Company before Incorporation (1) A person who acts on behalf of a company before its incorporation shall be bound by these transactions (acts in law); if two or more persons act jointly, they shall be liable jointly and severally. If the members (partners) or the competent organ of the company approve(s) such transactions within three months of

the company's incorporation, the company shall be bound by them as of their inception.

(2)

Obligations other than those which are related to the incorporation of a company and which commit (bind) the company's promoters (founders) may not be taken over by the company, unless such transactions (contracts) are only concluded subject to a suspensive (dilatory) condition relating to incorporation of the

company and approval of any such obligations by the members (partners) or the relevant company organ. Persons who assumed other obligations on behalf of the company shall be liable for any damage resulting therefrom and bound by such transactions.

(3)

Promoters (founders) shall provide a list of transactions under subsection (2) and submit it for the approval of the members (partners) or the competent company organ (the one authorized to approve such transactions) so that the time-limit under subsection (1) can be observed. If the promoters breach this duty, they shall be liable to creditors for any resulting damage.

(4)

After the approval of transactions concluded before the company's incorporation, the statutory organ of the company shall, without undue delay, notify the parties to such transactions accordingly.

Commentary on section 64:

Acts in law which take place between the formation and incorporation {coming into being) of a legal entity are undertaken in the name of the future legal entity. Such acts in law include the initial payment of investment contributions, the filing of an application for a trade certificate or trade, licence ("a trade authorization'"), and the submission of an application for incorporation. Promoters bear joint and several liability for obligations assumed on behalf of an as yet unincorporated company or partnership. Such obligations pass to the company or partnership upon incorporation, unless the company or partnership renounces (hem within three months of its incorporation (see e.g. section 125).

Section 65
Prohibition of Competitive Conduct

(1)

The provisions relating to individual forms of companies and partnerships stipulate which persons (individuals) are subject to the prohibition of competitive conduct and to what extent.

(2)

A company (partnership) may demand of a person (individual) who violates this prohibition that he surrenders to the company any benefit gained from the transaction by which he violated the prohibition, or that he transfers the corresponding rights to the company. This shall not affect the right of the company to claim damages.

(3)

The company's rights under subsection (2) shall become null and void if they are not claimed against the liable person (individual) within three months of the day on which the company learns of the relevant fact; however, a claim cannot be made later than one year after the day when the prohibition is violated. This shall not, however, affect the company's right to claim damages.

Commentary on section 65:

The prohibition of competitive conduct is regulated in the Commercial Code for individual forms of companies and partnerships. Competitive conduct by employees is prohibited by the Labour Code (section 75). A company or partnership may require a person (individual) who breaches the provisions on prohibition of competitive conduct:

-

to surrender to the company or partnership any benefit gained from the transaction by which he violated the prohibition;

-

to transfer the appropriate rights to the company or partnership;

-

to compensate any damage caused by the breach.

Section 65a

(1)

If incorporation expenses are shown in a company's accounting as fixed assets, such assets must be depreciated no later than five years after incorporation.

(2)

Until assets under subsection (1) are fully depreciated, no shares in profit may be paid out, unless the disposable funds from which shares in profits are otherwise paid out, together with retained profit from previous periods, are equal to at least the non-depreciated part of the incorporation expenses.

Commentary on section 65a:
Section 65a was introduced by Act No. 370/2000 Coll. in accordance with the Fourth Council Directive.

Section 66

(1)

A person who is the statutory organ or a member of the statutory or another organ may resign. However, such person must notify his resignation to the organ of which he is a member or which elected or appointed him. The tenure of such person shall end on the day when the resignation is discussed, or should have been discussed, by the organ which elected or appointed this person, unless the deed of association or statutes stipulated that it is sufficient for such resignation to be discussed by the organ of which the person is a member. In the case of a person elected to an organ by the company's employees, the person's tenure shall end on the

day when his resignation is discussed, or should have been discussed, by the organ of which he is a member. The relevant organ shall discuss the resignation at the next meeting (session) after it learned of the (proposed) resignation. If the resigner advises a meeting (session) of the organ concerned of his intention to resign, his tenure shall end two months after this announcement, unless, at person's own request, the relevant organ approves another date for the end of his tenure.

(2)

The relationship between the company and the person who is its statutory organ, or a member of its statutory or another organ, or a member involved in arranging the company's affairs, shall be subject, as appropriate, to the provisions on mandate, unless a contract on performance of an office, if concluded, or the law stipulates the rights and obligations (duties) differently. An undertaking to perform an office is an undertaking of a personal nature. A contract on performance of an office must be in writing and must be approved by the general meeting or by all of the partners bearing unlimited liability for such entity's obligations.

(3)

Any supply (benefits, emoluments) by a company in favour of a person who is the organ of the company, or a member of such, which this person is not entitled to under the statutory provisions or the company's internal regulations (rules) is subject to approval by the general meeting, unless the person was awarded the right to such supply (benefits) in a contract on the performance of his office. However, the company shall not provide such supply if this person's performance of his office obviously contributed to the company's unfavourable economic results, if this person is guilty of (responsible for) breaching a statutory duty in connection with the performance of his office.

(4)

Unless the law or the company's statutes or deed of association provide otherwise, statutory and other organs may adopt a resolution (take a decision) only if more than half of their members are present at the meeting (session) and the resolution requires approval by a majority of the members present. The chairman's vote shall be decisive in the event of a tie. The company's statutes or deed of association may even permit voting in writing, or by means of communication with persons outside the meeting room, if this is agreed upon by all members of the organ concerned. Members voting in such a manner are considered as present at the meeting.

(5)

The provisions of subsections (1) and (4) shall not apply to a general meeting.

(6)

The provisions of this Code and specific statutory provisions on the rights and duties of company organs and members of such organs shall also apply to persons who, on the basis of a contract (an agreement), their business share in a company or of another fact having a substantial influence on the company's conduct, even though they are not company organs or members of such organs, irrespective of their relationship to the company.

(7)

Persons who undertake acts in law in writing in the name and on behalf of a company shall sign the documents by adding their signature to the commercial name of the company. However, a failure by a person undertaking such acts in law to state the commercial name of the company shall not invalidate such act in law.

Commentary on section 66:

The statutory organs of particular types of partnerships and companies are explained in sections 85, 101, 133 and 191. The provisions of subsection (I) do not apply to partners of a general commercial partnership and general partners of a limited partnership who are statutory organs because they are partners.

"Some other organ" refers particularly to the supervisory board, whether it is established mandatorily (as in a joint stock company) or voluntarily (as in a limited liability company), but it does not apply to the general meeting through which members (shareholders) exercise their rights.

Section 66a

Joint Ventures (Business Groupings)

(1)

A partner or member or shareholder who has a majority of votes derived from his business share in a partnership or company is the majority partner, member or shareholder, and the partnership or company in which he has such majority is a partnership or company with a majority partner, member or shareholder. Votes derived from a partner's business share in a general commercial partnership (i.e. an unlimited partnership) or a limited partnership, or from a member's business share in a limited liability company, shall be votes attached to his business share in such partnership or company. In the case of a shareholder of a joint stock company, votes attaching to his shares in such company are taken into account, irrespective of whether such shares have been issued. For the purposes of this provision, preference shares to which voting rights are not attached shall be considered as shares with no voting rights attached, even when under the law voting rights are temporarily attached to them. The total number of votes derived from a business share in a company shall not include votes derived from the company's own business shares or shares which are owned by the company or by a person controlled by this company, or from business shares or shares held by another person (party) in his own name but on the account of the company or persons controlled by the company.

(2)

A controlling person ("ovla"dajici osoba") is a person who de facto or legally exercises, directly or indirectly, a

decisive influence on the control or operation of another person's (party's) enterprise (hereafter "a controlled person"; in Czech "ovladana osoba"). If the controlling person is a company, it is referred to as "the parent company" ("materska spolecnost") and a company controlled by it is referred to as "a subsidiary" ("dcefina spolecnost"). "Indirect influence" ("neprimy vliv") means influence exercised through another person or persons. However, a controlling person is not a person whose influence on the company is based on mandate, a contract on the administration (management) of certain property or another similar commercial contract.

(3)

A controlling person is a person who:

(a)

is a majority member (shareholder); this shall not apply if the controlling person is determined under letter (b);

(b)

has at its disposal a majority of voting rights based on an agreement with another member (shareholder) or members (shareholders) (a "pooling agreement");

(c)

can force through the appointment or election or recall of the majority of persons who form the statutory organ or are members of such, or the majority of persons who are members of the supervisory organ (supervisory board) of the legal entity of which he is a member (shareholder).

(4)

Persons who are involved in concerted conduct and who jointly have a majority of the voting rights in a legal entity are regarded as controlling persons.

(5)

Unless it is proved that another person has at its disposal the same or a higher percentage of the voting rights, it shall be assumed that a person who has at its disposal at least 40% of the voting rights in a legal entity is the controlling person, and that persons who are involved in concerted conduct and have at their disposal at least 40% of the voting rights in a legal entity are controlling persons.

(6)

For the purposes of this Code, "having voting rights at one's disposal" shall mean that they can be exercised at the discretion of the person having them, irrespective of the legal ground (if any) on which they are exercised, or having the possibility of influencing the exercise of voting rights through another person,

(7)

If one or more persons are subject to common management (hereafter "a managed person"; in Czech "f izena osoba") by another person (hereafter "the managing person"; in Czech "ridici osoba"), such persons shall, together with the managing person, form a holding-type group (in Czech, "koncern"), and their enterprises, including that of the managing person, shall be deemed to be enterprises forming a holding-type group. Unless the contrary is proved, it shall be assumed that the controlling person ("ovladajici osoba") and the persons controlled by the former ("controlled persons"; in Czech "ovladane osoby") form a holding-type group (or a holding company). Persons may also be subject to common management on the basis of a controlling agreement (in Czech "ovladaci smlouva"). A controlling agreement (contract) can also be concluded to cover relations between a controlling person and the persons controlled by it (i.e. the controlled persons).

(8)

Where no controlling agreement has been concluded, the controlling person may not exert his (its) influence to force through the adoption of a measure or the conclusion of an agreement (contract) which may cause a property detriment to the controlled person, unless the controlling person settles such detriment by no later than the end of the accounting period when the detriment occurred (arose), or unless within the same time-limit an agreement is concluded stipulating the appropriate period during which the controlling person is to settle such detriment and in what way.

(9)

Where no controlling agreement has been concluded, the statutory organ of the controlled person shall draw up a written report on relations between the controlling person and the controlled person and on relations between the latter and other persons controlled by the same controlling person ("related persons" or "linked persons"; in Czech "propojene osoby"), and such report shall be drawn up no later than three months after the end of the relevant accounting period. This report shall state what agreements (contracts) were concluded between related persons, what other acts in law (legal transactions) were made in the interest of these persons, and all the other measures which were adopted or effected by the controlling person in the interest, or at the initiative, of the controlled persons. If a performance (fulfilment) was supplied by the controlling person, the report shall also mention what counterperformance was effected and the advantages and disadvantages of the measures taken, and whether any detriment arose to the controlled person from the said agreements or measures, and whether such detriment was settled in the accounting period or whether an agreement on its settlement under subsection (8) was concluded. This report shall be part of the annual report under other statutory provisions.

(10)

If a controlled person has a supervisory board or a similar organ, this organ shall examine the report under subsection (9) and inform the general meeting (or similar assembly or members' meeting) of the controlled person of its examination and opinion.

(11)

Where the financial statements of a controlled person are subject to auditing, the auditor shall also audit the correctness (accuracy) of the information provided in the report under subsection (9).

(12)

Each member is entitled to file a petition with the court requesting that an expert be appointed to

examine the report on relations between related persons. Such petition may be filed no later than one year after the day when notification of the filing of the relevant annual report in the registry of documents is published, otherwise the right shall lapse (extinguish). The appointment and remuneration of such expert shall be subject to the provisions of section 59(3), and (he competent court shall be the court within whose jurisdiction the company's seat is located. Any petition which is filed by another member before the proceedings are finally concluded seeking the appointment of such expert shall be regarded as joining the proceedings as of the date such petition is filed. As soon as the proceedings on appointment of an expert are concluded (i.e. when they take legal effect), further petitions by legitimate persons to appoint such expert shall be inadmissible.

(13)

The right (entitlement) under subsection (12) shall only arise if:

(a)

the auditor's report under subsection (11) expresses reservations concerning the report prepared by the statutory organ under subsection (9);

(b)

the statement under subsection (10) expresses reservations concerning the statutory organ's report under subsection (9); or

(c)

the statutory organ's report under subsection (9) states that detriment arose to a controlled person due to the conclusion of a contract or the implementation of a measure under subsection (8), and that such detriment was not settled by the controlling person and no agreement on its settlement under subsection (8) was concluded.

(14)

If the controlling person requires a controlled person with which it did not conclude a controlling agreement to adopt a specific measure, or to conclude a specific contract (transaction) from which a detriment arises to the controlled person without the obligation (duty) under subsection (8) being fulfilled, the controlling person shall compensate the damage (detriment) that arose therefrom. In addition, the controlling person shall compensate any damage suffered therefrom by members (partners, shareholders) of such controlled person, and it shall do so separately from the obligation (duty) to compensate detriment (damage) to the controlled person. The duty to provide such compensation shall not arise if this contract had also been concluded or such measure adopted by a person which is not a controlled person provided that this person would have fulfilled its duties with all due managerial care.

(15)

Persons who are the controlling person's statutory organ or members of such shall be jointly and severally responsible (liable) for discharging the obligation to settle damage under subsection (14). The persons who are the controlling person's statutory organ or members of such shall also be responsible (liable) for discharging the controlled person's obligation to settle such damage if they did not include in their report under subsection (9) the contract or measure from which the detriment arose, and such detriment was not settled by the controlling person and no agreement on its settlement under subsection (8) was concluded. This

shall not apply if such persons acted on the basis of a resolution duly adopted by the general meeting (or members' meeting) of the controlled person.

(16)

The provisions of subsections (10), (12) and (13) shall not be applied when the controlling person is the only member of the controlled person (a single-member company) or when all the controlling persons in relation to the company are its all members whose conduct is concerted (section 66b); in such a case, the provisions of subsections (14) and (15) on compensation for damage (i.e. damages) to members (partners) of the controlled person and on the right of such members (partners) to file a suit for the said damages against the controlling person shall not apply.

Commentary on sections 66a to 66c:

The wording of section 66a is new and is based on EV legislation with regard to defining a majority shareholder. The definition of a controlled person [section 66a(5)] as a person who has at least 40% voting rights in a company reflects the regulation in the French law. A holding-type group (a holding company), which has not been previously regulated in the Czech law and is defined as two or .more persons under one management, corresponds to the statutory provisions (on the same) in Germany and Austria.Concerted conduct is defined in section 66b (based on the regulation in the French law) whereas section 66c reflects the provisions of the German law.

Section 66b

Concerted Conduct

(1)

"Concerted conduct" (in Czech "jednani ve shode") means conduct by two or more persons undertaken in mutual agreement with a view to acquiring or conveying or exercising voting rights in a specific person (entity), or utilising voting rights to exert joint influence on the management or operation of such person's enterprise or to elect that person's (entity's) statutory organ (or most of its members) or supervisory organ (or most of its members), or otherwise influence that person's (entity's) conduct.

(2)

Concerted conduct shall mean conduct under subsection (1) undertaken in particular by:

(a)

a legal entity and its statutory organ or a member of such, or persons directly managed by such, a

member of the supervisory organ, a liquidator, a bankruptcy trustee, a composition trustee (settlement administrator) or an administrator concerned with enforced administration, or mutually between these persons;

(b)

the controlling person and persons controlled by it;

(c)

persons (entities) controlled by the same controlling person; or

(d)

persons (entities) forming a holding-type group.

(3)

Unless the contrary is proved, it shall be assumed that concerted conduct is conduct undertaken by:

(a)

a limited liability company and its members or mutually between its members;

(b)

a general commercial partnership (i.e. an unlimited partnership) and its partners or mutually between its partners;

(c)

a limited partnership and its general partners or mutually between its partners;

(d)

close persons;

(e)

an investment company and an investment fund, or a pension fund, managed by such investment company, or between an investment company and investments funds which it manages; or

(f)

a brokerage house and a person whose securities the brokerage house manages, if the former can make use of voting rights attached to such securities.

(4)

Persons involved in concerted conduct must meet the duties (obligations) arising therefrom jointly and severally.

Section 66c

Anybody who by means of his influence in a company makes a person who is such company's statutory organ or a member of such, or a member of the company's supervisory organ, its procurator or another authorized person to act to the detriment of the company or to the detriment of the company's members (shareholders) shall be liable to compensate the damage which was caused by such conduct.

Section 67

Reserve Fund

(1)

If this Code requires the creation of a reserve fund, such fund may only be used to the extent to which it is formed mandatorily under this Code, and only for the purpose of covering a company's loss, unless the law stipulates otherwise.

(2)

A reserve fund is created mandatorily by a limited liability company or a joint stock company out of after-tax profit in the current accounting period ("net profit") or from other own sources apart from net profit, provided that this is not excluded by law. On incorporation of the company or on increasing its registered capital, a reserve fund may also be created from additional payments made by members (shareholders) over and above their contributions or the issue price of the company's shares.

(3)

A proportionate part of a company's net profit ("a profit share"; in Czech "podfl na zisku") may only be determined after appropriate financial means have been allocated to top up the reserve fund in accordance with this Code, the deed of association or statutes.

Commentary on section 67:

The Commercial Code does not define the term "reserve fund". A reserve fund is formed mandatorily by every limited liability company or joint stock company from its net profit. The reserve fund is used for covering a company's loss as shown in the financial statements. A loss can also be covered from other sources,

Section 67a

Transfer or Lease of an Enterprise or its Part

(1)

A contract whereby an enterprise or a part of such is transferred or leased must be approved in writing by the company's members or general meeting in the same way as a merger.(2) The resolution of the general meeting under subsection (1) must be adopted according to the same rules as when a resolution on a merger is adopted, and a notarial deed thereof must be drawn up.

(3)

For the purpose of the checking of the price of a the contract under subsection (1) by an expert, the provisions of section 92(l)(second sentence) shall apply in the case of a general commercial partnership or limited partnership, the provisions of section 153a(4) in the case of a limited liability company and the provisions of section 220c in the case of a joint stock company as appropriate.

(4)

Members (partners, shareholders) must be given an opportunity to inform themselves of the draft terms of the contract under subsection (1) and the relevant expert's report if such is required, at least one month before granting approval (consent) or before the day of the general meeting.

(5)

The provisions of section 220d(l)(first sentence) shall apply as appropriate to the information to be disclosed

when transfer or lease of an enterprise or its part is proposed.

Commentary on section 67a:

Section 67a regulates transfer or lease of an enterprise or its part. The purpose of an expert checking the relevant contract is to protect the company's members (shareholders) and creditors.

Section 68

Winding-Up and Dissolution of a Company

(1)

A company becomes dissolved at the day it is struck off (i.e. deleted from) the Commercial Register [section 31(4)].

(2)

Dissolution of a company is preceded by its winding-up, either with or without liquidation; the latter applies if the company's business assets are transferred to its legal successor. Liquidation is also not required if the company is wound up due to reasons under subsection (3)(f) and (g) and if it has no property whereby no account is taken of things, rights, receivables or other property values excluded from the bankrupt's estate. In the case of the winding-up of a company according to the preceding sentence, the tax administrator's approval under other statutory provisions is not required prior to the company being struck off the Commercial Register.

(3)

A company shall be wound up:

(a)

on expiry of the period of time for which it was formed;

(b)

on attainment of the purpose for which it was formed;

(c)

on the date specified in a resolution of the members (partners, hareholders), or the competent organ of the company, as the day on which the company will be wound up; otherwise, on the date when such a resolution was adopted, if the company's winding-up is connected with liquidation;

(d)

on the date stated in a judicial order winding up the company; otherwise, on the date when such judicial order (decision) comes into legal force;

(e)

on the date stated in the resolution of the (company's) members or the competent company organ if the company is dissolved due to a merger, the transfer of business assets to a (sole) member or due to a division, otherwise on the day when such resolution was adopted;

(f)

on termination of a bankruptcy order upon implementation of the distribution schedule, or on cancellation of a bankruptcy order because the bankrupt's assets are insufficient to cover the costs of bankruptcy proceedings;

(g)

on dismissal of a bankruptcy petition due to a company's lack of property.

(4)

If a petition for a bankruptcy order is dismissed on grounds other than a lack of company property, the company is not deemed to be wound up. If, after the winding-up of the company due to grounds under subsection (3)(f) and (g), there is any property left, the liquidation of the company shall be effected.

(5)

If the company was wound up, or if a bankruptcy order was adjudged in respect of its property (assets), the statutory organ shall only act within the scope of powers which have not passed to the liquidator or the bankruptcy trustee. Until such liquidator is appointed, or if his office terminated and no new liquidator was

appointed, the duties relating to liquidation of the company are fulfilled by the company's statutory organ.

(6)

On the basis of a motion by a state authority, or by a person who has proved a legal interest, the court may rule on the winding-up of a company and its liquidation in the following instances:

(a)

if no general meeting has been held for two years, or if the company's organs whose term of office (or whose members' term of office) terminated more than a year previously were not elected in the preceding year, unless this Code stipulates otherwise, or if the company carried on no activity in the last two years;

(b)

if the company is no longer authorized to undertake business activity;

(c)

if the legal prerequisites for incorporation of the company are no longer met, or if the company is unable to carry on activity due to insurmountable differences (conflicts) between its members;

(d)

if the company has breached the duty to create a reserve fund;

(e)

if the company has violated the provisions of section 56(3);

(f)

if the company has failed to fulfil the duty consisting in either selling a part of its enterprise or dividing itself when required to do so by the Office for Protection of Economic Competition under other statutory provisions.

(7)

In the instances when this Code permits a company to be wound up by a court order, prior to such order the court shall set a time-limit for the company to eliminate the ground on which its winding-up is proposed, if it is feasible to eliminate (remedy) such ground.

(8)

The members or the competent organ of the company may cancel their (its) decision on the company's

winding-up and its going into liquidation until distribution of the liquidation remainder (balance) is commenced. On the effective day of such decision, the office of liquidator shall terminate and the liquidator shall pass all documents on the course of liquidation to the statutory organ of the company.

(9)

If a decision on the company's going into liquidation is cancelled, the company shall draw up interim financial statements as at the effective day of such decision (resolution).

Commentary on section 68:

A company, partnership or co-operative officially comes into being on its entry into the Commercial Register (incorporation) and ceases to exist (i.e. is dissolved) as of the day on which it is struck off (deleted) from the Commercial Register. Prior to the filing of a petition (an application) for its striking~ojf from the Commercial Register, a written statement approving the proposed dissolution must be obtained from the tax administrator (i.e. from the relevant financial authority), in accordance with section 35(2) of the Administration of Taxes Act. Dissolution of an entity has further consequences for the social and health security of its co-owners and employees.

With regard to the business assets of an entity (a company, partnership or co-operative) which is being wound up, there are two possible courses of action:

- its business assets are liquidated if the entity has no legal successor, except when a pet it ion for a bankruptcy order is rejected by the court due to the entity's lack of assets, or when the entity is wound up in connection with bankruptcy proceedings following which no assets remain for distribution

~ its business assets are not liquidated because they are passed on to the entity's legal successor.

Section 68a

Nullity of a Company

(1)

After incorporation of a company, cancellation of a ruling approving entry of such company into the Commercial Register cannot be demanded and a determination that the company did not come into being cannot be sought.

(2)

Nullity (nullification) of a company may only be ordered by a court ruling, acting thereby even without a petition to that effect, and only on the following grounds:

(a)

that a deed of association or a deed of formation or statutes were not drawn up or their prescribed form was not complied with;

(b)

that the actual objects of the company are unlawful (not permitted) or contrary to public policy;

(c)

that the deed of association or the deed of formation or the statutes fail to state the commercial name of the company or the amounts of the members' individual investment contributions or the total amount of the registered capital when an indication of such amounts is prescribed by law, or the objects of the company;

(d)

that the minimum amount of paid-up investment contributions, as prescribed by law, was not complied with;

(e)

that all the founder members (promoters) lacked legal capacity;

(f)

that, contrary to the law, the number of founder members is fewer than two.

(3)

As of the day when a court ruling on nullification of a particular company takes legal effect, such company goes into liquidation.

(4)

Legal relations into which such a nullified company entered shall not be affected (voided) by the nullity of the company. The members of the nullified company shall remain obliged to pay up unpaid portions of their investment contributions (subscriptions) to the extent to which this is required in order to discharge the commitments of the nullified company against its creditors.

Commentary on section 68a:

The nullity of a company, as regulated in section 68a, is new and corresponds to the EU legislation (First Council Directive 68/15I/EEC of 9 March 1968). Nullity of a company by a court order does not void legal transactions entered into by the company.

Company Conversions
Section 69

Methods of Company Conversion

(1)

Companies with their seat in the Czech Republic may be converted:

(a)

by merger;

(b)

by transfer of business assets to a (sole) member; or

(c)

by division.

(2)

A change in the legal form of a company is also regarded as conversion.

(3)

A merger may be effected by:

(a)

merger by acquisition (of another company; i.e. a take-over); or

(b)

merger by the formation of a new company (entity).

(4)

A division may be effected by;

(a)

division by the formation of new companies (entities);

(b)

division by acquisition; or

(c)

by a combination of the methods under letters (a) and (b).

(5)

Conversion of a business company shall be permissible even when a company is already in liquidation on the basis of a decision taken by its members or the competent organ of the company. However, in the case of conversion of such company, it is necessary for its members or the competent organ of the company to cancel the previous decision that the company should go into liquidation under section 68(8). Interim financial statements under section 68(9) shall not be required.

(6)

A merger or the transfer of business assets to a (sole) member shall be permissible even in the event that a company is already in liquidation or that a bankruptcy order has been adjudged on its property or that its composition proceedings have been confirmed (section 69h).

(7)

The decision on conversion of a company can be cancelled until the issue of a ruling permitting entry of merger, transfer of business assets, division or conversion of the legal form in the Commercial Register (section 28a), if all the companies concerned so agree. The provisions on members' consent with (approval of) conversionof their company shall similarly apply to decision-making on cancellation of a decision (resolution) on company conversion (conversion of the company).

(8)

If this Code requires valuation of the company's business assets by an expert, this shall not be the reason for a change in valuation in the company's accounting, unless some other statutory provisions stipulate otherwise.

Commentary on sections 69 to 69h:

The previous brief regulation of conversion (transformation) of companies, partnerships and co-operatives (included in sections 69 and 69a) is superseded by the extensive regulation contained in sections 69 to 69g and in the individual provisions on general commercial partnership (i.e. unlimited partnerships), limited partnerships, limited liability companies, joint slock companies and co-operatives.

The Czech term "sloucenr ("merger") is now replaced by "merger by acquisition" and the Czech term "splynutr ("consolidation'''') is replaced by "merger by the formation of a new company". The reason is that the amended wording of the Commercial Code introduces the collective term "fuze" ("merger") for both those types of amalgamation (see sections 69 and 69a).

A business entity may also be converted^by "division by acquisition" or by "division by formation of new companies" (section 69c) and by conversion of an entity's legal form (sections 69d and 69e). It should be noted that, under the previous regulation, a change in the legal form of a business entity resulted in its existence being discontinued, which is not the case under the current wording. Section 69f deals with the issue of protecting the interests of creditors and other parties when a business company is converted. Section 69h introduces the new principle that even a bankrupt business entity may be merged or-its business assets transferred to its sole member if (he stipulated requirements are complied with.

Section 69a

Mergers

(1)

On merger by acquisition (take-over), one or more companies will cease to exist ("the company or companies being acquired" or "the merging company")* this being preceded by its (their) winding-up without liquidation; the business assets of the merging company (i.e. the company being acquired), including its rights and obligations (duties) arising from labour relations, shall pass to another company ("the acquiring company" or "the successor company"). Members (shareholders) of the merging company shall become members (shareholders) of the acquiring (i.e. successor) company, unless the law provides otherwise.

(2)

On merger by the formation of a new company, two or more companies will cease to exist, this being preceded by their winding-up without liquidation; the business assets of the merging companies, including their rights and obligations (duties) arising from labour relations, shall pass to a newly-formed successor company. Members

(shareholders) of the merging companies shall become members (shareholders) of the successor company, unless the law provides otherwise.

(3)

Merging and successor companies must have the same legal form, unless the law stipulates differently.

(4)

The legal effects under subsections (1) and (2) shall apply as of the day when such merger is entered into the Commercial Register [section 28a(l)]. If a Hen was placed on a member's business share in a company or on a member's (shareholder's) shares or interim certificates, it shall transfer to the business share or shares which the member will acquire as a result of the merger. The successor company shall note a lien on certificated shares registered in the member's name before their issue. The note must have the requisites of a lien endorsement and be signed by a member or members of the board of directors who is or are authorized thereto at the date of issue. Certificated shares on which a lien is established shall be handed over by the company to the creditor concerned (pledged shares). In the case of uncertificated shares, the company shall in its instruction for the issue of such shares under the statutory regulations require that the lien be recorded at either the Securities Centre or another legal entity authorized to keep a registry of uncertificated securities under other statutory provisions (hereafter only "the Securities Centre"). On the basis of the company's instruction (order), the Securities Centre shall register the lien in accordance with other statutory provisions. The petition for entry of the merger in the Commercial Register must also include a request for entry of the lien on a new business share, if such was acquired in place of the business share, securities or interim certificates on which a lien was placed.

(5)

In the case of a merger by acquisition, the participating companies are the merging company and also the successor (acquiring) company, whereas, in the case of a merger by the formation of a new company, the participating companies are only the merging companies.

(6)

In the case of a merger by acquisition, a merging joint stock company or limited liability company shall arrange that an expert's report on the valuation of its business assets shall be drawn up if, due to such merger by acquisition, new shares are to be issued by the successor company or a new business share will result to such company's members. In the case of acquisition by the formation of a new company, each participating joint stock company or limited liability company must arrange that an expert's report shall be made on the valuation of its assets. The provisions of section 59(3) and (4) shall apply, as appropriate, to the appointment and remuneration of the expert and the content of his report; such expert may also be the person appointed as a merger expert [section 220c(l)]. A valuation of the business assets can be included in an expert's report on the merger [sections I53a(4) and 220c(5)].

Section 69b

Transfer of Business Assets to a Sole Member

(1)

Under the conditions stipulated for individual legal forms of companies, members or the competent organ of such company may decide that the company will be wound up without liquidation, and that the business assets of such company, including the rights and obligations (duties) from labour relations, will be assumed by one member which has its seat or his residential address in the Czech Republic. If a lien is placed on a particular member's business share or share or interim certificate, a decision on transfer of business assets may only be made if a lien creditor is granted sufficient security in respect of his receivable.

(2)

The legal effects under subsection (1) shall apply as of the day when the transfer of business assets is entered in the Commercial Register [section 28a(2)].

Section 69c

Division

(1)

On division, the company being divided shall cease to exist. This is preceded by its winding-up without liquidation when its business assets, including rights and obligations (duties) from labour relations, pass to the successor companies, and its members become members of the successor companies, unless the law provides otherwise.

(2)

The company being divided and its successor companies must have the same legal form, unless the law provides otherwise.

(3)

The provisions of section 69a(4) shall apply as appropriate.

(4)

On division by acquisition, the participating companies are the companies ceasing to exist and also their successor companies. On division by the formation of new companies, the only participating company is the company ceasing to exist.

(5)

In the case of division of a joint stock company or a limited liability company, the company being divided shall arrange that its business assets are valued by an expert's report as at the day of the closing of the financial statements [section 220t(5)]. Such expert's valuation shall also include separate valuation of those

business assets which should pass to the individual successor companies. The appointment and remuneration of the expert and the content of his report shall be subject to the provisions of section 59(3) and (4), as appropriate, and such expert may also be the person appointed by the company as the expert for such division [section 220s(3)]. A valuation of the business assets can be included in the expert's report on the proposed division [sections 153d(3) and 220s(4)].

Section 69d
Conversion of Legal Form

(1)

In the case of conversion of a legal entity's legal form, such legal entity will not cease to exist, nor will its business assets pass to a legal successor; only the entity's internal relations and the legal status of its members shall change. A company may convert its legal form to another legal form of company (partnership) or to that of a co-operative, unless the law provides otherwise. The legal effects of the change in legal form shall apply as of the day of its entry (registration) in the Commercial Register [section 28a(4)].

(2)

For conversion of an entity's legal form to be effective, the agreement of its members or the resolution of its competent organ on the change of legal form (hereafter "the resolution on conversion of legal form") must be contained in a notarial deed. A proposal for the change of legal form shall be submitted in writting by the statutory organ to the members (of the entity) or to the competent organ. Such proposal, together with a report under subsection (4), must be made available to the members at least one month before the day when the decision on conversion of legal form is to be taken, unless all the members of such entity are the company's statutory organ or its members or they agree that the said time-limit need not be adhered to. This consent (agreement) must be in writing with authenticated signatures, or else it must be given at the general meeting. A declaration that consent was given at the general meeting must be included in the notarial deed on the resolution of the general meeting. Such consent shall also bind an individual member's legal successor.

(3)

Any liens on individual member's business shares, or on shares or interim certificates, shall only cease to exist upon the change in the legal form of the company (entity) if they do not encumber business shares in the successor legal entity (i.e. if business shares in the successor entity may not be used to secure an obligation). If a lien ceases to apply, the lien creditor whose receivable was hitherto secured by a lien on business shares or shares or interim certificates must be granted sufficient securing for his receivable by the debtor. When a lien does not cease to apply due to conversion of the legal form of an entity, the provisions of section 69a(4) shall apply as appropriate.

(4)

The statutory organ of the company (entity) shall draw up a written report on the proposal of a resolution to convert the company's legal form, and it shall substantiate the proposal in such report from the legal and economic viewpoint and outline the characteristics of the members' legal status after such conversion (hereafter "the report on conversion of legal form"). The report shall not include facts which are a trade secret of the company or of its controlling or controlled person. In this case, the report on conversion of legal form must contain grounds why such facts are not covered by the report. The report on conversion of legal form shall not be required if the company has only one member, or if all its members are the statutory organ of the company or members of such statutory organ, or if all the members agree that such report will not be drawn up. The provisions of subsections (2) shall apply to this agreement. If the company has a supervisory board, this board shall examine the proposal (the draft terms of the resolution on conversion of legal form) and report its findings to the general meeting, which shall adopt a resolution on the proposal.

(5)

The proposal for the resolution on conversion of legal form and the resolution on the same must contain at least:

(a)

the commercial name, seat and identification number of the company before the change of legal form;

(b)

the legal form to be acquired by the company;

(c)

the company's commercial name after conversion of legal form;

(d)

the date at which the proposal for (i.e. the draft terms of) the resolution on conversion of legal form was drawn up (hereafter "the day of drawing up conversion of legal form");

(e)

the draft terms of (i.e. the proposal for) a general commercial partnership's or limited partnership's partnership agreement or a limited liability company's deed of association or a joint stock company's or co-operative's statutes after conversion of legal form;

(f)

the full name, residential address and personal number of the persons to be entered into the Commercial Register as the statutory or another organ of the company or partnership or cooperative, or as a member of any such organ after conversion of legal form; if the legal form is to be changed to that of a joint stock company, the members of its first supervisory board are only elected for a term of one year when the statutory provisions on the election of supervisory board members by employees shall not apply and, similarly, the rules and time-limit for the

issue of an interim certificate shall not apply to a member (shareholder) to whom shares are to be issued but who did not as yet pay up his investment contribution to the hitherto existing company or co-operative;

(g)

the procedural rules for settling up with a member who does not agree to conversion of legal form, the amount to be paid to him, and the method of calculating this amount, provided that conversion of legal form does not require the approval (consent) of all of the entity's members;

(h)

in the case of conversion of the legal form to that of a joint stock company, the number of shares, their class, whether they are (to be) registered in name or bearer shares, whether they are (to be) certificated or uncertificated, the nominal value of the shares determined for each member after conversion of legal form, and the procedural rules and time-limit for their issue;

(i)

the amount of compensation for holders of bonds (debentures) and option warrants [section 69f(2)].

(6)

A company shall draw up interim financial statements as at the day at which it prepared conversion of legal form, unless such day is the balance sheet day under other statutory provisions. The interim financial statements shall be audited, if auditing is required under other statutory provisions, and approved by the general meeting, which shall also pass a resolution on conversion of legal form, or in other cases by all the members. The data on which the financial statements are based, as at the day of preparing conversion of legal form, may not be older than three months at the day when the resolution on conversion of legal form is (scheduled to be) taken. If the amount of (own) equity capital in the financial statements drawn up as at the day of preparing conversion of legal form is less than the registered capital which the company or co-operative should have according to the proposal for (i.e. the draft terms of) a resolution on conversion of legal form, such conversion shall not be permissible.

(7)

A company which changes its legal form shall draw up its financial statements as ordinary or extraordinary financial statements as at the day preceding the day when the conversion of legal form is entered in the Commercial Register and the opening balance sheet as at the day of such entry. Such financial statements shall be audited.

(8)

In the case of conversion of legal form to that of a limited liability company or joint stock company, the company shall arrange for its business assets to be valued by an expert's report as at the day at which conversion of the legal form is prepared. Such expert's appointment and remuneration and the content of his report shall be subject to the provisions of section 59(3) and (4), as appropriate. The expert shall state in his report whether the amount of net worth (net business assets) is at least equal to the amount of registered capital stated by the company in the draft terms of a resolution on conversion of legal form. The amount of registered capital of a limited liability company or joint stock company cannot in such case be higher than the amount of net worth stated in the expert's report.

(9)

Where equity capital of a joint stock company or limited liability company or co-operative after conversion of legal form does not attain the amount of registered capital in the opening balance sheet drawn up as at the day of entry into the Commercial Register, the members (shareholders) shall be obliged, jointly and severally, to pay the difference in cash without undue delay after the conversion of legal form is entered in the Commercial Register. The members shall settle (the amounts to be paid) between (among) themselves in accordance with the proportionate amount of the nominal value of their shares or investment contributions in the company's registered capital before the con version of legal form.

(10)

No payments (performance) may be made to members (partners, shareholders) in connection with conversion of legal form, unless this Code stipulates otherwise. No special advantage may be granted to a person who took part in converting the legal form.

(11)

The intention of adopting a resolution on a change of legal form shall be publicized by the statutory organ at least IS days before adoption of the resolution on the conversion of legal form.

Section 69e

Entry of Conversion of Legal Form in the Commercial Register

A petition requesting entry of conversion of legal form in the Commercial Register shall be accompanied by the following documents:

(a)

the resolution on the conversion of legal form;

(b)

the report on the (proposed) conversion of legal form, if such was required by law, or the members' consent (approval, agreement) under section 69d(4), if they did not require this report to be drawn up;

(c)

authorizations (permissions, licences) issued by the competent state authorities, if required by law;

(d)

documents proving that securing (collateral) under section 69f(l) was provided, if required by law;

(e)

interim financial statements, including an auditor's report, if the auditing of financial statements is prescribed, such interim financial statements being drawn up as at the day at which the conversion of legal form was prepared.

Section 69f Protection of Creditors and Liability for Damage Suffered due to Conversion of Legal Form

(1)

Creditors of a company which has changed its legal form who file receivables" (claims) within six months of the day when the conversion of legal form entered in the Commercial Register became effective against third parties can require that additional security (collateral) be provided, if they cannot seek (immediate) satisfaction of their receivables and the conversion of legal form makes their receivables less recoverable. If a creditor proves that his receivable will become substantially less recoverable due to conversion of legal form, he is entitled to demand that additional (supplemental) security (collateral) be provided, even before conversion is entered in the Commercial Register. When no agreement on the method of securing the receivable is reached between the creditor and the company, the securing of such receivable shall be decided by a court ruling which takes into account the kind and amount of the receivable. The right to have a receivable secured shall not apply to creditors who are entitled to preferential or separate satisfaction of their receivables in bankruptcy proceedings, or to receivables which arose only after the day when conversion of legal form entered in the Commercial Register became effective against third parties.

(2)

If a company issued convertible or priority bonds, the right to subscribe for shares or to exchange such bonds for the company's shares shall lapse as at the day when conversion of the company's legal form is entered in the Commercial Register, unless the procedure under other statutory provisions is applied. The status of holders of other bonds shall not change. If share warrants were issued, the rights attaching to these shall lapse as at the day when conversion of legal form is entered in the Commercial Register, unless other statutory provisions stipulate otherwise. Holders of convertible and priority bonds who did not use the procedure under other statutory provisions or holders of share warrants shall become entitled to adequate compensation for their expired rights, the amount of such compensation being determined by the resolution on conversion of legal form. If the compensation provided is not regarded as adequate, the holders of such bonds may apply for a court ruling on the appropriate compensation. A court ruling (order) determining the compensation shall be binding on the company (in respect of the accorded right) and other entitled parties (persons). If such right is not claimed within three months of the day when conversion of legal form entered in the Commercial Register became effective against third parties, it shall lapse.

(3)

If in connection with conversion of legal form, the issuing conditions (terms) of bonds other than those under subsection (2) are to be modified, the company must ask for the consent of such bondholders in accordance with other statutory provisions.

(4)

The statutory organ shall, without undue delay, notify such of the company's creditors who are known to it as at the day when the resolution on conversion of legal form becomes effective against third parties entitled to supplemental security (collateral) under subsection (1), advising them that they may ask for adequate securing of (collateral for) their receivables.

(5)

Persons who are the statutory organ (or members of the statutory organ) of a company which converts its legal form shall be jointly and severally liable for damage which arises to the company which converted its legal form, to its members and creditors, as a result of their breach of a duty during conversion. A court ruling adjudging the right to compensation for such damage from the responsible (liable) persons shall similarly apply against other entitled parties.

(6)

The right (entitlement) to compensation for damage under subsection (5) shall become statute-barred five years after (he day when conversion of legal form entered in the Commercial Register becomes effective against third parties.

Section 69g

Nullity of Conversion of Legal Form

(1)

Nullification of a ruling concerning conversion of legal form may only be pronounced by a court order until the ruling permitting its entry into the Commercial Register takes legal effect. Only a member of the company whose legal form is to be converted may apply for a nullity order.

(2)

If an irregularity which is a ground for seeking a nullity order in respect of a ruling permitting conversion of legal form can be remedied, the court shall invite the company concerned to remedy (eliminate) this irregularity before making a nullity order.

(2)

The provisions of section 68a shall not be affected by the provisions of subsections (1) and (2).

Section 69h Bankruptcy and Composition Proceedings

(1)

If a bankruptcy order against a person participating in a merger or transfer of business assets to a (sole) member becomes legally effective, or if a ruling permitting composition proceedings under other statutory provisions becomes legally effective, the merger or transfer of business assets to a (sole) member may take place in the course of the bankruptcy or composition proceedings under conditions stipulated in other statutory provisions.

(2)

If a bankruptcy order against the property (estate) of a person participating in a merger or transfer of business assets to a sole member or a ruling permitting composition proceedings becomes legally effective, a merger contract (agreement) under sections 92a(2), 104a(2), 153a(2), 220a(l) and 220n(2), or a contract (agreement) or resolution on transfer of business assets to a sole member under sections 92c(l), J04c(l), 153c(l) and 220p(4) may not become legally effective until the approval required under other statutory provisions is given. A petition concerning the appointment of a merger expert also requires the consent (approval) of the bankruptcy trustee (composition administrator) under other statutory provisions.

Liquidation of a Company

Section 70

(1)

If a company is wound up with liquidation, or if some property is left over after its winding-up due to grounds under section 68(3)(f) and (g), liquidation shall be effected under this Act, unless other statutory provisions imply another method of settling the business assets.

(2)

A company shall go into liquidation as at the day it is wound up, unless the law provides otherwise. The fact that the company is going into liquidation shall be entered in the Commercial Register. During the period when the company is being liquidated, its commercial name shall be followed by the words "in liquidation".

(3)

The powers of the statutory organ to act in the name and on behalf of the company within the scope under section 72 shall pass to the liquidator on his appointment. If two or more liquidators are appointed and U does not ensue from their appointment otherwise, each such liquidator shall have the said powers.

Commentary on sections 70 to 75b:

A company which is wound up with liquidation or whose business assets are passed on only partially to

another company must complete the liquidation of its remaining assets. The fact that the company is going into liquidation and the liquidator's name are entered in the Commercial Register. The authority of the company's statutory organ shall pass to the liquidator and the commercial name of the company will be supplemented by the words "v likvidaci" ("in liquidation"). Relations between the liquidator and the company in liquidation are subject to the provisions on mandate, as appropriate.

The liquidator of the company's business assets shall notify all the known creditors and arrange for a notice to be published that the company is in liquidation and that its creditors are invited to file their claims with him. In the course of liquidation, claims by the company's employees shall be preferentially settled, unless the liquidator is bound to petition for a bankruptcy order. Within 30 days of the completion of liquidation, the liquidator shall file a petition for the company's striking off from the Commercial Register.

Section 71

(1)

A liquidator shall be appointed by the statutory organ of the company concerned, unless the law, deed of association or the statutes provide otherwise. Should a liquidator not be appointed without undue delay, he shall be appointed on the basis of a court ruling. A liquidator may only be an individual (a natural person), unless this Code or other statutory provisions stipulate otherwise,

(2)

If a company's liquidation is based on a court ruling, the court which decided on the company's winding-up shall also rule on the appointment of a liquidator. When the court appoints a liquidator in accordance with the preceding sentence, it may appoint a member (partner) of the company, or the statutory organ or a member of such as liquidator, even without his consent. The member or statutory organ or the member of such appointed as liquidator by the court may not resign from such office. However, he may petition the court to be recalled from the office of liquidator if it cannot be justly demanded of him that he execute such office. If a legal entity is appointed as liquidator, it shall determine an individual who will execute the liquidator's office in its name, and such person shall be entered in the Commercial Register under section 28(6).

(3)

If a liquidator dies, is recalled or resigns from his office, or if he cannot execute his office, a new liquidator shall be appointed in the same manner as his predecessor and entered in place of his predecessor in the Commercial Register. The court shall appoint a new liquidator if the organ authorized thereto under subsection (3) fails to appoint a new liquidator without undue delay.

(4)

Irrespective of the manner of the liquidator's appointment, on the basis of a motion by a person who proves his legal interest in the matter, the court may recall a liquidator who breaches his duties and replace him with another person.

(5)

The liquidator shall be the organ of the company (section 66) and be responsible (liable) for performance of his office in the same way as members of statutory organs.

(6)

The liquidator's remuneration shall be determined by the company organ which appointed him. If the liquidator has been appointed by a court, his remuneration shall also be determined by such court. The liquidator may be accorded the right to be paid advances (on his remuneration). In the case of a liquidator appointed by the court under section 71(2)(second sentence), he shall not be entitled to such remuneration.

(7)

Where a liquidator cannot be appointed under subsections (1) to (4), the (competent) court shall appoint one from the list of bankruptcy trustees.

(8)

Third parties (persons) shall co-operate with a court-appointed liquidator to the extent that they are bound to co-operate with a bankruptcy trustee under other statutory provisions.(9) The Ministry of Justice shall regulate in a decree the rules for computing the remuneration of a liquidator or a member of a company organ appointed by a court ruling and also instances in which reimbursement of a liquidator's cash expenses and remuneration shall be settled by the state.

Section 72

(1)

The liquidator shall execute on behalf of the company only acts in law (legal transactions) which relate to the company's liquidation. In executing the duties of his office, the liquidator shall settle the company's obligations (debts), asserts claims (receivables) and receive their fulfilment (performance), represent the company before courts and other authorities, and conclude settlements (conciliation agreements) and agreements on alteration and discharge of the company's rights and obligations. He may only conclude new contracts if they relate to the termination of pending business transactions, or if it is necessary to preserve the value of the company's property or its utilization, unless this involves continuation of the enterprise's operations. The liquidator is entitled (authorized) to act in the name of the company with regard to entries to be made in the Commercial Register.

(3)

If the liquidator ascertains that a company in liquidation is overburdened with debts (i.e. insolvent), he shall file a petition for adjudication of a bankruptcy order without undue delay. This shall not apply if the company was wound up under section 68(3)(f) and (g).

Section 73

Without undue delay the liquidator shall notify all known creditors of the fact that the company is in liquidation. He shall also publish the decision on winding up the company at least twice, no less than a fortnight apart, thereby inviting the company's creditors to register their claims within a period which may not be shorter than three months.

Section 74

(1)

The liquidator shall draw up an opening liquidation balance sheet and a list of the company's business assets as of the day the company goes into liquidation. The financial statements at the day preceding the day when the company goes into liquidation shall be drawn up by the company's statutory organ. Should the statutory organ fail to draw up the said financial statements without undue delay after the company's going into liquidation, this duty shall pass to the liquidator.

(2)

The liquidator shall send a list of the company's business assets to every member and creditor of the company who so requests.

(3)

In the course of liquidation, the liquidator shall preferentially settle wage arrears claimed by the company's employees, unless he is bound to file a petition for a bankruptcy order.

Section 75

(1)

After completion of all the acts in law necessary for executing the liquidation, the liquidator shall, without undue delay, draw up a report on the course of such liquidation which shall include a proposal on how to distribute the net property remainder left after the liquidation (the liquidation remainder or liquidation balance) among (between) the company's members; he shall submit such report to the members or the organ competent to approve it (hereafter "the proposal for distributing the liquidation remainder"). As at the day when the proposal for distributing the liquidation remainder is prepared, the liquidator shall draw up the financial statements. Non-approval of the proposal for distributing the liquidation remainder shall not prevent the company from being struck off the Commercial Register.

(2)

Any member who disapproves of the proposal for distributing the liquidation balance may ask the court to review the liquidation share (proportion) which, according to the proposal, this member should be given. If this right is not asserted within three months of the day when the proposal for distributing the liquidation remainder was discussed, the said rights shall lapse. A judicial ruling reviewing a member's liquidation share shall be binding on the company with regard to the basis of (he accorded right also in relation to the other

company members.

(3)

No payment (fulfilment), even in the form of advances, may be granted to the company's members on the ground of their entitlement to a liquidation share before the claims of all known creditors who filed in time their claims are satisfied. No payments (fulfilment, performance) can be granted before expiry of the time-limit under subsection (2) for distribution of the liquidation remainder (liquidation balance).

(4)

When a claim is contested (disputed) or not yet mature (payable), the liquidation remainder may only be distributed if the creditor was granted a corresponding security.

(5)

The provisions of subsections (1) to (4) shall not apply in the event of a company being wound up under section 68(3)(f) and (g) and its property not being sufficient to cover all its liabilities. In such a case, the liquidator shall liquidate (turn into cash) the company's property (assets) and settle from the proceeds first the cost of liquidation and wage arrears due to company employees and only then the other creditor's claims in the order of their maturity. If claims of the same order cannot be settled in their full amount, they shall be settled proportionately. Should the liquidator not succeed in liquidating the property within a reasonable time, he shall offer such property to the creditors in settlement of their receivables from the company according to the order of their claims. Should the creditors refuse to take over such property in settlement of their receivables (the company's debt), such property shall pass to the state on the day the company is struck off the Commercial Register. The liquidator shall notify thereof the authority concerned with the interim administration of national property under other statutory provisions.

(6)

The liquidator shall draw up a report about the method in which the property under subsection (5) was disposed of, specifying in particular the proceeds realised by the sale of individual items of such property and also (he property items which were not sold (turned into cash), stating whether any such items were taken over (accepted) by creditors in settlement of the company's debts or, if relevant, what property shall pass to the state when the company is struck off the Commercial Register ("the report on disposal of the property"). Such report shall be submitted for the approval of the company's members or the company organ competent to approve it. Should the report not be approved, this shall not prevent the company being struck off the Commercial Register. The liquidator shall draw up financial statements as at the day his report on disposal of the property was prepared.

Section 75a

(1)

Liquidation shall be completed by distribution of the liquidation remainder (liquidation balance) or by use of the proceeds of the property sale for settlement of the creditors' receivables, or by their refusal to take over (accept) some property in settlement of their receivables from the company (i.e. the company's debts) under section 75(5). After distributing the liquidation remainder, the liquidator shall draw up a list of the members to whom he paid out a liquidation share.

(2)

Within 30 days of completing liquidation, the liquidator shall file a petition for the company to be struck off the Commercial Register.

Section 75b

(1)

If, after completion of the company's liquidation, previously unknown property is ascertained or the need arises for other necessary measures relating to such liquidation, the court shall, on the basis of a petition (an application) filed by a state authority, a member of the company, a creditor or a debtor, rule that the company's liquidation be renewed and appoint a liquidator. After this judicial ruling takes legal effect, the registration court shall enter in the Commercial Register the fact that the company's liquidation has been renewed and the name of the liquidator.

(2)

If previously unknown property is ascertained after the company is struck off the Commercial Register, the court shall, on the basis of a petition filed by a state authority or a member, creditor or debtor of the company, annul the company's striking off from the Commercial Register and either renew its liquidation or order the company to go into liquidation, simultaneously appointing a liquidator. After such judicial ruling takes legal effect, the registration court shall enter the fact in the Commercial Register that the company has been reinstated and that it is in liquidation, and the name of the liquidator.

(3)

At the day of the entry under subsection (1) or (2) in the Commercial Register, the liquidator shall draw up an opening balance sheet. The provisions of section 68(8) shall not be applicable.

Division II
General Commercial Partnerships (Unlimited Partnerships)

Subdivision 1 Fundamental Provisions

Section 76

(1)

A "general commercial partnership" (i.e. an "unlimited partnership"; in Czech "vefejna obchodni spofecnost") is an entity in which at least two persons carry on business activity under a common commercial name and bear joint and several liability for the obligations (debts) of the partnership with all their property.

(2)

A partner of a general commercial partnership can only be a natural person (an individual) who meets the general requirements for undertaking a trade (in Czech "zivnost") under other statutory provisions, and in relation to whom there is no impediment to his engagement in a trade under other statutory provisions, irrespective of its objects (the scope of the partnership's activity).

(3)

If a partner of a general commercial partnership is a legal entity, the rights and duties connected

with participation in the partnership shall be exercised by such entity's statutory organ, or the representative it entrusts thereto and who meets the conditions under subsection (2).

Commentary on section 76:

The Czech term "vefejnd obchodni spolecnost" is translated in this publication as a "general commercial partnership", but it is often referred to as an "unlimited partnership". It is sometimes misleadingly translated as a "public trading company" or "public commercial company". Both the Czech term and its German counterpart "qffene Handelsgesellschaft" contain the equivalent of the word "company" {"spolecnost"), which is not the case in English.

A general commercial partnership established under Czech law is a legal entity which can be formed by both individuals and legal persons (entities). This differs from the laws of some other countries, which do not regard a partnership as an entity and require a partnership to be formed only by individuals.

Any general commercial partnership must have at least two partners. They decide on their investment contributions in the partnership by mutual agreement and are liable for the debts of the partnership with all their property not only during the existence of the partnership but also after its dissolution.

Engagement in a trade, as referred to in subsection (2), is subject to the provisions of the Trades Licensing Act ("zivnostenskf zdkon").

Section 77

The commercial name must include the addendum "vefejna obchodnf spolecnost", or its abbreviated form "ver. obch. spol." or "v.o.s.". Should the commercial name include the surname of at least one of the partners, it is sufficient to add "a spol." ("and partners").

Commentary on section 77:

The commercial name of a general commercial partnership, like the commercial name of other business entities established under Czech (aw, must include an addendum specifying its legal form.

Section 78

(1)

A partnership agreement (in Czech "spolecenska smlouva") must contain the following particulars:

(a)

the commercial name and seat of the general commercial partnership;

(b)

details of the partners, such as the commercial name and seat of the legal entity or the name and residential address of the individual;

(c)

the partnership's objects (the scope of its business activity).

(2)

A petition (an application) for entry of the partnership in the Commercial Register shall be signed by all the partners, and the partnership agreement shall be attached to the application.

Commentary on section 78:

In addition to the information which must be included in the partnership agreement under the Commercial Code, the agreement often specifies in greater detail the partners' rights and duties, such as the amount of their investment contributions and the time-limit for their payment (and the penalties for non-payment), a description and valuation of investment contributions in kind, .the duty to participate personally in the partnership's activity, the prohibition of competitive conduct, the conditions for a partner's expulsion from the partnership and for passing a partner's ownership interest (business share, holding) to his heir, a determination of who will act for the partnership, the decision-making process and the method of distributing a profit or loss and computing a settlement share and a liquidation share.

The partnership agreement (deed of partnership) must be in writing and the partners' signatures must be authenticated. When an application for entry of the partnership in the Commercial Register is filed, the partnership agreement and a trade or other authorization, as applicable, must be enclosed with it.

Subdivision 2
Rights and Duties of Partners

Section 79

(1)

The rights and duties of the partners are governed by their partnership agreement (deed of partnership). The consent of all partners is required for any modification of the partnership agreement, unless this Code or the partnership agreement provides otherwise. The partnership agreement may stipulate that the consent of a majority of the partners will be sufficient for its modification.

(2)

The consent of a majority of the partners is required for decisions on other matters, unless the partnership agreement or the law stipulates otherwise.

(3)

If under the partnership agreement the consent of a majority of the partners is sufficient for the decisions under subsections (1) and (2), each partner shall have one vote. However, the partnership agreement may stipulate another number of votes.

Commentary on section 79:

The partnership agreement of a general commercial partnership is a fundamental document on the formation of the partnership and regulates the partners' rights and duties. Any document which alters the partnership agreement must bear the authenticated signatures of all the partners.

Section 79a

In executing their duties, each partner must proceed with good managerial care (due diligence).

Commentary on section 79a:

In view of the character of a general commercial partnership, its partners' rights and duties are more extensive than in capital-type companies (e.g. joint stock companies), and the partners are required to manage the partnership with due diligence

.Section 80

(1)

The partner shall pay up his investment contribution within the time-limit specified in the partnership agreement or without undue delay after the partnership's incorporation or after he becomes a partner.

(2)

In the case of late payment of a monetary investment contribution, a partner shall pay an interest charge of 20% of the amount in arrears, unless the partnership agreement provides otherwise.

(3)

A partner may pay more than one investment contribution into the partnership. For the purpose of computing such partner's business share in the partnership, his investment contributions shall be added together.

Commentary on section 80:

The taw does not prescribe the amount of the investment contributions to a general commercial partnership.. The partners of a general commercial partnership usually specify the amounts of their investment contributions in their partnership agreement. General commercial partnerships do not enter the amount of their capital in the Commercial Register.

Section 81

(1)

Each partner may manage the business of the partnership within a framework of principles agreed on by the partners.

(2)

Should one or more partners be authorized (entrusted) by the other partners to manage the partnership wholly or in part under the partnership agreement, the remaining partners lose this right to the same extent. The authorized (entrusted) partner shall follow in his management of the business those principles which he has agreed with the other partners. The authorized (entrusted) partner must follow the decisions made by a majority of the votes. Each partner has one vote, unless the partnership agreement provides otherwise.

(3)

Delegation of authority to a partner [subsection (2)] may be withdrawn, if so agreed by the other partners, unless the partnership agreement stipulates otherwise. Should the authorized partner substantially breach his duties [section 345(2)], the court may revoke his authorization based on a petition from any of the other partners, even if the authorization is irrevocable under the partnership agreement. In this case the

provisions of subsection (1) shall apply until the partners agree on a new authorization.

(4)

A partner who is authorized (entrusted) to manage the business of the partnership may give it up in his written resignation for important reasons, but he shall still take measures which do not allow of any delay. His written notice of termination (resignation) must be delivered to the partnership and all the other partners. The notice shall take effect one month after the day of its delivery to the partnership. As of the effective day of the notice, the business of the partnership shall be managed by the other partners.

(5)

The partner who has been authorized (entrusted) to manage the business affairs of the partnership must, upon request, inform the other partners about all of the partnership's affairs. Each partner may inspect any of the partnership documents and check the information contained therein, or he may empower an auditor or a tax adviser to do so on his behalf.

Commentary on section 8J:

Since all partners in a general commercial partnership are equal, any of them may manage the partnership's business. However, one or more partners may be entrusted (authorized) by the other partners to manage the partnership wholly or in part. When managing the business, the entrusted partner must comply with any decision made by a majority of the partners. He must also inform the other partners of all the partnership's affairs if so requested. If the partner entrusted with management of the partnership fundamentally breaches his duties, his authorization is revoked.

Section 82

(1)

Profit is distributed among (between) the partners in equal proportions. A profit share, as determined on the basis of the financial statements, is payable within three months of the day the financial statements are approved, unless the partnership agreement stipulates otherwise.

(2)

The partners shall bear equally any loss indicated by the financial statements.

(3)

The provisions of subsections (1) and (2) shall apply, unless the partnership agreement provides otherwise.

Commentary on section 82: Under the amended wording of the Commercial Code, partners of general commercial partnerships are no longer entitled to receive interest on their paid-up investment contributions. The Income Taxes Act applies to taxation of profits. In the case of a loss, the partners' investment contributions are reduced accordingly, unless the partners settle the loss from their own property.

Section 82a

Each partner is entitled in the name of the partnership to sue another partner liable to the partnership for damage, for compensation of such damage (i.e. damages), and to sue a partner who defaults on payment of his investment contribution; the partner who files such a complaint is entitled to represent the partnership in the proceedings. However, this shall not apply if action to obtain damages or action in relation to such default has already been taken by the partnership's statutory organ. A person other than the partner who filed the complaint or a person authorized by him cannot perform acts in law on behalf of the partnership or in its name in such proceedings.

Commentary on section 82a:

If a partner who is a particular general commercial partnership's statutory organ fails to take action in the situations described in section 82a, another partner may file a complaint, acting in the partnership's name.

Section 83

Another partner may join the partnership or an existing partner may leave it, provided that the partnership agreement is amended accordingly and that at least two partners remain.

Commentary on section 83:

A new partner may join a partnership if this is agreed by the other partners in an altered partnership agreement, which must be in writing and bear the partners' authenticated signatures. An existing partner may leave the partnership if this is agreed by the other partners in the partnership agreement, provided that at least two partners remain in the partnership.

Section 84

Prohibition of Competitive Conduct

Without the other partners' consent, no partner may engage in outside activities which are objects of the partnership's business activity. This also applies to activity benefiting other persons and to the mediation of business transactions for someone else. No partner is allowed to be the statutory or other organ of another entity having similar business activities (objects). A partnership agreement may regulate the prohibition of competitive conduct differently.

Commentary on section 84:

The prohibition of competitive conduct is usually regulated in the partnership agreement, but if it is not, the provisions of section 84 apply. The consequences of a breach of duty relating to the prohibition of competitive conduct are subject to the provisions of section 65(2) and (3) of the Commercial Code.

Subdivision 3

Legal Relationships with Third Parties

Section 85

(1)

All partners of a general commercial partnership shall be its statutory organ. However, their partnership agreement may stipulate that only certain partners or one partner shall be the partnership's statutory organ.

(2)

If two or more partners are a partnership's statutory organ, each of them may act independently

(separately) in the name of e partnership, unless the partnership agreement stipulates otherwise. The statutory organ's authority to act in the name of the partnership may only be restricted by the partnership agreement. However, such restriction shall not be effective against third parties.

(3)

A partner may resign from the office of statutory organ, but he must execute all measures which do not allow of any delay. Notice of his resignation must be delivered to the partnership and all partners. This resignation shall take effect one month after the day of its delivery to the partnership. If the resigning partner is the only member of the partnership's statutory organ, all the other partners shall form its statutory organ as of the effective day of such resignation.

Commentary on section 85:

The statutory organ of a general commercial partnership is formed by all its partners, unless the partnership agreement regulates (he statutory organ differently. The partners forming the statutory organ must manage the partnership's business affairs with due diligence (see section 79a).

Partner's Liability

Section 86

A general commercial partnership is liable for its debts (obligations) with its entire property. The partners bear joint and several liability (as sureties) for the partnership's debts with their entire property.

Commentary on section 86:

The partners of a general commercial partnership are liable for its debts with all their properly not only during the existence of the partnership but also after its dissolution.

Section 87

(1)

A partner who joins a partnership later is even liable (as surety) for those of the partnership's liabilities (debts) which arose before he joined the partnership. However, he can require compensation from the other partners for his discharge of the partnership's debt, as well as reimbursement of related expenses.

(2)

If a partner terminates his participation in a general commercial partnership while it is in existence, he is only liable (as surety) for those debts which arose prior to the day when his participation ended.

Commentary on section 87:
Section 87 regulates the liability of a partner who joins a certain general commercial partnership after its
formation and the liability of a partner who leaves it.

Subdivision 4
Winding-up and Liquidation of a General Commercial Partnership

Section 88

(1)

In addition to the cases specified in section 68, a partnership will be wound up:

(a)

after notice of termination is submitted by a partner no later than six months before the end of the accounting period, if the partnership agreement was concluded for an indefinite period of time and unless the partnership agreement provides another time-limit of termination;

(b)

following a judicial ruling under section 90;

(c)

as a result of the death of one of the partners, although this shall not apply if the partnership agreement permits the passage of a business share in the partnership by inheritance, provided that the deceased partner's heir (or heirs) does not renounce such inheritance and at least two partners remain in the partnership;

(d)

as a result of the dissolution of a legal entity which is one of the partners, unless the partnership agreement admits the passage of a business share to a partner's legal successor and at least two partners remain in the partnership;

(e)

on adjudication of a bankruptcy order against the property of one of the partners, or as a result of the dismissal of a bankruptcy petition (in respect of the property of one of the partners) due to a lack of assets;

(f)

if a distraint order is effective against a partner's business share in the partnership, or upon issue of a writ of execution against a partners's business share in the partnership (after the ruling ordering such execution takes effect);

(g)

if one of the partners is deprived of his capacity to undertake acts in law, or if such capacity is restricted;

(h)

if a partner ceases to meet the requirements under section 76(2);

(i)

for other reasons stipulated in the partnership agreement.

(2)

If any of the grounds for winding up the partnership are among those specified in subsection (I)(a), (c), (d), (e), (f), (g), (h) and (i), the remaining partners may agree to amend the partnership agreement and continue the existence of the partnership without the partner to whom the grounds for such winding-up apply. Should alteration of the partnership agreement not be agreed within three months of the winding-up, this right shall lapse and the partnership shall go into liquidation as of that day, unless the partners have agreed on liquidation of the partnership prior to expiry of the said time-limit.

(3)

If following the remaining partners' agreement to continue the partnership [subsection (2)], a bankruptcy order against a (former) partner's property is cancelled due to reasons other than discharge of the distribution schedule or a lack of property (Note 1), the participation of such partner in the partnership shall be renewed (reinstated); if the partnership has already paid a settlement share to such partner, he must reimburse it to the partnership within two months of the day when the bankruptcy proceedings were cancelled. The same shall apply if a distraint order against (on) a partner's business share in the partnership is stopped under a final ruling, or if a writ of execution is stopped under a final ruling in accordance with other statutory provisions.

(4)

If a partnership wound up under subsection (l)(e) or (f) was not already dissolved, those of its partners who meet the conditions under subsection (3), including any partner whose participation in the partnership was reinstated (renewed), may agree to continue the partnership's existence.

Commentary on section 88: The provisions of subsection (1) stipulate the reasons for. the winding-up of a general commercial partnership with liquidation, but in most cases the remaining partners may agree to carry on the partnership's business (without the partner to whom the reason for the winding-up relates), provided that at least two partners remain in the partnership.

Section 89

In the cases specified in section 88(2), the former partner or his heir, or the former partner's legal successor, is entitled to claim payment by the partnership of a settlement share ("vypofa~daci podfl"). Its amount is computed in the same way as a share in the liquidation remainder (liquidation share; section 92).

Commentary on section 89:

A settlement share is paid to a partner who leaves the partnership during its existence. Its amount is computed as a liquidation share.

Section 90

(1)

A partner may file a petition with the (competent) court seeking the winding-up of the partnership if there are important grounds for this, in particular if another partner seriously breaches his duties or if (he purpose for which the partnership was formed cannot be attained.

(2)

The partnership may file a petition with the (competent) court seeking expulsion of a particular partner who seriously breaches his duties, even though he was invited to fulfil them and notified in writing of the possibility of his expulsion. Such petition must be approved by partners who together have at least a 50% business share in the partnership.

Commentary on section 90;

Should a partner breach the partnership agreement, the court may order the winding-up of the general commercial partnership if one of the other partners applies for this. The partnership may seek a court ruling to expel a partner who has seriously breached his duties.

Section 91

Death of a Partner

An heir who inherits a business share in a general commercial partnership is entitled to terminate his participation in the partnership, even when such partnership was formed for a fixed term (a definite period of time). The notice period for such termination is three months. An heir who gives notice of such termination is not obliged to participate personally in the partnership's activity, even when such duty is stipulated in the partnership agreement.

Commentary on section 91:

The consequences of a partner's death are regulated on section 88. The provisions of section 91 only stipulate the period of notice to be given by someone who inherits a business share in a partnership but does not wish to be a partner in such partnership.

Section 92

Settlements between Partners

(1)

If a partnership is wound up and liquidated, the partners are entitled to receive a proportion of the liquidation remainder (liquidation share). The liquidation remainder is first distributed among the partners up to the amount of their paid-up contributions to the partnership. The rest of the liquidation remainder is then distributed equally between (among) the partners.

(2)

If the liquidation remainder is insufficient to repay the paid-up contributions, the liquidation remainder is distributed between (among) the partners in proportion to their contributions.

(3)

The partnership agreement may regulate the distribution of the liquidation remainder in another manner.

Commentary on section 92:

When a general commercial partnership is wound up and liquidated, each of the partners is entitled to receive a liquidation share, provided that all of the partnership's debts have been settled. Regulation of the liquidation remainder's distribution under the Commercial Code applies only if the partnership agreement does not stipulate otherwise.

Subdivision 5

Winding-up of Partnerships without Liquidation

Section 92a

Mergers of General Commercial Partnerships

(1)

Unless it is stipulated otherwise below, the provisions of section 153a(3) and (11) (second sentence), 220a(l) (first and second sentence), (2) (second to fourth sentence), (7) to (11), 220b(I) and (3) to (5), 220c, 220d(l) to (4), 220h(2) to (6), 220i(l)(a), (c), (e) to (g), (i) to (k), 2201 and 220n(3) shall apply to mergers of general commercial partnerships. The provisions of section 153a(4) and (6) shall apply, as appropriate, with the proviso that the right to ask for information about the other participating partnerships pertains only to a partner who is not authorized (entrusted) to act in the name and on behalf of the partnership, and such right pertains to him in relation to any partner of the participating partnership who is authorized (entrusted) to act in such partnership's name and on its behalf. The provisions which relate to section 69a(6) shall not be applied.

(2)

A merger contract (agreement) must be signed by all the partners of all the participating partnerships. The provisions of section 220a(3)(a), (f) to (h) and (j) shall apply, as appropriate, but the provisions under letter

(h)

shall only apply to bondholders, and furthermore, instead of an exchange ratio based on shares, the legal status (position) of a particular partner of a merging partnership in the successor partnership (an exchange ratio based on business shares) and the amount of his investment contribution shall be stated, if such contributions are required from the partners, thereby the total amount of the investment contributions of a participating partnership's partners in the registered capital of the successor entity may not exceed the equity capital of the participating partnership, as stated in its financial statements.

(3)

Only the participating partnerships and their partners may refer to the invalidity of a merger contract (agreement).

(4)

A report under section 220b(l) shall not be required if all the partners of a participating partnership are entitled (empowered) to manage its business affairs.

(5)

A petition (proposal) for the appointment of an expert or experts shall be lodged by all partners who are the statutory organ of a participating partnership. If a partner's (partners') petition requesting that the (proposed) merger be checked by an expert is rejected, this shall be stated in the merger contract (agreement).

(6)

The draft terms of the merger contract and other documents under section 153a(5), if such documents are required, must be despatched to the partners no later than two weeks before the day determined for the signing of the merger contract. An advisory notice under section 220d(l) shall not be required.

(7)

A petition for entry of the successor partnership in the Commercial Register shall be signed by ail of its prospective partners.

(8)

A lawsuit (complaint) under section 220k may be filed by each partner.

(9)

The duty to pay up an investment contribution shall not lapse when a merger is entered in the Commercial Register unless the merger contract provides otherwise.

Commentary on sections 92a to 92d:

Mergers of general commercial partnerships, whether effected by acquisition or by the formation of a new partnership, are subject to section 92a. Contrary to the regulation effective until the end of 2000, a merger of a general commercial partnership and a limited partnership is possible (section 92b, see also section W4b). If one partner remains in a general commercial partnership, this will result in the winding-up of the partnership and its liquidation, unless this remaining partner opts to take over the business assets of the partnership, in which case liquidation is not required (section 92c). In the event of division of a general commercial partnership, its successor entity may be in the legal form other than general commercial partnership (section 92d).

Section 92b
Merger of a General Commercial Partnership with a Limited Partnership

(1)

A general commercial partnership may be merged with a limited partnership by acquisition or by the formation of a successor general commercial partnership, whereby all partners of a merging limited partnership become partners with unlimited liability.

(2)

Unless it is stipulated otherwise below, the provisions of section 92a shall apply to both a successor general commercial partnership and a merging general commercial partnership, and the provisions of section 104a to a merging limited partnership. A merger contract must be signed by all partners of all the participating partnerships. The provisions of section 104a(4) shall not apply.

Section 92c
Winding-up of a General Commercial Partnership with Transfer of its Business Assets to a Sole
Partner

(1)

If there are only two partners in a general commercial partnership and there is a ground under section 88(l)(a), (c), (d), (e) or (f) in respect of one of the partners which leads to the winding-up of such partnership with liquidation, the other partner may decide to take over the business assets of such partnership without liquidation.

(2)

Such decision must be made by the partner within one month of the day when the ground under subsection

(1)

arose, otherwise the said right shall lapse and the partnership being wound up shall go into liquidation. The partner's decision to take over the partnership's business assets must be in the form of a notarial deed.

(3)

The provisions of section 220p(3) shall apply as appropriate. If such partner is a joint stock company or a limited liability company, the take-over of the general commercial partnership's business assets shall require the approval of the general meeting; in this case the time-limit under subsection (2) shall be extended by the timerequired by law or by the statutes for the convening of a general meeting. The resolution of the general meeting must be in the form of a notarial deed.

(4)

The provisions of section 220p(6) and (7) shall apply as appropriate. A copy of the notarial deed on the partner's decision under subsections (1) and (2) shall be enclosed with the petition requesting an entry in the Commercial Register.

(5)

The provisions of section 89 shall similarly apply.

(6)

The procedure under this section shall also apply if the grounds under subsection (1) affect all of the partners except one.

Section 92d

Division of a General Commercial Partnership

(1)

A contract on division concluded by all of the partners in the form of a notarial deed is required for division of a general commercial partnership by the formation of new partnerships. The successor partnerships resulting from such division may be both general commercial partnership and limited partnerships.

(2)

A contract on division must contain a manifestation of will to wind up the partnership without liquidation. The provisions of section 220r(2)(a), (b), (e), (f), (g), (h), (i) and (k) shall apply, as appropriate, to the other particulars of such contract. Partnership agreements of the successor partnerships must be enclosed with the contract on division,

(3)

Unless the law provides otherwise, the following provisions shall apply, as appropriate, to the division of a general commercial partnership; section 92a(2) to the amount of investment contributions to registered capital, sections 92a(3), 353d(2), 220h and 220(s)(l) and (3) to (6) to the report on the proposed division and section 220>v, 220x, 220y and 220/ to the petition requesting an entry in the Commercial Register, which must be signed by all of the successor partnerships' partners.

(4)

Unless the law provides otherwise, the provisions of subsections (1) and (2) shall apply, as appropriate, to a division by acquisition. The provisions of section 220/n shall also apply as appropriate. Division by acquisition is permissible in respect of both another general commercial partnership and a limited partnership.

Subdivision 6

Conversion of Legal Form

Section 92e

(1)

Unless it is stipulated otherwise below, the provisions of section 69d to 69g shall apply to conversion of legal form. The provisions of section 220a(2) shall apply as appropriate.

(2)

The partners shall be liable for obligations (commitments) existing at the day of entry of convrsion of legal form in the Commercial Register to the same extent as before such conversion was entered in the Commercial Register.

Commentary on section 92e:

The provisions of section 92e supplement those in sections 69d to 69^ when a legal entity which converts its legal form is a genera! commercial partnership. The consent of all partners to such conversion is required.

Division III

Limited Partnerships

Subdivision 1

Fundamental Provisions

Section 93

(1)

A "limited partnership" (in Czech "komanditnf spolecnost") is an entity in which one or more partners are liable for the partnership's obligations up to the amount of the unpaid parts of their contributions. as recorded in the Commercial Register ("limited partners"; in Czech "komanditiste"), and one or more partners are liable for the partnership's obligations (debts) with their entire property ("general partners"; in Czech "komplementari").

(2)

A general partner can be a person who complies with the general requirements for carrying on a trade ("zivnost") under other statutory provisions, and on whose side there is no impediment under other relevant statutory provisions, irrespective of the partnership's objects of business activity.

(3)

If a general partner is a legal entity, the rights and duties associated with its participation in a limited partnership shall be exercised by its statutory organ or by a representative empowered thereto by the statutory organ, whereby such person must meet the requirements stipulated in subsection (2).

(4)

Unless it is stipulated otherwise below, limited partnerships are governed as appropriate (mutatis mutandis) by the preceding provisions on general commercial partnerships, while the legal status of limited partners is governed mutatis mutandis by the provisions on limited liability companies.

Commentary on section 93:

A limited partnership, like a general commercial partnership, is a legal entity under Czech law. It can only be formed to carry on a business activity or activities. The partners may be both individuals and legal entities.

During its existence a limited partnership must have at least one general partner ("komplementdr") and one limited partner ("komanditista"). The general partner is liable for the partnership's debts with all his property.

A limited partner's investment contribution to the partnership is mandatory. Its amount, which cannot be less than CZK 5,000, is agreed in the partnership agreement. A limited partner is only liable for the partnership's debts up to the amount of the unpaid part of his investment contribution.

The provisions on general commercial partnerships apply to limited partnerships as appropriate, while the provisions on limited liability companies apply in a similar way to the legal status of limited partners, unless the Commercial Code includes a specific regulation concerning limited partnerships.

Section 94

The partnership agreement (in Czech "spolecenska smlouva") must include the following:

(a)

the commercial name and seat of the partnership;

(b)

determination of the partners in the form of each partner's commercial name and seat, if such partner is a legal entity, or his full name and residential address, if the partner is an individual (a natural person);

(c)

the objects (scope of partnership's business activities);

(d)

determination of which partners are general partners and which are limited partners;

(e)

the amount of each limited partner's investment contribution.

Commentary on section 94:

Section 94 stipulates the contents of a valid partnership agreement. It also usually regulates other matters, such as the investment contributions to be provided by general partners, the decision-making process governing the partnership's affairs, the rules for profit distribution and computing a settlement share and liquidation share, the transferability of the business share (holding) of a partner, who has authority to act on behalf of the partnership, etc.

Section 95

The commercial name of the limited partnership shall include the designation ^(tkomanditni spolecnost" ("limited partnership") which may be abbreviated as "kom. spol." or "k. s.". Should the commercial name of the limited partnership include the name of a limited partner, such partner shall be liable for the partnership's obligations (debts) as a general partner.

Commentary on section 95:

The commercial name of a limited partnership must include an addendum specifying its legal form, in accordance with section 95

Section 96

A petition (an application) for entry of the limited partnership in the Commercial Register must be signed by all of its partners. The partnership agreement must be attached to the application.

Commentary on section 96:

Like the partners of a general commercial partnership, all the partners of a limited partnership must sign a petition (an application) for the partnership's entry in the Commercial Register and their signatures must be authenticated. The partnership agreement, the appropriate trade certificate or trade licence and, in the case of a general partner who is a foreign person, his residence permit for the Czech Republic must be enclosed with the application.

Subdivision 2

Rights and Duties of Partners

Section 97

(1)

Only the general partner(s) may manage the business of the partnership.

(2)

Other matters are decided jointly by the general partners and limited partners on the basis of a majority vote, unless the partnership agreement stipulates otherwise.

(3)

Each partner has one vote, unless the partnership agreement prescribes a different number of votes.

(4)

The consent of all partners is required for any modification (alteration) of their partnership agreement, unless this Code provides otherwise. However, the partnership agreement may stipulate that the consent of a majority of the general partners and the consent of a majority of the limited partners is sufficient to modify the partnership agreement. The partnership agreement may also provide that the consent of the other partners is not required for transfer of a limited partner's business share (holding) to another person. The provisions of section 115 shall apply, as appropriate.

Commentary on section 97:

Only general partners of a limited partnership are entitled to manage the partnership's business. The partnership agreement may stipulate that some rather than all of the general partners are entrusted with management of the partnership.

Section 97a

A limited partner shall make an investment contribution to the partnership's registered capital in the amount specified in the partnership agreement, but such amount shall not be less than CZK 5,000. An investment contribution must be paid up within the time-limit stated in the partnership agreement, otherwise without undue delay after the partnership's incorporation or after such limited partner's participation in the partnership arises.

Commentary on section 97a:

The Commercial Code now stipulates the minimum amount of a limited partner's investment contribution. This was previously not the case.

Section 98

A limited partner is entitled to inspect the partnership's books of account and accounting documents and check the data contained therein, or he may empower an auditor to do this on his behalf. He is also entitled to receive a copy of the partnership's financial statements and require information from the general partners about all matters concerning the partnership.

Commentary on section 98:

All partners of a limited partnership have the right to be informed of the partnership's financial situation. A limited partner may inspect the partnerships books of account any time.

Section 99

The prohibition of competitive conduct does not apply to limited partners, unless the partnership agreement stipulates otherwise.

Commentary on section 99:

The prohibition of competitive conduct applies only to general partners, unless the partnership agreement extends the prohibition to limited partners. The consequences of breaching the prohibition of competitive conduct are stated in section 65.

Section 100

(1)

A profit shall be divided into a portion appertaining to the partnership as a whole and a portion appertaining to the general partners in the ratio stipulated in the partnership agreement, or else into two (equal) halves. The portion profit pertaining to the partnership as a whole shall be taxed and then distributed among the limited partners according to the ratio specified in the partnership agreement, otherwise according to the ratio of their paid-up investment contributions.

(2)

Unless the partnership agreement stipulates otherwise, the portion of profit due to the general partners is distributed among them equally, whereas the portion of profit due to the limited partners is distributed in proportion to their paid-up investment contributions.

(3)

A loss ascertained by the financial statements shall be shared equally by the general partners, unless the partnership agreement provides otherwise. Limited partners shall share in the settlement of a loss, if this is specified in the partnership agreement, but they shall not be obliged to return shares in profit which have already been paid to them in order to settle a loss.

Commentary on section 100:

The new wording of subsection (1) harmonizes the regulation of a limited partnership's profit distribution with the income tax and accounting legislation.

Subdivision 3

Legal Relations with Third Parties
Section 101

(1)

The general partners shall form the statutory organ of a limited partnership. Unless the partnership agreement provides otherwise, each general partner may act independently in the name of the limited partnership.

(2)

If a limited partner concludes a contract in the name of the partnership without being empowered thereto, he is liable for obligations (debts) ensuing from the contract to the same extent as a general partner.

Commentary on section 101:

Only general partners can form the statutory organ. The partnership agreement may provide that only some of the general partners will be empowered to act for the partnership. In such circumstances, the partnership agreement must include the names of the general partners empowered to act for the partnership and the form of their empowerment (e.g. concurrent approval by two general partners). These facts are entered in the Commercial Register. If a limited partner concludes a contract in the name of the partnership without being mandated to do so, he is liable for obligations ensuing from the contract with all his property, in the same way as a general partner.

Subdivision 4

Winding-up and Liquidation of a Limited Partnership

Section 102

(1)

A limited partner is not entitled to terminate his participation in the partnership (i.e. to leave it). If a bankruptcy order is adjudged against a limited partner's property, or if a petition for a bankruptcy order on a limited partner's property is dismissed due to his lack of property, or if distraint order is effective against a limited partner's business share in the partnership or a writ of execution is issued against a limited partner's business share after a judicial ruling ordering such execution takes legal effect, this shall not be a ground for the winding-up of the partnership. Furthermore, the partnership shall not be wound up if a legal entity which is a limited partner of the partnership is dissolved. The fact that a limited partner is deprived of his legal capacity or that his legal capacity is restricted shall not be a ground for termination of his participation in the partnership or for the partnership's winding-up.

(2)

If a bankruptcy order is adjudged against the property of a limited partner, or if a petition for a bankruptcy order in respect of a limited partner's property is dismissed due to his lack of assets (property), or if distraint order is effective against a limited partner's business share in the partnership or a writ of execution is issued against a limited partner's business share after the relevant judicial ruling takes effect, such limited partner's participation in the partnership shall be terminated. Such limited partner's entitlement to a settlement share shall be included in his bankrupt estate.

(3)

If a bankruptcy order against the property of a limited partner was revoked (cancelled) due to reasons other than the discharge of a distribution schedule or his lack of property, his participation in the partnership shall be renewed (reinstated); if the partnership has already paid a settlement share to such partner, he shall be obliged to repay the amount of the settlement share to the partnership no later than two months after cancellation of the bankruptcy proceedings. The same shall apply if, under a final ruling, a distraint order or a writ of execution against the limited partner's business share in the partnership is discontinued under other statutory provisions.

(4)

In the event of a limited partner's death, the partnership shall not be wound up and his business share shall be subject to inheritance proceedings. The partnership agreement may exclude passage of a business share to an heir. In such case, the partnership shall pay a settlement share to his heir (heirs).

Commentary on section 102:

A change in the status of a limited partner (e.g. the issue of a bankruptcy order against a legal entity which is
a limited partner),
or even his death (in the case of an individual), will not result in the winding-up of a limited partnership,
provided that at least one limited partner remains in the partnership.

Section 103

If participation of all the limited partners is terminated, the general partners may agree to convert their limited partnership into a general commercial partnership without liquidation. The provisions of sections 69d to 69g shall apply as appropriate.

Commentary on section 103;

If no limited partner remains in a limited partnership and there are still at least two general partners, they may agree to convert their limited partnership, without liquidation, into a general commercial partnership.

Section 104

(1)

If the winding-up of a limited partnership is associated with its liquidation, all of its partners are entitled to proportionate parts o! the liquidation remainder (liquidation balance). Each partner is entitled to repayment of the amount of his paid-up investment contribution. If the liquidation balance is insufficient for such payment, the limited partners will have a preferential right to repayment of their investment contributions. After return of the amounts of investment contributions, the rest of the liquidation remainder will be distributed among the partners in the same ratio as a profit.

(2)

If the liquidation remainder is insufficient for distribution under subsection (I), it will be distributed among the partners in the same ratio as a profit.

(3)

The partnership agreement may stipulate another method of distributing the liquidation remainder among the partners.

(4)

A settlement share shall be computed in the same way as a share in the liquidation remainder (i.e. a liquidation share).

Commentary on section 104:

When a limited partnership is wound up and liquidated, all of its partners have a right to a due proportion of the liquidation remainder (liquidation balance),

Subdivision 5

Winding-up of a Limited Parntership without Liquidation

Section 104a

Mergers of Limited Partnerships

(1)

Unless it is stipulated otherwise below, the provisions of section 92a shall apply, as appropriate, to mergers of limited partnerships. Should the rights and duties of limited partners not change, they need not sign the merger contract.

(2)

A merger contract must determine which partners of the merging (dissolving) partnership will have the legal status of limited partners and which the legal status of general partners. The amount of each limited partner's investment contribution must be specified.

(3)

If a partner of a merging partnership has the status of a limited partner and this will change to the status of a general partner in the successor partnership, he shall bear unlimited liability, jointly and severally with the other general partners, for all the participating partnerships' obligations as at the day when the merger was entered in the Commercial Register. However, he may claim from partners who were general partners before the merger was entered in the Commercial Register (to the extent of their business shares in the partnership) reimbursement of payments he made because of his liability (as surety), unless these were obligations for which his liability was unlimited even before the merger's entry in the Commercial Register.

(4)

If a partner of a merging partnership had the status of a general partner in such partnership and this will change to the status of a limited partner in the successor partnership, he shall bear unlimited liability, jointly and severally with the other general partners and with the limited partners bearing unlimited liability, for all the participating partnerships' obligations as at the day when the merger by acquisition was entered in the Commercial Register, and this shall be for a period of five years after entry of the merger becomes effective in relation to third parties. He shall only be liable for obligations which arose after the merger's entry in the Commercial Register if his investment contribution to the partnership [to the extent under section 93(1)] was not paid up at that time.

Commentary on sections 104a to I04d:

A limited partnership may be merged with another limited partnership (section W4a) or with a general commercial partnership (section I04b; see also section 92b). If one general partner remains in a partnership in which the participation of all limited partners was terminated, he may opt to fake over the business assets of the partnership, in which case the partnership will be wound up without liquidation (section !04c). A limited partnership may also be divided and give ri.w to successor entities (section W4d).

Section 104b Merger of a Limited Partnership with a General Commercial Partnership

(1)

A limited partnership may be merged with a general commercial partnership by acquisition or by the formation of a successor limited partnership, whereby all partners of such general commercial partnership become general partners of the successor limited partnership.

(2)

Unless it is stipulated otherwise below, the provisions of section 104a shall apply as appropriate. A merger contract must be signed by all the partners of all the participating partnerships. The provisions of section 104a shall similarly apply to the merging general commercial partnership's partners who acquire the legal status of general partners in the successor limited partnership.

Section 104c Winding-up of a Limited Partnership with Transfer of its Business Assets to a Sole General Partner

(1)

Unless it is stipulated otherwise below, the provisions of section 92c shall apply, as appropriate, to the dissolution of a limited partnership when its business assets are transferred to its sole general partner.

(2)

The procedure under subsection (1) shall be permissible only if the participation of all the limited partners in the partnership is terminated and only one general partner remains.

Section 104d

Division of a Limited Partnership

Unless otherwise stipulated below, the provisions of sections 92d and 104a(2) to (4) shall apply to the division of a limited partnership as appropriate.

Subdivision 6 Conversion of Legal Form

Section 104e

(1)

Unless it is provided otherwise below, the provisions of section 92e shall apply to conversion of legal form.

(2)

The partners shall be liable for obligations (commitments) existing at the day of entry of conversion of legal form in the Commercial Register to the same extent as before it was entered in the Commercial Register, unless the partners' liability is higher after the said change. If the partners' liability is greater after entry of the conversion in the Commercial Register, they shall bear such increased liability also for obligations (commitments) which existed at the day when the conversion of legal form was entered in the Commercial Register.

Commentary on section 104e:

The partners' decision to convert their partnership's legal form must be in writing (in the form of a contract)
and their liability will be on
at least the same scale as before the change in legal form was entered in the Commercial Register.

Division IV

Limited Liability Companies

Subdivision 1

Fundamental Provisions

Section 105

(1)

A limited liability company (in Czech "spolecnost s rucenim omezenym") is an entity whose registered capital is made up of its members' investment contributions and whose members are liable (as sureties) for the company's obligations until their paid-up investment contributions are entered in the Commercial Register [section 106(2)].

(2)

A limited liability company may be formed by one person. A single-member limited liability company cannot form or be a single member of another company. This shall not affect the provisions of section 66a(7). One individual may be a member of not more than three limited liability companies.

(3)

A limited liability company may have a maximum of 50 members.

Commentary on section 105:

A limited liability company is a very popular legal form for small- and medium-sized businesses in the Czech Republic. A limited liability company can be formed by one or more persons (individuals, entities), but the maximum number of its members is 50. All members are recorded in the Commercial Register. The amended wording of the Commercial Code restricts the possibility of one individual being a single member of other limited liability companies. A single-member company (except for a holding type group/company) may not be the only founder or member of another company. The registered capital of a limited liability company established after I January 2001 must be no less than CZK 200,000 (see section 107).

Section 106

(1)

The company is liable for breaches of its obligations (commitments) with its entire property.

(2)

Its members are jointly and severally liable (as sureties) for their company's obligations up to (he unpaid portions of their investment contributions according to the entry in the Commercial Register. On entry of full payment of all investment contributions in the Commercial Register, the members' liability for the company's obligations (commitments, debts) lapses. Any payment made by a member to a creditor of the limited liability company shall not lapse or reduce the extent of his liability (according to the first sentence). Any payment made by a member on behalf of the limited liability company on the grounds of his liability (as surety) shall be credited as part of such member's investment contribution, and, if this is not possible, the member may claim reimbursement of such payment from the company. If he cannot obtain such reimbursement from the company, he may claim it from a member who has not paid up his contribution, or else from each of the other members to the extent of his participation in the registered capital.

Commentary on section 106:

Every entrepreneur is liable for breaches of his obligations. A limited liability company is liable for breaching its obligations with its entire property. Members of the company are additionally liable (as sureties) for the company's obligations (debts) up to the amount of their as yet unpaid investment contributions, as recorded in the Commercial Register. In this respect the entry in the Commercial Register concerning the unpaid part of a particular investment contribution is decisive. A creditor of the company may seek payment of an overdue amount (debt) which the company has not settled, despite being asked to do so, from a company member who has not fully paid up his investment contribution to the company. The amount so paid by the member is credited to his investment contribution. If the amount paid is higher than the unpaid part of the member's investment contribution, he can first claim reimbursement from the company, but if this fails, from the other members of the company.

Section 107

The commercial name of a limited liability company must include the designation "spolecnost s rucenim omezenym" ("limited liability company"), or its abbreviated form "spol. s r.o.", or "s.r.o.".

Commentary on section 107:

The commercial name of a limited liability company is decided by its founders (see section 8 et seq). An addendum to its commercial name must specify the legal form in accordance with section 107.

Section 108

(1)

The amount of the registered capital of a limited liability company must be at least CZK 200,000.

(2)

A company's claim to payment of an unpaid part of a member's investment contribution and a member's claim against his company are not mutually creditable (i.e. they may not be set off)) with the exception of a claim under section 106, unless such setting-off is approved by the general meeting when the registered capital is increased.

Commentary on section 108:

The term "registered capital" is defined in section 58. Until the end of 2000, the registered capital of a limited liability company was required to be at least CZK 100,000 whereas as of 1 January 2001, the amount of any newly-formed limited liability company's registered capital may not be less than CZK 200,000 (about USD 5,400). See also Transitory Provisions of Act No. 370/2000 Coll. (point 18) at the end of the Commercial Code.

Section 109

(1)

The amount of a member's investment contribution must be at least CZK 20,000.

(2)

Each member may participate in the registered capital of a limited liability company with only one investment contribution. The amounts of individual members' investment contributions may be determined differently, but each such amount must be divisible by 1,000 without a remainder. The sum of all individualcontributions must correspond to the total amount of the company's registered capital.

(3)

If a nonmonetary (in-kind) investment contribution is to be used to pay up (even partially) a

member's investment contribution, the deed of association or a written statement on increasing a particular member's investment contribution or a written statement on acceptance of this contribution [section 143(6)] must specify the object of such in-kind contribution and the amount to be included as payment of the member's investment contribution. The provisions of section 163a(3) and

(4)

shall apply as appropriate.

Commentary on section 109:

The term "investment contribution" (also referred to as "contribution") is defined in section 59.
The amount of a member's investment contribution may not be less than CZK 20,000. The amounts of
individual members' contributions need not be identical, but any such amount must be divisible by 1,000
without a remainder. The sum of all contributions must equal the company's registered capital.

Section 110

(1)

A deed of association must contain at least the following particulars:

(a)

the commercial name and seat of the company;

(b)

the identity of the company's members; in the case of a legal entity, its commercial name and seat, in the case of an individual, his full name and residential address;

(c)

the objects (scope of business activities);

(d)

the amount of the registered capital and the amount of the investment contribution to which each member committed himself, and the method and time-limit for paying up such investment contributions;

(e)

the names and addresses of the company's first executive officers and the method by which they will act in the name of the company;

(f)

the names and addresses of the members of the first supervisory board, if any;

(g)

the determination of the administrator of investment contributions;

(h)

other information, if required by this Code.

(2)

The deed of association may also stipulate that the company will issue statutes (by-laws) to regulate its internal organization and provide more detailed regulations relating to particular matters included in the deed of association.

Commentary on section 110:

A deed of association must contain the essential particulars stipulated in subsection ( ] ) . Executive officers, as referred to in subsection (I)(e), will form the company's statutory organ (see also section 133).

Section 111

(1)

Before filing a petition for entry of a company in the Commercial Register, the full premium and at least 30 per cent of each monetary investment contribution must be paid up. The total of paid-up investment contributions and the value of nonmonetary investment contributions must amount to at least CZK 100,000.

(2)

Where a company is formed by one person, it may be entered in the Commercial Register only when its registered capital has been fully paid up.

Commentary on section 111:

A petition for entry of the company in the Commercial Register can be filed only if each monetary investment contribution has been paid up in at least 30% of its amount and the total sum of paid-up monetary contributions and in-kind investment contributions provided is no less than CZK 100,000. Should a company be formed by one person, its registered capital (CZK 200,000) must be paid up in full.

Section 112

(1)

All executive officers must sign the application (petition) for entry of the company into the Commercial Register.

(2)

The documents listed in sections 30 and 31(2) must be attached to the petition (application) for registration of the company in the Commercial Register, together with the following:

(a)

its deed of association or deed of formation and, where appropriate, its statutes;

(b)

a document proving, that commitments under section 111 have been settled; and

(c)

a report by an expert or experts on the valuation of in-kind (nonmonetary) investment contributions.

Commentary on section 112:

A petition for entry of a company in the Commercial Register must be signed by all its executive officers.

Their signatures must be authenticated before the petition is filed with the registration court. The petition must include all the particulars stipulated in section 28. Documents certifying (supporting) the facts to be entered in the Commercial Register are to be enclosed with the petition.

Subdivision 2

Rights and Duties of Members

Section 113

(1)

Each member shall pay up his investment contribution under the conditions (terms) and within the time-limit stipulated in the deed of association, but not later than five years after the company's incorporation or a commitment by the member to increase his investment contribution or make a new one. No member may be relieved of this duty, unless the registered capital is reduced and the owed portion (of an investment contribution) is no longer required. The executive officers shall, without undue delay, notify the registration court, when the contribution of each member has been paid up in full.

(2)

A member who has not paid up the prescribed amount of his monetary investment contribution within the time-limit specified in subsection (1) shall pay an interest charge of 20% of the amount in arrears, unless the deed of association provides otherwise.

(3)

If a member defaults on the paying up of his monetary investment contribution, the company may, on pain of expulsion, demand that he fulfil his duty within an additional time-limit of at least three months.

(4)

A member who fails to fulfil his duty within the additional time-limit may be expelled from the company by a resolution of the general meeting.

(5)

The business share (section 114) of an expelled member shall pass to the company, which may transfer it to another member or to a third party (person). The decision on such transfer is made by the general meeting.

(6)

Unless the business share is transferred under subsection (5), the general meeting shall decide within six months of the expulsion of a member either to reduce its registered capital by the contribution of the expelled member, or to divide the expelled member's contribution (in the amount of the settlement share) for payment to the remaining members (in a ratio commensurate to their business shares), otherwise the court may wind up the company (even without a petition to that effect) and order its liquidation. On approval by the general meeting of a resolution to divide the expelled member's business share among the remaining members, the divided business share passes to the members under conditions specified by the general meeting.

Commentary on section 113:

It is the duty of every member to pay up his monetary investment contribution to the company within five years of the company's incorporation or of his joining the company, unless otherwise agreed. This applies if there is more than one member.

A member who defaults on the paying up of the unpaid part of his investment contribution has to pay the company interest of 20% on the overdue amount, unless the deed of association stipulates otherwise.

A member who is required by the company to settle an overdue amount within an additional period of three months, on pain of expulsion, may be expelled if he fails to meet this requirement.The business share (holding) of the expelled member may be transferred to another member or a third party. If this share is not transferred within six months, the general meeting will either reduce the registered capital or the expelled member's investment contribution will be divided among the existing members.

Section 114

(1)

A "business share" ("holding" or "ownership interest"; in Czech "obchodni podfl") represents the member's participation in the company and the rights and duties derived from such participation. The size of the business share is determined by the ratio of a particular member's investment contribution to the company's registered capital, unless the deed of association provides otherwise.

(2)

Each member may have only one business share. If a member makes an additional investment contribution, his total investment contribution is correspondingly increased, with the result that his business share may also be increased.

(3)

One business share may be held by more than one person. Such persons can exercise the rights conferred on them by the said business share only through a joint representative, and they shall bear joint and several liability for paying up the investment contribution. The Civil Code's provisions on joint ownership (co-ownership) apply as appropriate to relations among (between) persons holding one business share.

(4)

Repealed.

Commentary on section 114:

Each company member may have only one business share (holding, ownership interest; in Czech "obchodni podd"), which represents his participation in the company and therefrom derived rights and duties. One business share may belong to two or more persons. These co-owners can exercise their rights only through a joint representative.

Section 115

(1)

Unless the deed of association provides otherwise, a member may, with the approval of the general meeting, transfer his business share to another party on the basis of a contract.

(2)

If the deed of association so admits, a member may transfer his business share to another party (the transferee). The deed of association may make transfer of a business share to another party dependent on the general meeting's approval. Should a company have one member (a single-member company), a business share is always transferable to third parties.

(3)

A contract on transfer of a business share (holding) must be in writing, and a transferee who is not a member of the company must state therein that he accedes to the deed of association and, where appropriate, the statutes. The transferor shall be liable for obligations passed on when his business share is transferred.

(4)

The consequences of transfer of a business share under subsections (1) and (2) for a company shall take effect the day when a copy of the final (effective) contract on transfer is delivered to the company.

Commentary on section 115:

A company member may only transfer his business share to another member with the approval of the general meeting or to a third party, if this is permitted by the deed of association and approved by the general meeting, if such approval is required. The transfer must be based on a written contract on transfer of the business share. In the case of transfer to a third person, the transferee must declare in the contract that he accedes to the deed of association. The contract becomes effective when it is delivered to the company.

Section 116

(1)

In the case of winding-up of a legal entity which is a member of the company, its business share passes to its legal successor; however, the deed of association may prohibit such transference (passage) of a business share to a legal successor.

(2)

A business share may be inherited, although a company's deed of association can prohibit this, unless it is a single-member company. The provisions of section 156(10) shall apply as appropriate. An heir may ask that his participation in the company be cancelled (terminated) by a judicial ruling, if it cannot be justly required of him that he be a member of such company; such heir is entitled to file a petition with the court within three months of the day when a court ruling on such inheritance takes effect, otherwise his right to seek judicial cancellation of his participation in the company shall lapse. An heir seeking cancellation of his participation in a company by a court is not obliged to participate personally in the company's activities, even when the deed of association stipulates this duty. An heir's participation in a company cannot be cancelled if he is the sole member.

(3)

In the event of a business share not passing to an heir or a legal successor, the provisions of section 113(5) and (6) shall apply as appropriate.

Commentary on section 116:

If a member of a limited liability company is a legal entity which is being wound up and there is a legal successor, its business share in the company passes to its legal successor, provided that this is permitted by the company's deed of association.

If an individual who is a member of the company dies, his business share passes to his heir if the deed of association so permits.

Section 117

(1)

A business share may only be divided in the case of its transfer or transference to a member's heir or legal successor. The approval of the general meeting is required for the division of a business share,

(2)

Adeed of association may prohibit the division of a business share.

(3)

If on the division of a business share, a new separate business share is to arise, the amount of the investment contribution may not be less than that stipulated in section 109(1).

Commentary on section 117:

A business share cannot be divided between (among) two or more owners, except in the case of its transfer or transference to an heir or legal successor of a company member, provided that the division is not prohibited by the deed of association. The minimum amount of the relating investment contribution may not be less than CZK 20,000, even after division of the business share.

Section 117a
Pledging a Business Share

(1)

A business share may be the object of a lien (i.e. it may be pledged). A contract of lien must be in writing. The signatures on such contract must be authenticated.

(2)

If a business share (in a particular company) can only be transferred with the general meeting's approval, its approval shall also be required for the pledging of a business share. Without this approval, no lien (on the business share) can arise. During the existence of a lien, a business share cannot be pledged for a second time.

(3)

A lien on a business share shall arise on its entry in the Commercial Register. A petition for entry of the lien on a particular business share or its striking off may be filed by either the lien creditor (pledgee) or the pledger. Such petition must be accompanied by the contract of lien or a document confirming the lien's discharge or a document on the general meeting's approval, if such is necessary, unless this Code provides otherwise.

(4)

If a receivable which is secured by a Hen is not duly and timely paid (i.e. discharged), the lien creditor (pledgee) may sell the pledger's business share, even without the general meeting's approval, at the debtor's cost, either in a public tender or, if so permitted by other statutory provisions, at a public auction. The lien creditor shall pass, without undue delay, to the debtor the amount by which the proceeds from selling the business share exceed his secured receivable and the purposefully incurred expenses (related to the business share's sale).

(5)

On transfer of a business share under subsection (4), the lien (on such business share) shall lapse (be discharged).

(6)

During the existence of a lien, the member concerned shall continue to exercise the rights associated with his participation in the company. Any payments to which he is entitled on the basis of his participation in the company after the maturing of a secured receivable shall pertain to the lien creditor up to the amount of such secured receivable and its appurtenances, and these payments shall be set-off against the secured receivable.

(7)

If a lien creditor does not succeed in selling a pledged business share by a method under subsection (4), he is entitled to exercise the rights attached to such share. He may exercise such rights as of the date of the unsuccessful attempt to sell it. The lien creditor (pledgee) and the pledger may agree that the former will accept the said business share as settlement of the latter's debt in a contract for its transfer (assignment) in accordance with section 115. The contract must expressly state that the business share is being transferred (assigned) to settle a debt, including the ground and its amount. No approval of the general meeting shall be required for such transfer (assignment). On transfer (assignment) of (he business share to the lien creditor (pledgee), the lien is discharged. For the purposes of transferring (assigning) a business share to settle a debt, such share must be valued by an expert appointed by the court, acting thereby on the basis of a petition filed by the lien creditor (pledgee). The provisions of section 59(3) shall apply, as appropriate, to the appointment and remuneration of such expert. Without undue delay after the transfer (assignment), the lien creditor shall pay to the pledger the amount by which the value of the business share (as determined by the said expert) exceeds the amount owed, including its appurtenances and the cost of the expert's report.

(8)

Unless it is provided otherwise, the general provisions of the Civil Code and the Commercial Code on a lien attached to a movable shall also apply to a lien on a business share.

Commentary on section II7a:

Act No. 370/2000 Coll. introduced specific provisions in the Commercial Code on pledged business shares.

Section 118

Any change in the person of a member is entered in the list of members and in the Commercial Register. The company shall enter changes in the persons of its members as soon as such change is proved (documented) to it.

Commentary on section 118;

A list of all the company's members is kept by the company. An executive officer will file a petition with the registration court for entry of an amendment to the list of members in the Commercial Register, The liability (suretyship) of the previous member for the company's debts then passes to the transferee.

Section 119

If all the business shares fall into the possession of a single member, this member must pay up the. full monetary investment contributions no later than three months after the day when the business shares are thus concentrated, or part of the concentrated business share must be transferred to another person (party). If the member fails to meet this requirement, the court shall wind up the company, even without a petition to that effect, and order the company's liquidation.

Commentary on section 119:

Ownership of a limited liability company by one member has consequences for the paying up of monetary investment contributions. The one member in question must pay up all the monetary investment contributions within three months of becoming the sole owner or transfer part of the business share to another person. If the company is owned by one person, there is no general meeting and its powers are exercised by the sole owner.

Section 120

(1)

A company may not acquire its own business shares by means of a contract on transfer (assignment) of a business share. A contract concluded contrary to this provision shall be void (invalid). If a company acquires its own business shares, it must proceed under section 113(5) and (6).

(2)

If a company acquires its own business share legally, the rights and duties attached to such share shall not lapse by their merger, but the company shall not be entitled to exercise the rights of a member. The provisions of sections 161d(2) and (3) and 161e(l) and (2) shall apply as appropriate.

(3)

A controlled person may not acquire by contract a business share of its controlling person. The provisions of section 161f(2) to

(4)

shall apply as appropriate.

Commentary on section 120:

Section 120 allows a company to acquire its own business share by transference, in which case it cannot exercise the rights attached to the business share. However, a company may not acquire its own business share by a contract on its transfer.

Section 121

(1)

A deed of association may stipulate that the general meeting is entitled to impose a duty on members to pay monetary contributions for the creation of equity capital (in addition to the investment contributions they made to the registered capitan( � the duty to pay such additional monetary contributions (hereafter "additional contributions") may be imposed in an amount of up to one-half of the registered capital (their aggregate investment contributions). If the sum of additional contributions reaches half the amount of the registered capital, payment of further additional contributions may not be imposed. The provisions of section 113(2) to (6) shall apply as appropriate.

(2)

A member may pay an additional contribution with the general meeting's consent, even if the deed of association does not stipulate this duty.

(3)

Discharge of the duty under subsection (1) and payments made under subsection (2) shall have no influence on the amount of a member's investment contribution and the amount of the registered capital.

(4)

Additional contributions can be refunded to members only to the extent to which their amount exceeds the company's losses.

Commentary on section 121:

Additional contributions, as regulated in section 121, may be sought by the company when it makes a loss.

Section 122

(1)

Members exercise their rights to manage and supervise the company's activities through their general meeting in the extent and manner laid down in the deed of association or statutes.

(2)

Members may specifically demand information on the affairs of the company from its executive officers, and they may look at the company's documents and check the information (data) therein, or empower an auditor or a tax adviser to do so on their behalf.

Commentary on section 122:

Alt members are entitled to participate in and vote at the general meeting unless this right is excluded by law [see sections 113(5) and (6) and 127(5)]. They may ask the company's executive officers for information about the company's financial standing and other business matters and inspect company documents.

Section 123

(1)

Members participate in a profit, as determined in a resolution of the general meeting on its distribution among (between) the members in proportion to the size (ratio) of their business shares, unless the deed of association provides otherwise.

(2)

Profit cannot be paid out of registered capital, a reserve or other capital fund or resources which, under this Code, the deed of association or statutes, are to be used for topping up these funds. The provisions of section 178(l)(third sentence) (2), (3), (5) to (7) shall apply as appropriate.

(3)

During a company's existence, its members may not request repayment of their investment contributions. Payments made to members in the case of a reduction of the registered capital are not considered as a refund of their contributions.

(4)

Members shall refund to the company any part of a profit paid to them contrary to the above provisions. Executive officers who approved such payments shall bear joint and several liability for their refund.

Commentary on section 123:Each company member has the right to a proportionate part of the company's profit determined for distribution, based on the size of his business share. A profit means not only the trading result for the last accounting period but also any profit retained from preceding years. Profit is distributed in accordance with a resolution of the general meeting; a proposal for the distribution of profit' is submitted to the general meeting by the company's executive officers. The registered capital and the reserve fund (and amounts determined for transfer to the reserve fund) cannot be used when distributing profit. Should members receive any part of a profit contrary to the provisions of this section, they must return it to the company. The executive officers who wrongly approved the payment of such a part of the profit are jointly and severally liable for its repayment. No member may request repayment of his investment contribution during the company's existence (see section 59).

Section 124

(1)

A company shall create a reserve fund (section 67) at the time and in the amount specified in its deed of association. Unless the reserve fund was already created at the time of the company's incorporation, the company is bound to create it from net profit in the first year of its profitability, as indicated in its ordinary financial statements. The reserve fund shall be created in an amount equal to at least 10% of the net profit, but without exceeding 5% of the amount of the registered capital. An amount determined in the deed of association or statutes of at least 5% of net profit shall be annually transferred to the reserve fund until it reaches the level stipulated in the deed of association or statutes, such level being equal to at least 10% of the registered capital.

(2)

The executive officers shall decide on use of the reserve fund in accordance with section 67, except in the instances in which under the law such decision is entrusted to the general meeting.

(3)

A reserve fund can only be used to settle a company's loss if such loss does not exceed 10% of its registered capital.

Commentary on section 124:

The general provisions on reserve fund are included in section 67. Any limited liability company must create a reserve fund in accordance with its deed of association and comply with the statutory requirements under section 124 on the creation of reserve funds and mandatory payments to them.

A reserve fund created mandatorily from net profit is to be used to reimburse a loss incurred by the company, provided that such a loss does not exceed 10% of the registered capital. The executive officers' decision on use of the reserve fund is usually subject to the approval of the general meeting.

Subdivision 3

Company Organs

General Meetings

Section 125

(1)

The "general meeting" (in Czech "valna hromada") of a company's members is its highest organ. Its powers include:

(a)

approval of transactions made in the name of the company under section 64 prior to its incorporation;

(b)

approval of the company's ordinary, extraordinary and consolidated financial statements and, in the instances stipulated by law, interim financial statements, distribution of its profit and settlement of any loss;

(c)

approval of the statutes and changes to them;

(d)

decision-making on any change in the content of the deed of association, unless such change is based on another legal fact (section 141); decision-making on an increase or reduction in the registered capital or acceptance of a specific nonmonetary investment contribution, or approval of the setting-off of a monetary receivable from the company against a company receivable in the form of payment of an investment contribution;

(e)

appointment, recall and remuneration of the company's executive officers;

(f)

appointment, recall and remuneration of the members of the supervisory board;

(g)

expulsion of a member of the company in accordance with sections 113 and 121;

(h)

appointment,.recall and remuneration of a liquidator, and decision-making on whether to wind up the company with liquidation, if the deed of association so admits;

(i)

decision-making on transfer or lease of an enterprise or a part of such or on the conclusion of such contract by a controlled person;

(j)

decision-making on a merger, transfer of business assets to a sole member, division, or conversion of legal form;

(k)

approval of a controlling agreement (section 190b), a contract on a profit transfer (section 190a) and a contract with a silent partner, and amendments to them;

(n( �/span>

approval of a contract on performance of an office [section 66(2)];

(m)

any other matters entrusted to the general meeting by law or the deed of association.

(2)

Unless the deed of association provides otherwise, the general meeting authorizes and withdraws procuration.

(3)

The general meeting may reserve the right to decide on other matters falling within the competence of other company organs.

Commentary on section 125:

The Commercial Code regulates three organs of limited liability companies. These are:

-

the general meeting;

-

the executive officer or officers;

-

the supervisory board (optional; see sections 137 to 140). The general meeting of the company's members is its highest organ and may therefore pass resolutions on any internal company matter; however, in some cases the consent of all members (or the members concerned) is required (section 141).

Section 126

A member of (he company shall participate in the proceedings of the genera! meeting either in person or through a proxy, to whom he grants a written power of attorney. An executive officer of the company or a member of its supervisory board may not act as a proxy for one of the company's members.

Commentary on section 126:

A general meeting is convened in accordance with section 129(1). It is also possible for the company's members to take decisions (i.e. pass resolutions) outside the general meeting (section 130). A member of the company takes part in the general meeting in person, but he can also be represented by a proxy whom he provides with a power of attorney.

Section 127

(1)

The general meeting constitutes a quorum when members having at least half of all the votes are present, unless the deed of association requires a higher number of votes.

(2)

Each member has one vote for every CZK 1,000 of his investment contribution, unless the deed of association stipulates another number of votes.

(3)

The general meeting makes decisions (i.e. passes resolutions) by a simple majority of votes of the members present, unless the law or the deed of association requires a higher number of votes.

(4)

Any decision under section 125(l)(c), (d) and (e) on the winding-up of a company with liquidation shall always require approval by at least a two-thirds majority of all members' votes, while any decision under section 125(11(0 shall require at least a three-quarters majority of all members' votes, unless the law or the deed of association requires a higher number of votes; a notarial deed relating to any such decision (resolution) must be made. If the registered capital is reduced in such a way that members* investment contributions are decreased irregularly, all the members' consent is necessary.

(5)

A member may not exercise his voting right when:

(a)

the general meeting decides on a nonmonetary contribution made by him;

(b)

the general meeting decides on whether or not to expel him or whether to file a proposal for his expulsion;

(c)

the general meeting decides whether a contract should be concluded with such member, or another person with whom (which) he (it) is associated in concerted conduct, which is outside the customary trade relationship, unless such contract concerns conversion of the company [section 69(1) and (2)], a contract on profit transfer (section 190a), a controlling agreement (section 190b), a contract on sale of an enterprise or a part of such (section 476) or a contract on lease of an enterprise or a part of such (section 488b), whether such member, or the person with whom he is associated in concerted conduct, should be granted an advantage or released from the performance of a duty (obligation) or whether he should be recalled from an office or membership in an organ of the company due to a breach of his duties when executing his office; decision-making on the appointment of an organ of the company or its membership shall not be regarded as decision-making on the conclusion of a contract;

(d)

he is in default with payment of his investment contribution;

(e)

the law so stipulates in other instances.

(6)

The provisions of sections I86c(l) and 186d shall apply as appropriate.

(7)

Members who were not present at the general meeting may give their consent to the draft terms of the general meeting's resolution even outside such general meeting. Such member's consent must be delivered to the company within one month of the day when the general meeting was or should have been held. If the la w requires that a notarial deed be made of the general meeting's resolution, the member's consent must be in the form of a notarial deed in which the content of the draft terms of such general meeting resolution (which the consent concerns) shall be stated.

(8)

If a resolution of the general meeting is adopted under the procedure stipulated in subsection (7), the executive officers shall notify in writing all members of its adoption within 14 days.

(9)

The prohibition on exercise of voting rights under subsection (5) shall not apply if all the members are involved in concerted conduct (section 66b).

Commentary on section 127:

In most cases the general meeting constitutes a quorum if members having at least half of all the votes are present. Company members may be represented at the general meeting by their proxies (see section 126). Each member has one vote for every CZK 1,000 of his investment contribution. A notarial deed under section 77 of the Notaries Act must be made in the case of resolutions which require at least a two-thirds majority of votes of all the members.

Section 128

(1)

Unless the law, the deed of association, or statutes provide for a shorter time-limit, the general meeting shall be convened by the company's executive officers at least once a year. The general meeting which approves ordinary financial statements must be convened no later than six months after the last day of the accounting period.

(2)

The provisions of section 193 shall apply as appropriate.

Commentary on section 128:

The general meeting of members of a limited liability company is convened by the executive officers at least once every calendar year.

Section 129

(1)

The time and agenda of the general meeting must be communicated to the company's members in the form of a written invitation within the time-limit determined in the deed of association, or at least IS days prior to the general meeting, unless the deed of association provides otherwise. Matters not listed in the invitation can only be discussed if all the members are present at the general meeting, A member may give up his right to timely convening of the general meeting, or its convening in a method stipulated by law or the deed of association, in a statement (declaration) included in the minutes of the general meeting or in notarial deed on the general meeting's resolution, or else it must be in the form of a notarial deed.

(2)

Members (of the company) whose contributions exceed (in total) 10% of the registered capital may request the convening of a general meeting. If the executive officers fail to convene it within one month of delivery (service) of such request, the members may convene the general meeting themselves. If the company lias no executive officer, any member is entitled to convene the general meeting,

(3)

The general meeting shall elect a chairman and a minutes clerk. Until such chairman is elected, the general meeting shall be chaired by an executive officer, or a member entrusted thereto. The chairman shall count the votes.

(4)

The executive officer shall take minutes of the general meeting's proceedings and send a copy of such

minutes, at the company's expenses, to all of its members. If the executive officer was not present at the general meeting, a company member, entrusted thereto by the general meeting, shall take minutes of the general meeting's proceedings. The provisions of section 188(2) and (3) shall apply to the contents of such minutes as appropriate.

Commentary on section 129:

The tune-limit for convening a general meeting follows from the law or deed of association; as a rule, members must be invited and notified of the agenda at least 15 days in advance.

Section 130

(1)

Members of the company may also take decisions outside of the general meeting. In this case a person who is otherwise entitled to convene such meeting shall submit a draft resolution to the members, with a request that they submit their written comments within a fixed time-limit. If a member does not comment on the draft within such time-limit, it shall be assumed that he disagrees. The person who submitted such resolution shall then notify individual members of the final result of the voting. A majority is determined on the basis of the overall number of votes available to all members.

(2)

If the law requires the drawing up of a notarial deed on the general meeting's resolution, a resolution outside of the general meeting may only be adopted if the manifestation of a member's will by which he expresses his consent with the draft resolution shall be in the form of a notarial deed in which the content of the relevant resolution is stated.

Commentary on section 130:

Unlike in a joint stock company, the members of a limited liability company may also take decisions (i.e. pass resolutions) outside of the general meeting.

Section 131

(1)

Every member of the company and every executive officer, liquidator, bankruptcy trustee, composition administrator or member of the company's supervisory board may petition the competent court to nullify a resolution of the general meeting, should such resolution be contrary to the statutory provisions, the deed of association, the deed of formation or the statutes. This right shall lapse if it is not asserted within three months of the day the general meeting is held, or, if the general meeting was not properly convened, within three months of the day when he could have learned about the holding of such meeting, but no later than one year after the day when the general meeting was held. If such resolution was adopted by the procedure under section 127(7), this right may be asserted within three months of the day when the company notified the member of the resolutions's adoption, but no later than one year after the day when the resolution was adopted.

(2)

Should the reason for a complaint (lawsuit) under subsection (1) be an allegation that the resolution was not adopted by the general meeting because it was not voted on, or that the content of the contested (alleged) resolution does not correspond to the resolution adopted by the general meeting, such complaint can be filed within three months of the day when the petitioner learned of the contested resolution, but no later than one year after the day of the holding or alleged holding of the general meeting. (3) The court shall not pronounce nullity under subsection (1) or (2):

(a)

if a violation (breach) of the statutory provisions, the deed of association, the deed of formation or the statutes resulted only in a minor violation of the rights of the persons seeking the judicial ruling under subsection (1) or of other persons, or if such violation (breach) did not have any significant legal consequences;

(b)

if the procedure under subsection (1) would essentially interfere with third party rights acquired in good faith;

(c)

if, under an effective ruling, entry of a merger, transfer of business assets, division or conversion of legal form in the Commercial Register was permitted; or

(d)

if a declaration of the nullity of a resolution adopted by the general meeting is sought only on the ground that such general meeting was convened contrary to the law, the deed of association or the company's statutes by the person who convened the general meeting or who participated in its convening, or if all the members were present at a general meeting convened contrary to the law, or if those members who were not present at such meeting subsequently expressed their consent to the general meeting's resolution.

(4)

Persons who suffered damage due to the fact that a resolution of the general meeting was adopted contrary to the statutory provisions, the deed of association, the deed of formation or the statutes, shall be entitled to damages from the company, and furthermore to appropriate satisfaction for the violation of a member's essential rights, such satisfaction also being granted in money. This right shall also pertain to the persons mentioned in the preceding sentence when the court does not pronounce nullity (i.e. does not nullify) the disputed general meeting's resolution due to grounds under subsection (3). The right to appropriate

satisfaction must be asserted within the time-limit stipulated for filing a complaint (lawsuit) against the invalidity of a general meeting's resolution or no later than three months after the day when the judicial ruling under subsection (3) took legal effect, otherwise it shall lapse.

(5)

Executive officers who did not, in connection with the adoption of a specific resolution of the general meeting, proceed under the provisions of section 127(8), 129 and 135(2) shall be jointly and severally liable for the company's obligations under subsection (4).

(6)

The company's executive officers shall act for the company in legal proceedings; however, if they are a party to such proceedings, the company shall be represented by a designated member (or members) of the supervisory board. If both company executive officers and members of the supervisory board are plaintiffs, or if no supervisory board has been established, a representative of the company shall be appointed by the general meeting. Unless such representative is appointed within three months of the complaint being made, the court shall appoint a guardian (in Czech "opatrovnik") to represent the company.

(7)

A final judicial ruling (judgment) under subsection (1), (2) or (3) shall be binding on everybody.

(8)

If no complaint seeking nullification of a resolution adopted by the general meeting under subsection (1) or (2) was filed, or if it was unsuccessful, the validity of such resolution can only be reviewed during the registration proceedings (procedure), in which the court rules on permitting the entry of particular facts (based on the general meeting's resolution) in the Commercial Register. This shall not apply if the general meeting's adoption of a specific resolution modifying the deed of association or statutes resulted in its or their contents being contrary to the mandatory (compulsory) provisions of the law, and further in instances under subsection (9).

(9)

Proceedings aimed at reconciling the actual situation and the entry made in the Commercial Registry on the basis of the general meeting's resolution can only be initiated by the court if there is a public interest in commencing such proceedings and if third parties' rights acquired in good faith are not going to be substantially affected; such proceedings must commenced no later than three years after entry of the fact based on the (general meeting's) resolution in the Commercial Register.

(10)

If the plaintiff (petitioner) withdraws his complaint (lawsuit) under subsection (1) or (2), the court shall appoint a lawyer to act as a joint representative protecting the interests of members who did not file a complaint. The members represented by such joint representative shall not become a party to the proceedings. Such joint representative shall have the legal status of a statutory (legal) representative of the members whose rights he was appointed to protect. Such joint representative shall act at his own discretion when protecting the interests of the members in the proceedings. If he disagrees with withdrawal of the complaint for serious reasons, the court shall not halt the proceedings but continue them in accordance with other statutory provisions. A joint representative is also entitled to file an appeal (a remedial instrument) if, after careful consideration, he expects a successful outcome in the matter. He shall only be liable for damage if he caused it wilfully or it was the result of his own gross negligence.

(11)

After conclusion of (he proceedings, the joint representative shall have the right to reimbursement of his expenses and remuneration by the company in an amount determined by the court. At his request, the court may decide that appropriate advances be paid to him by the company. If a complaint was obviously unfounded (unreasonable), the court may rule that such joint representative's expenses and remuneration be settled by the plaintiffs jointly and severally. Should the joint representative not give his consent to the withdrawal of a complaint although such lawsuit was obviously unfounded or he continues the proceedings after it is established that it was unfounded, the court shall rule that the joint representative will not be reimbursed for his expenses or remunerated, or that such reimbursement and remuneration will not be granted in the full amount.

Commentary on section 131:

Section 131 regulates the nullification of a resolution of the general meeting if such resolution is contrary to the statutory provisions, the deed of association or the statutes. A complaint is filed with the regional court within whose jurisdiction the seat of the limited liability company falls. The provisions of the Civil Procedure Code apply to such proceedings.

Section 131a
Complaint by a Member

(1)

Each member of the company is entitled to file a complaint, in the company's name for compensation of damage (i.e. damages) against the executive officer who is liable to the company for the damage he caused, and also to file a complaint, in the company's name, against a member whose defaults on part payment of an investment contribution. A person other than the (company) member who filed the complaint, or other than someone empowered by such member, may not perform acts in law in the proceedings on behalf of the company or in its name.

(2)

The provisions of subsection (1) shall not apply if (part) payment of the investment contribution was demanded by an executive officer, or if the general meeting decided to expel the member due to his default on payment of his investment contribution.

Commentary on section 131a:

Acting on the provisions of this section and the company's behalf, a member of the company may take legal action:

- for damages (compensation of damage) against the executive officer being liable for such damage, and

-for (partial) non-payment of an investment contribution against another member who defaults on paying up his contribution, provided that the executive officer has not yet filed a complaint and the member has not been expelled by the general meeting under section 113(4).

Section 132

(1)

If a company has a single member, no general meeting shall be held and such member shall exercise the powers of the general meeting. The decisions of such member when he exercises the powers of the general meeting must be in writing and carry his signature. A notarial deed is only required in the instances stipulated in section 127(4). The provisions of section 127(5) shall not apply.

(2)

The single member has the right to require an executive officer and the supervisory board to take part in decision-making under subsection (1). A written decision of the single member must be delivered to the executive officer and the supervisory board, if any.

(3)

Contracts (agreements) concluded between the company and a single member, provided that he is also acting in the name of the company, must be in the form of a notarial deed or in writing and the document must be signed before an authority concerned with legalization.

Commentary on section 132:

If a limited liability company has only one member, he is authorized to deal with matters which would otherwise fall within the powers of the general meeting. This means in fact that the single member (owner) of the company may decide on any company matter. Any such decision must be in writing and signed by him, and a copy of it must be delivered to the executive officer of the company and the supervisory board, if any. The single member may ask for the executive officer (and members of the supervisory board) to be present at such decision-making. The single member cannot generally act in the name of the company, unless he is also the executive officer. If this is the case, any agreement (contract) beftveen the company and this single member acting in (he name of the company must be in the form of a notarial deed or his signature on the document must be authenticated.

Executive Officers

Section 133

(1)

One or more executive officers (in Czech "jednatele") constitute the company's statutory organ. Each of the executive officers, if there is more than one, has the right to act independently in the name of the company, unless the deed of association or the statutes provide otherwise,

(2)

An executive officer's authority to act in the name of the company may only be restricted by the deed of association, the statutes or the general meeting. However, such restrictions are ineffective against third parties.

(3)

Executive officers are appointed by the general meeting from among the company's members or other individuals.

Commentary on section 133:

Each limited liability company must have at least one executive officer, who forms its statutory organ. The executive officer is authorized to undertake all acts in law concerning the company's activities, ff there is more than one executive officer, each of them may act independently, unless the manner of their conduct is prescribed otherwise, but any restriction of an executive officer's authority to undertake acts in law is ineffective against third parties. Only an individual, either a company member or another person, who meets the general requirements for carrying on a trade, can be appointed as an executive officer by the general meeting. Under social, health and sickness insurance legislation, an executive officer is regarded as an employee.

Section 134

The executive officer of a company is concerned with its business management. Should the company have appointed several executive officers, the mutual consent of a majority of them is required for a decision on the company's business management, unless the deed of association provides otherwise.

Commentary on section 134:

Executive officers decide matters related to a company's business management, unless under the deed of association such matters fall within the powers^ of the general meeting.

Section 135

(1)

The executive officers shall make arrangements for proper upkeep of the prescribed records and accounting, maintain a list of the company's members and inform the members about the company's affairs.

(2)

The provisions of sections 194(2)(first to fifth sentences), (4) to (7) and 196a shall apply as appropriate.

Commentary on section 135:

Section ]35 outlines the ditties of company executive officers. They must arrange that the company duly applies a double-entrybookkeeping system, keep the list of the company members and inform them of matters concerning the company. The executive officers must treat as confidential alt matters whose disclosure to third parties could cause detriment to the company. They are liable for damage which they cause to the company by breaching their legal duties. They are also required to file a bankruptcy petition if the company becomes insolvent or is overburdened with debts.

Section 136

Prohibition of Competitive Conduct

(1)

Unless the deed of association or the statutes impose further restrictions, an executive officer may not:

(a)

undertake business activity of his own in the same or a similar line of business as his company's or enter into business relations with his company;

(b)

act for other persons as an intermediary in contracts with the company or procure contracts for others with the company;

(c)

participate in another entity's business activity as a partner with unlimited liability or as a person controlling other persons engaged in the same or a similar line of business activity; and

(d)

perform the office of a statutory or other organ, or a member of such, of another legal entity whose business activity (objects) are the same or similar to that of the company, except in the case of a holding-type company.

(2)

Breaches of the duties under subsection (1) have the consequences stipulated in section 65.

(3)

A deed of association may determine to what extent the prohibition of competitive conduct also applies to members of the company.

Commentary on section 136:

The prohibition of competitive conduct and consequences for breaching it are regulated in section 65.

Supervisory Boards
Section 137

A "supervisory board" (in Czech "dozorci rada") shall be established if the deed of association so requires.

Commentary on section 137;

A limited liability company will only establish a supervisory board if this is stipulated in the deed of association.

Section 138

(1)

The supervisory board shall:

(a)

supervise the activities of the executive officers;

(b)

inspect business documents, the books of account and other documents, and check the information contained therein;

(c)

examine ordinary, extraordinary and consolidated financial statements and, if relevant, interim financial statements, as well as the proposal for profit distribution or settlement of a loss, and submit its opinion to the general meeting;

(d)

submit reports to the general meeting within the time-limit stipulated in the deed of association, otherwise annually.

(2)

The provisions of section 194(2), (4) to (7) shall apply to members of the supervisory board as appropriate.

Commentary on section 138:

The supervisory board's main task is supervision and inspection. In certain cases the supervisory board may convene a general meeting.

Section 139

(1)

Members of the supervisory board are elected by the general meeting.

(2)

An executive officer of a company may not become a member of its supervisory board.

(3)

The supervisory board must have no less than three members.

(4)

Members of the supervisory board are subject to the prohibition on competitive conduct (section 136).

Commentary on section 139:

The general meeting appoints and recalls members of the supervisory board and determines their remuneration. The relationship of a member of the supervisory board to the company is subject to the provisions on mandate, as appropriate.

The supervisory board must consist of at least three members whose names, residential addresses and personal numbers are recorded in the Commercial Register.

Section 140

(1)

Members of the supervisory board have the right to attend the general meeting. They must be given the floor whenever they request it.

(2)

The supervisory board shall convene a general meeting if the interests of the company so require. The manner of convening the general meeting is subject to the provisions of section 129(1), as appropriate.

Commentary on section 140:

The right of the supervisory board's members to participate in general meetings cannot be restricted.

Subdivision 4

Modification of the Deed of Association

Section 141

(1)

The consent of all the members or a resolution of the genera] meeting is required to modify a deed of association, unless the law provides otherwise. For the purposes of determining the required majority of votes, decision-making under sections 12S(l)(e) to (i) and 113, 115 and 117 shall not be regarded as decision-making on the modification (change) of a deed of association. The provisions of section 173(2) and

(3)

shall apply as appropriate.

(2)

If a resolution of the general meeting modifies the deed of association and affects only the rights of particular members, the consent of such members is also required. If a change to the deed

of association affects the rights of all members, such change must be approved by all members.

(3)

A notarial deed recording a resolution adopted by the general meeting to modify the deed of association must also include the approved text (wording) of the altered deed of association. Such deed shall state the names of those members who voted in favour of the change to the deed of association.

(4)

If the deed of association is altered (changed) on the basis of a legal fact, the executive officer shall, without undue delay after learning thereof, arrange for the full wording of such deed to be prepared in writing and for this to be deposited, together with documents proving the change of the deed of association, in the registry of documents held by the competent registration court.

Commentary on section 141:

The amended wording of section 141 dispells the previous confusion over whether all of a company's members can change the deed of association by mutual consent (without a resolution to that effect by the general meeting).

Increase and Reduction of Registered Capital

Section 142

Registered capital may be increased by new (i.e. additional) monetary investment contributions only after the hitherto approved monetary investment contributions have been fully paid up. However, registered capital may be increased by nonmonetary investment contributions prior to the full payment of monetary investment contributions.

Commentary on section 142:

An increase in the registered capital of a limited liability company is subject to approval by at least a two-thirds majority of all the members' votes in accordance with section 127(4).

Section 143

(1)

Company members have a priority (preferential) right to participate in the increase of registered capital if such capital is increased by monetary investment contributions, namely by committing themselves to increase their investment contributions. Such commitment may be undertaken by each member in proportion to his business shares, unless the deed of association provides otherwise. The priority right of members to participate in an increase of the registered capital may be excluded by the deed of association.

(2)

Should the members not make use of their priority right within the time-limit specified in the deed of association or the statutes, or one month after the day when they learned of the general meeting's resolution on increasing the registered capital, or should they waive their priority right, any other party (person) may undertake to pay a new investment contribution, provided that the general meeting so approves. Waiving the priority right shall be subject to section 220b(5) as appropriate. Any (existing) member may undertake to increase his investment contribution up to the amount of the proposed increase of the registered capital, if the general meeting so approves.

(3)

The resolution of the general meeting shall specify:

(a)

the amount by which the registered capital will be increased;

(b)

the time-limit within which commitments to increase one's investment contribution or to make a new investment contribution must be undertaken;

(c)

the object of a nonmonetary (in-kind) investment contribution and the amount to be counted as (part) payment of such member's investment contribution based on an expert's report.

(4)

An invitation to the general meeting which is to decide on the increase in the registered capital must contain the draft information (terms) under subsection (3).

(5)

If commitments undertaken to increase (existing) investment contributions or make new investment contributions within the time-limit set by the general meeting are insufficient to increase the registered capital by the amount approved by the general meeting, or if the court rejects a petition for entry of such increase of the registered capital into the Commercial Register, the increase .

of the registered capital shall be ineffective. The provisions of section 167(2) shall apply as appropriate.

(6)

The commitments to increase (existing) investment contributions or to make new investment contributions shall be undertaken in a written statement which must have the requisites under subsection (3)(a), (b) and (c), and in which a person who (which) is not yet a member (of the company) must state that he accedes to the deed of association; the signature of such person must be authenticated. The statement shall take effect on its delivery to the company. The provisions of section 204(3) shall apply as appropriate.

Commentary on section 143:

The members of a limited liability company are given priority with regard to assuming an obligation to make new investment contributions to a company. Should they not make use of their priority right within the fixed time-limit, the undertaking to provide an additional investment contribution can be assumed by any interested party, provided that this party accedes to the deed of association and it is approved by the general meeting.

Section 144

The general meeting may pass a resolution (decide) to increase the company's registered capital from its own resources shown in its ordinary, extraordinary or interim financial statements as equity capital, unless such resources are determined by law for a particular purpose only. The amount of each member's investment contribution will be increased proportionately, according to the amount of his previous investment contributions to the company. The provisions of section 208(1) to (5) and (6)(a) and (b) shall apply as appropriate. The general meeting's resolution must also state the new amount of each member's investment contribution. An invitation to the general meeting which is to decide on increasing the registered capital must include the proposed text of the resolution on increasing the registered capital.

Commentary on section 144:

This section deals with a nominal increase in registered capital when the amount of the registered capital and of the members' investment contributions increase, while the business shares of the members remain unchanged and the company's own sources are correspondingly reduced. Own resources of a limited liability company are those sources which are shown as "equity capital" under liabilities in the company's financial statements:

A. Equity capital

A.I. Registered capital

A.Ii.1. Registered capital

A.II. Capitalfunds

A.II.1 Share premium

A.II.2 Other capital funds

A.II.3 Gains or losses from revaluation of assets

A.II.4 Gains or losses from investments

A.III. Funds created from net profit

A.III.1 Legal reserve fund

A.III.3 Statutory and other funds

A.IV. Profit (loss) of previous years

A.IV.1 Retained profit from previous years

A.IV.2 Accumulated losses from previous years

A.V. Profit (loss) of current period (+/-)

In the case of a nominal increase in registered capital, the company's net worth does not change.

Section 145

Without undue delay, the company's executive officers shall file a petition requesting entry of the increase of registered capital in the Commercial Register. Prior to the filing of such petition, at least 30% of each monetary investment contribution must have been paid up or an agreement (a contract) on set-off must be concluded. An increase in registered capital shall be effective as of the day of entry of its new amount in the Commercial Register. If the company has only a sole member, the provisions of section 111(2) shall similarly apply.

Commentary on section 145:

A petition for entry of increasing the registered capital in the Commercial Register must be accompanied by the relevant documents, such as the resolution of the general meeting authorizing the increase and, if the registered capital is increased by new investment contributions, written statements by the persons providing such investment contributions and documents on their full or part payment, valuation of nonmonetary investment contributions by one or two experts, and, if the increase of registered capital is from equity capital, copies of the financial statements and the auditor's report.

Section 146

(1)

The general meeting's resolution on a reduction of registered capital must contain:

(a)

the amount by which the registered capital is being reduced;

(b)

information on how individual members' investment contributions are affected;

(c)

information on whether an amount equal to the reduction in registered capital will be paid out to members in full or only partly, or whether the duty (obligation) to pay up the outstanding part of the investment contribution will be waived, or the method in which such amount will be used.

(2)

Only an investment contribution which pertains to a business share in ownership of the company may cease to exist due to a reduction of the registered capital. Investment contributions can only be reduced unevenly if all the members so agree or if the registered capital is reduced by the amount of as yet unpaid-up investment contribution(s). The amount of the registered capital may not be reduced below that stipulated in section 108(1), and the amount of each member's investment contribution may not be decreased below that stipulated in section 109(1).

(3)

An invitation to the general meeting which is to decide on a reduction of registered capital must include the facts under subsection (1)

Commentary on section 146:

According to the grounds (reasons) for reducing registered capital, a distinction is made between whether it is a nominal reduction, whereby the amount of the company's net worth does not change (e.g. in the case of covering losses), or a real reduction, whereby the company's net worth is reduced because the company makes payments to its members.

Section 147

(1)

The executive officers shall twice publish a notice on the reduction of registered capital and its amount, first within 15 days of the resolution (of the general meeting) and for a second time within 30 days of the first notice. Such notice shall include an invitation to the company's creditors to file their claims (receivables)

within 90 days of the second notice, unless the registered capital is being reduced to settle a loss or to create n reserve fund.

(2)

The company shall cither provide appropriate security to creditors who have filed their claims (receivables) in time according to subsection (1) or satisfy their claims.

(3)

The registration court shall only enter the reduction of registered capital in the Commercial Register if it is proven that its reduction was announced in the manner laid down in subsection (1) and that the claims of the creditors were either satisfied or they were provided with security under the provisions of subsection (2), unless such securing is not required. The reduction in registered capital shall be effective as of the day of entry of its new amount in the Commercial Register.

(4)

Prior to entry of a reduction of registered capital in the Commercial Register, members may not be granted payments due to the (expected) reduction of the registered capital because their duty to pay up an investment contribution or a portion of such may not be waived.

Commentary on section 147:

A reduction of registered capital may affect the company's creditors, unless the registered capital is decreased for the purpose of settling losses. It is therefore required that the company's creditors be informed accordingly.

Termination of a Member's Participation in a Company
Section 148
Court-Ordered Termination of a Member's Participation in a Company

(1)

A member of a company may not withdraw his participation (business share) in the company by his own decision, unless he is the sole member. However, a member may file a petition with the court for termination of his participation if he cannot reasonably be required to remain in the company any longer. The provisions of section 113(5) and (6) shall apply as appropriate.

(2)

Adjudication of a bankruptcy order against a member's property or an effective distraint order issued on a member's business share in the company (based on a judicial ruling), or a writ of execution against a member's business share (after the judicial ruling ordering such execution takes legal effect) shall have the same effects as termination (cancellation) of such member's participation in the company by a court ruling.

(3)

In the case of a single-member company, adjudication of a bankruptcy order against such member's property shall not have the effects under subsection (2). On the adjudication of such order, the single member's business share shall become part of the bankrupt's estate and his rights can only be exercised by the bankruptcy trustee, with received payments (supplies) accruing to his bankrupt estate.

(4)

If a bankruptcy order against the property of a member whose participation in the company was terminated (dissolved) under subsection (2) is cancelled, due to reasons other than discharge of the distribution schedule or his lack of property (Note 1), and the company has not yet passed the thereby released business share to another person (party) under section 113(5) and (6), such member's participation in the company shall be renewed; if the company has already paid a settlement share to him, its amount must be repaid to the company within two months of the day when(he bankruptcy order was cancelled. The same shall apply if, under a final ruling, a distraint order on a member's business share or a writ of execution (on same) is halted under other statutory provisions.

Commentary on section 148;

The Commercial Code does not allow a member of a limited liability company to terminate his participation in the company unilaterally. He may petition the regional court seeking its agreement to termination of his participation in the company.

Section 149

Expulsion of a Company Member

A company may file a petition with the court asking it to order the expulsion of a company member who has seriously breached his duties, despite the fact that he was requested to discharge them and was notified in writing of the possibility of expulsion. The filing of such petition is subject to approval by members whose contributions represent at least one-half of the registered capital. The provisions of section 113(4) are not thereby affected. The provisions of section 113(5) and (6) apply, as appropriate.

Commentary on section 149:

A limited liability company may only expel a member if he breaches the duties stipulated in sections 773 and

727. hi other cases, the company may take legal action in the regional court with a view to securing the expulsion of a particular member, provided that this is approved by members whose investment contributions represent at least one-half of the company's registered capital.

Section 149a
Agreement on Termination of a Company Member's Participation

A company member's participation may also be terminated by the agreement of all its members. Such agreement must be in writing and all the signatures to it must be authenticated. The provisions of section 113(5) and (6) shall apply, as appropriate. Commentary on section 149a: An agreement on termination of a company member's participation must be distinguished from an agreement (contract) on transfer of a business share. When the participation of a member is terminated under section ]49a, the member's business share passes to the company; the company then proceeds in accordance with section 113(5) and (6).

Section 150

Settlement

(1)

If a business share passes to the company from a member whose participation in the company was terminated, or to such member's legal successor, the member becomes entitled to a settlement share [section 61(2)].

(2)

The person (party) to whom the right to a settlement share arises shall be liable (as surety) for the transferee's payment of the unpaid portion of the investment contribution.

(3)

The company shall pay the settlement share without undue delay after the duty under section 113(5) or (6) is fulfilled if the member's investment contribution was fully paid up. If at the time the duty under section 113(5) or (6) is fulfilled the member's investment contribution is not fully paid up, the company shall pay the settlement share without undue delay after payment of the unpaid portion of such investment contribution. A deed of association may extend the time-limit for paying up a settlement share.

Commentary on section 150:

The period within which a settlement share to a former member of a limited liability company becomes payable differs from the period stipulated for payment of a settlement share under the general provisions of section 61(3).

Subdivision 5

Winding-Up and Liquidation of a Company

Section 151

In addition to the cases specified in section 68, a company may be wound up:

(a)

by judicial decision under the provisions of section 152;

(c)

on other grounds laid down in the deed of association.

Commentary on section 151:

Section 151 extends the grounds on which a limited liability company can be wound up.

Section 152

(1)

Should the deed of association not confer the right to wind up the company on the general meeting, the company's winding-up shall be subject to the agreement of all the members and such agreement must be in the form of a notarial deed.

(2)

Members may petition a court to wind up their company on the grounds and under the conditions laid down in the deed of association.

Commentary on section 152:

A member may only demand the winding-up of a company by a court ruling on the grounds and under the conditions specified in the deed of association, should the winding-up not be agreed by the members.

Section 153

If the winding-up of a company is associated with its liquidation, each company member has the right to a proportionate part of the liquidation remainder (liquidation share). This shall be determined according to the proportion of business shares held, unless the deed of association stipulates otherwise.

Commentary on section 153:

The Commercial Code stipulates the principle to be followed when computing a liquidation share, but a company's deed of association may regulate its computation differently.

Subdivision 6

Winding-up with Transfer of Business Assets to a Legal Successor

Section 153a

(1)

Unless stipulated otherwise below, the provisions of sections 220a to 220k and 220n shall apply to a merger of limited liability companies.

(2)

A merger contract (an agreement on a merger) shall not include the information under section 220a(3)(b), (c),

(d)

and (e), but it shall include:

(a)

instead of a share exchange ratio, a statement of the amount of each member's investment contribution to, and business share in, a participating company prior to the merger and to and in the successor company after such merger (business share exchange ratio), whereby the amount to be paid up may not exceed 10% of the amount of new investment contributions to the successor company's registered capital.

(b)

instead of proposed changes to the statutes in the case of a merger by acquisition, and instead of draft statutes in the case of a merger by formation of a new successor company, the proposed changes to the deed of association of the successor company in the case of a merger by acquisition, or the deed of association of the successor company in the case of a merger by formation of a new company, whereby after a merger by acquisition the amount of the successor company's registered capital shall be computed as the sum of the successor company's registered capital prior to such merger and the amounts of the investment contributions provided by the merging companies' members, on condition that the amounts of the investment contributions provided by existing members of the successor company are neither increased nor reduced. Should the amounts of the investment contributions by the successor company's existing members be increased, the amount of the successor company's registered capital after a merger by acquisition shall be computed as the sum of the amount of the registered capital of the successor company prior to such merger and the total amount by which its existing members' investment contributions are increased and the total amount of all investment contributions by the merging companies' members to the successor company's registered capital. Should the amounts of investment contributions by the successor company's existing members be reduced, the amount of the successor company's registered capital after a merger by acquisition shall be computed as the sum of the amount of the registered capital of the successor company prior to the merger and the total amount of all investment contributions by the merging companies' members to the successor company's registered capital, when such sum is reduced by the total amount by which the existing members decrease their investment contributions to the successor company's registered capital. In the case of a merger by the formation of a new company, the provisions of section 220n(3) shall apply as appropriate, with the amounts of investment contributions to the registered capital being used instead of the nominal value of shares.

(3)

A report on a merger under section 220b(l) shall not be required if all the members are executive officers. A report on the examination of a merger under section 220b(2) shall not be required in the case of companies which have no supervisory board.

(4)

The provisions of section 220c shall apply only when a member of a participating company so requests. In such case, the examination shall be carried out by an expert on mergers, and such examination shall take place only in a participating company whose member so requested. The cost of the examination shall be met by the company. If the member's request for examination of the (proposed) merger by an expert is not granted, this fact must be stated, if such member so requests, in the notarial deed on the general meeting's resolution on the merger.

(5)

Advisory notice to members under section 220d(I) need not be published. The documents under section 220d(2), if required, shall be sent to the members, except for an expert's report under section 69a(6). The company shall advise its members that such report is available at the company's seat, where it can be inspected. Documents which are required to be sent to the members must be despatched at least two weeks before the day of the general meeting which is to decide on a merger, unless a member waives his right to be sent such documents. The provisions of section 220b(5) shall apply as appropriate. Should the general meeting not be held, the necessary documents must be despatched at least two weeks before the day when the member receives (is delivered) the draft wording of a resolution to be taken outside the general meeting. The closing financial statements must be audited, if this is required by other statutory provisions.

(6)

As of the time when the general meeting (on a merger) is convened or the draft wording of the resolution to be adopted outside the general meeting is delivered to a member, the executive officer shall provide

information to any member who requests it on other participating companies which are important to the proposed merger. The provisions of section 220b(3) shall apply as appropriate. The notice convening the general meeting or a request for voting outside of the general meeting must include advice on this right of each member.

(7)

At least three-quarters of the votes of all the members present at the general meeting of a participating company shall be required to pass a resolution supporting such merger. The provisions of section 220e(6) to

(10)

shall not apply. A deed of association may stipulate a higher number of votes in favour of such decision or compliance with other requirements. Should the deed of association of any participating company require more than a three-quarters majority of all the present members for a decision, such majority shall be required for the adoption of a resolution on a proposed merger, unless the successor company's deed of association requires the same majority when voting on the same matter. Should members' rights change due to a merger, the consent of all members whose rights will be affected shall be required for such merger. If a participating company's deed of association requires the consent of a particular member to transfer of a business share, such member's consent to the proposed merger shall be necessary. If the transfer of business shares after the merger could be more difficult, the consent of all affected members shall be required. If investment contributions to a participating company are not yet fully paid up, the consent of all other participating companies' members to such merger shall be required.

(8)

Members who were not present at a general meeting may express their consent to the proposed merger outside the general meeting by the procedure under section 127(7) and (8).

(9)

A resolution of the successor company's general meeting on a proposed merger by acquisition must include;

(a)

the decision to take over the merging companies' business assets;

(b)

approval of the merger contract or its draft terms;

(c)

approval of the closing financial statements and the opening balance sheet.

(10)

The condition stipulated in section 220f(3) on the nominal values of shares shall apply to the sum of the amounts of investment contributions of a merging company's members to the successor company's registered capital. The sum of the investment contributions of a merging company's members to the successor company's registered capital may not exceed the net worth (net business assets), as established in an expert's report under section 69a(6).

(11)

The provisions of sections 111 and 112 shall not apply. The provisions of section 220g(l) to (3) on the shares of the dissolved company shall apply, as appropriate, to business shares in the merging company, so that in the instances stipulated in these provisions it shall not be possible to exchange investment contributions and business shares in a successor company for business shares in a merging company. The provisions of section 220g(4) to (6) and (8) shall not apply.

(12)

The provisions of section 220j(5) shall similarly apply to the paying up of investment contributions. A complaint under section 220k may be filed by any member. If a merging company was a member of the successor company, the successor company shall become the owner of its own business share. The provisions of section 113(5) and (6) shall apply as appropriate.

Commentary on sections 153a to 153e:

The new regulation of mergers of limited liability companies is based on the EV directive on mergers of public limited liability companies (Third Council Directive 78/855/EEC of 9 October 1978) and the Austrian statutory provisions on mergers of limited liability companies.

Section 153d stipulates that a limited liability company may be divided (by acquisition or by the formation of new companies). Draft terms of such division need not be examined by an expert if a company has no supervisory board.

Conversion of the legal form of a limited liability company is subject to sections 69d to 69g and 153e.

Section 153b
Merger of a Limited Liability Company with a Joint Stock Company

(1)

A joint stock company and a limited liability company may be merged by acquisition or by the formation of a successor limited liability company if the shareholders' shares in such joint stock company are exchanged for business shares in the successor limited liability company.

(2)

Unless stipulated otherwise below, the provisions of section 153a shall similarly apply to a successor or merging limited liability company, while the provisions of sections 220a to 220n shall apply to a merging joint stock company. The provisions of section 69d(5)(g) shall apply as appropriate.

(3)

Shareholders of a merging joint stock company who disagree with a proposed merger with a limited liability company shall be entitled to a cash settlement. The provisions of section 220u(l) and (3) shall apply

as appropriate to such settlement.

Section 153c
Winding-up of a Limited Liability Company with Transfer of its Business Assets to a Sole Member

(1)

Unless stipulated otherwise below, the provisions of sections 153a(2)(first sentence), (3) to (5), (7)(first to third sentences), (8), (9)(a) and (b), (12) and 220h, 220j, 2201, 220p(l), (2), (4) to (8) shall apply to the winding-up of a limited liability company when its business assets are transferred to its sole member.

(2)

The winding-up of a limited liability company with (concurrent) transfer of its business assets to its sole member shall be possible when such member's business share in the company represents at least 90% of its equity capital.

(3)

Should a joint stock company be a member of a limited liability company and its business share (in such limited liability company) and thereto pertaining investment contribution reaches at least 90% of the company's registered capital, the provisions of section 220p shall apply.

Section 153d

Division of a Company

(1)

Unless stipulated otherwise below, the provisions of sections 220r, 220s(l), (2) and (3)((irst sentence), 220u, 220v, 220w, 220x, 220y and 220z shall apply, as appropriate, to the division of a limited liability company by the formation of new legal entities.

(2)

A report by an executive officer (executive officers) shall furthermore not be required if all the members are executive officers. A report on examination of a (company's) division is not required if such company has not established a supervisory board. The documents stipulated in sections 220t(l) and 220d(2), if required, shall be sent to members, except for an expert's report under section 69c(5). The company shall notify its members that they can inspect the expert's report at the company's seat. Documents which are required to be sent to the members must be despatched at least two weeks prior to the day of the general meeting deciding on such division, unless a member waives his right to be sent such documents. If a general meeting is not held, the necessary documents must be dispatched at least two weeks before the day when the member receives (is delivered) a request for his consent to the proposed division. The provisions of section 220b(5) shall apply as appropriate. The financial statements must be audited only if this is stipulated by other statutory provisions.

(3)

Unless stipulated otherwise, the provisions of section 153a(7) and (8) shall apply as appropriate, whereby a merger contract shall be replaced by the draft terms of division (a division plan), and the provisions of section 220s(l), (2) and (3)(first sentence) shall also apply.

(4)

Unless stipulated otherwise, the provisions of subsections (1) to (3) and section 220za(2) to (5) shall apply, as appropriate, to a division by acquisition.

Section 153e

Conversion of Legal Form

(1)

Unless stipulated otherwise below, the provisions of sections 69d to 69g shall apply to conversion of legal form. The decision-making of a limited liability company's members on conversion of legal form shall be subject, as appropriate, to the provisions of sections 153a(7)(first, third and fourth sentences) and (8) and 220e(ll). Should a state authority's approval of conversion of legal form be required, the provisions of section 220a(2) shall apply as appropriate.

(2)

A member who disagrees with conversion of legal form shall be entitled to a settlement share provided that after such conversion he does not exercise the rights of a member. The provisions of section 220u(l)(first and second sentences) and (3) shall similarly apply to instances when the company's legal form is converted to that of a general commercial partnership (i.e. unlimited partnership), limited partnership or co-operative.

(3)

A member entitled to a settlement shall be liable (as surety) for the company's obligations as at the day when conversion of its legal form is entered in the Commercial Register, and to the same extent as before such change, but he shall not be liable for obligations which arise after the change of legal form is entered in the CommercialRegister. A member who is not entitled to a settlement shall be liable (as surety) for the company's obligations as at the day when conversion of legal form is entered in the Commercial Register, and to the same extent as before such conversion, unless the members' liability after the conversion of legal form is increased. Should the members' liability after conversion of legal form be increased, such liability is borne by the members who did not claim their right (o a settlement after the conversion of legal form was entered in the Commercial Register,

Division V

Joint Stock Companies Subdivision 1

Fundamental Provisions

Section 154

(1)

A joint stock company (in Czech "akciova spolecnost") is a company whose registered capital is divided into a certain number of shares with a specific nominal value. The company is liable for a breach of its obligations (debts) with its entire property. A shareholder is not liable for the company's obligations.

(2)

The commercial name of such company must include the designation "akciova spolecnost" ("joint stock company") or the abbreviation "akc. spol." or "a.s.".

Commentary on section 154;

The provisions of the Join! Stock Companies Act were superseded by the provisions of the Commercial Code. Joint stock companies (also sometimes referred to as "stock corporations") are usually formed only for the purpose of carrying on business activities, but they may also undertake other activities. The legal form of a joint stock company was the legal form into which former state-owned enterprises were transformed and in which (he state was initially the sole owner (prior to their privatization). Other Acts stipulate that investment funds, investment companies, pension funds and banks (unless established as state pecuniary institutions) must be in the legal form of a joint stock company.The amount of a joint stock company's registered (share) capital corresponds to the total nominal value of its shares. The amount of registered capital (i.e. share capital) is entered in the Commercial Register. The property of a joint stock company does not belong to its shareholders, but solely to the company. However, once a shareholder has fully paid up his investment contribution to a joint stock company, he is not liable for the company's obligations (debts) during its existence, and after its dissolution he is liable only up to the amount of his liquidation share. The commercial name of a joint stock company must include an addendum specifying its legal form.

Section 155

(1)

A share (in Czech "akcie") is a security to which is attached the right of the shareholder, as defined in this Code and in the company's statutes, to participate in its management and its profits, and also in the liquidation remainder, if the company is dissolved. A person who participates in the company's registered capital is entitled to exercise shareholder's rights as a company member even if the company has not yet issued shares or interim certificates, and this right pertains to such person as of the date of entry of the registered capital (in which he participates) in the Commercial Register.

(2)

Shares may be issued in conformity with a particular Act either as "certificated shares" (i.e. "shares in a physical form"; in Czech "listinne akcie") or as "uncertificated shares" (i.e. "book-entry shares"; in Czech "zaknihovane akcie").

(3)

The share must state the following particulars:

(a)

the commercial name and seat of the company;

(b)

the nominal value of (he share;

(c)

an indication of the type of such share and, in the case of a registered share, also the shareholder's commercial name, designation or full name;

(d)

the amount of registered capital (i.e. share capital) and the number of shares at the date of issue;

(e)

the date of issue.

(4)

A certificated share must also state its numerical classification (designation) and bear the signature(s) of a member or members of the board of directors authorized to act in the company's name at the date of issue. An uncertificated share must contain a numerical classification (designation) where this is required by law.

(5)

Shares of one and the same company may be issued in a different nominal value, unless another Act provides otherwise.

(6)

Should more than one class of shares be issued, the shares shall contain an indication of their class; certificated shares shall also state the rights attached to such shares by at least a reference to the statutes. Shares to which no special rights are attached (i.e. "ordinary shares" or "common shares", in US terminology "common stock"; in Czech "kmenove" akcie") need not carry an indication of the class of the share.

(7)

Unless this Code provides otherwise, identical rights must be attached to shares of the same class. Under the same conditions, a joint stock company must treat all shareholders of shares of the same class equally. Shares of classes other than those regulated by law may not be issued.

Commentary on section 155:

In accordance with the Securities Act and the Commercial Code, a share is a security to which is attached a shareholder's right to participate in management of the joint stock company (a right exercised at the general meeting of shareholders) and to share in its profits and in its liquidation remainder (balance), if the company is dissolved. This applies to common shares. A shareholder's rights in the case of another class of shares may be modified.

Under Czech law, there are ordinary shares (in US terminology "common stock"; in Czech "kmenove akcie") and preference shares, also known as "preferential shares'''; (in US terminology "preference stock"; in Czech "prioritni akcie"). The Commercial Code no longer recognizes employee shares as a special class (see also section 158 and the Transitory Provisions). Shares may be issued as certificated shares or uncertiftcated shares (book-entry shares). The latter form was determined for shares issued in connection with the voucher privatization scheme, under which Czech (previously Czechoslovak) citizens could acquire shares in privatized companies by using special vouchers (coupons).

Section 156

Share Types

(1)

A share may be made out as a registered share or as a bearer share.

(2)

If a company issues "registered shares" (in Czech "akcie na jme'no"), it keeps a list of shareholders in which it shall enter the class and type of the share, its nominal value, and, if the shareholder is a legal entity, its commercial name or designation and its seat and, if the shareholder is an individual, his name and residential address and, where appropriate, the numerical classification of the share and changes in the said data. In response to a shareholder's written request, and only against his reimbursement of the cost, the company shall provide such shareholder with a copy of the list of holders of registered shares or a required part of such list, and do so no later than seven days after receipt (delivery) of his request. If a company issues uncertiflcated shares, the statutes may determine that the shareholders' list shall be replaced by registry of uncertiflcated (book-entry) securities kept in conformity with another Act.

(3)

Unless this Code provides otherwise, the rights attached to a registered share may be exercised in relation to the company by a person registered in the shareholders' list, except when it is proved that a particular entry in such list does not correspond to the actual situation. Where an entry does not correspond to the actual situation, the holder (i.e. owner) of such registered share is entitled to exercise shareholder's rights (as attached to his share). However, if such holder of a registered share is responsible for the fact that he is not entered in the list of shareholders, he cannot demand that a resolution of the general meeting be voided because the company did not allow him to participate in such genera) meeting or exercise his voting right.

(4)

The statutes may restrict but not exclude the transferability of registered shares. Where the conditions laid down in the statutes for transfer of such shares are not met, a contract for the transfer of shares shall be void, except when the person acquiring such shares (the transferee) acted in good faith. The person who transferred the registered shares shall be liable for damage caused by his conduct. Where the transfer of shares depends on approval by the company's organ, the contract on transfer of shares may not take effect earlier than such organ approves it, unless some other time-limit is agreed in the contract. However, if the contract does not take effect within three months of its conclusion, any of the parties to the contract may withdraw from it. Where the statutes make transferability of a registered share dependent on approval by a particular company organ, they may also specify in which instances and under what conditions this organ shall approve the transfer, and in which instances it shall deny approval. Should this organ refuse to approve the transfer of a registered share in circumstances in which it was not bound to reject such transfer (according to the statutes), at the shareholder's request, the company shall redeem this share at a price appropriate to its value. Should the competent company organ fail to decide within two months of receiving a request (for approval of transfer of a specific registered share), such request shall be deemed to have been approved. The right to redemption of a share may be claimed within one month of the shareholder being notified that approval for his share transfer was denied, otherwise the right to redemption shall lapse. The provision of section 186a(6) shall apply to the procedure for concluding a contract on purchase of the shares as appropriate.

(5)

Where transfer of registered shares is made dependent on approval by a particular company organ, this organ's approval shall also be required for the pledging of registered shares. A contract on pledging registered shares cannot take effect before such organ approves the pledging of the shares. Should the competent company organ not decide on the matter within (wo months of receipt (delivery) of an application to the company, its approval shall be deemed to have been granted. Approval by such organ is not required to sell pledged registered snares when a lien on such shares is asserted.

(6)

A certificated registered share shall be transferable by endorsement and delivery. An endorsement shall state the commercial name or designation and the seat of the legal entity, or the name and residential address of the individual, to whom (which) the share is transferred, and the date of its transfer. Endorsement shall otherwise be regulated, as appropriate, by the statutory provisions on bills of exchange. An entry recording a change in the person of the shareholder in the shareholders' list is required for transfer of a registered share to

become effective in relation to the company. The company shall make such entry without undue delay after such change has been proved to the company.

(7)

The transferability of a bearer share (in Czech "akcie na majitele") is unrestricted. Rights attached to a certificated bearer share are exercised by the person who submits the share, or by a person who presents a written statement issued by the party undertaking custody or deposit of such person's share under other statutory provisions, whereby it is confirmed that the said person's share is deposited with the party under such other provisions. The statement must indicate the purpose for which it is issued and the day of issue. The party which issued the statement may not hand over the share (to which the statement relates) to the depositor or another party until expiry of the time prescribed for exercise of the right which was the subject of the statement, or until such right is exercised. Rights attached to an uncertificated bearer share are exercised by the person entered in the register of uncertificated (i.e. book-entry) securities under another Act.

(8)

Transfers of shares shall otherwise be subject to the provisions of a special Act.

(9)

A share may be owned by more than one person. Co-owners (joint owners) of a share must agree which of them will exercise the rights attached to the share or appoint a joint representative (proxy). Mutual relationships between (among) co-owners of a share shall be subject, as appropriate, to the Civil Code's provisions on joint ownership (co-ownership).

(10)

When a shareholder dies, his heir is entitled to exercise the rights attached to the share, unless this Code provides otherwise. If there is more than one heir, the provisions of subsection (9) shall apply as appropriate. Should the heirs fail to come to an agreement, the court shall, on the company's motion, nominate a person authorized to exercise the rights attached to the share until the conclusion of inheritance (probate) proceedings.

Commentary on section 156:

The issuer of shares decides whether they are issued as bearer shares and/or as registered shares. The transferability of registered shares may be restricted. A registered share in certificated fonn is transferred by endorsement and on being handed over; such transfer becomes effective in relation to a joint stock company when the new owner is recorded in the list of shareholders. A bearer share is transferred on being handed over.

Section 156a

Separately Transferable Rights

(1)

With the transfer of a share, all rights attached thereto are also transferred, unless the law provides otherwise.

(2)

Each of the following rights may be transferred separately: the right (title) to be paid a dividend, the pre-emptive right to subscribe for shares (a rights issue), convertible bonds and bonds with warrants attached (section 160), and the right, otherwise attached to a share, to be paid a liquidation share (hereafter only a "a separately transferable right").

(3)

Such separately transferable right is tranferred (assigned) by a contract on assignment (transfer) of a receivable. The person who asserts (claims) a separately transferable right on the basis of a contract on assignment of a receivable shall prove that such right was transferred to this person by someone who was a shareholder of the company concerned when such right was transferred and who held the title to such separately transferable right, or someone who was not a shareholder but who held the title to such separately transferable right.

(4)

Should the company have instructed the entity keeping the register (registry) of uncertificated securities to enter a specific separately transferable right attached to an uncertificated share, this right shall be transferred on registration of the transfer in the register (registry) of uncertificated securities. The procedure relating to entry (registration) of a separately transferable right and its transfer shall be subject, as appropriate, to the provisions of another Act regulating the issue and transfer of uncertificated securities.

(5)

Should the law so provide, a particular right otherwise attached to a share may be separated from the share and attached to a security issued against the share.

(6)

Where a security relating to a particular share (in respect of a separately transferable right) was issued, or a separately transferable right was entered in the register of uncertificated securities, the right for which the security was issued under subsection (5) or registered under subsection (4) will not pass on together with the share.

Transfer of a separately transferable right must be noted on a certificated share or in the register (registry) of uncertificated securities.

Commentary on section 156a:

Transferable rights attached to shares and/or bonds which may be assigned separately are:

-

the right to payment of a dividend; this right may be transferred only after a resolution of the general meeting

on payment of the dividend was passed in accordance with section 178(10); the right is transferred on the basis of a coupon (sheet of coupons) issued by the company;

-

the pre-emptive right to subscribe for shares (a rights issue) and to acquire convertible bonds and bonds with (sluire) warrants attached, provided that the warrants are issued in respect of such rights under section 217a (the rights can be assigned only after entry of the general meeting's resolution increasing, or conditionally increasing, the registered capital in the Commercial Register);-the right to a liquidation share, which may be transferred after the company's liquidation.

It is up to the joint stock company to decide whether separately transferable rights should be detached from shares and/or bonds. Securities which are issued in connection with separately transferable rights can only be made out to bearer; coupons are provided to shareholders in a certificated form, while share warrants may be issued in certificated and/or uncertificated form. Separately transferable rights are assigned when this is agreed by the initial beneficiary and the transferee (assignee), provided that such assignment complies with the terms stated above.

Section 156b

Decisive Day

In cases specified by law, a separately transferable right, or another right attached to an uncertificated security, may be asserted with the company only by a person who is entitled to exercise such right at a certain day stipulated by law ("the decisive day"; in Czech "rozhodny den"), even if such security is transferred after the decisive day. If a company issued registered uncertificated (i.e. book-entry) shares and the rights attached to a registered share can only be , exercised by the person who had such rights at the decisive day, only the person who was entered in the list of shareholders at such decisive day or, if this list is replaced by the register (registry) under section 156(2), a person who is entered in such register (registry) at the decisive day, may exercise such rights.

Commentary on section 156b:

The decisive day in the case of a separately transferable right or another right attached to an uncertificated security is the day at which the person is entitled to exercise such a right against the company. Section 87a(2) and (3) of the Securities Act reads as follows:

"(2) If a security is in the form of an uncertificated security, the right to yields from this security arises only to the person who owns the security on the day:

(a)

when the general meeting approved payment of dividends on shares;

(b)

when yields from a participation certificate or bond are due.

(3)

The provisions of subsection (2) shall not apply if the issuer of a particular security decides that the right to yields from a security accrue to a person who is a security owner (holder) on a day determined in another manner, which:

(a)

m the case of a share, may not be earlier than the day when a resolution of the general meeting was passed on payment of dividends, and which may not be later than the day when dividends become payable;

(b)

in the case of a bond or a participation certificate, may not be earlier than one month prior to the day on which the yields become payable, and which may not be later than the day of maturity for payment of yields."

Section 157

The statutes must determine the nominal value of all classes of shares which are to be issued. The total nominal value of such shares must correspond to the amount of the registered capital.

Commentary on section 157:

Each joint stocfccompany may issue only shares which are regulated by law and prescribed in its statutes, determining the nominal value of the shares, whose total is to correspond to the amount of the registered {share) capital A joint stock company may issue ordinary shares and preference shares (see section 159).

Section 158

(1)

The statutes of a company may determine that its employees may acquire shares of this company on especially advantageous terms (conditions).

(2)

The statutes or a general meeting's resolution on increasing the registered capital may determine that employees need not pay the full issue price of shares issued under subsection (1) or the full price for which the company bought such shares for its employees, if such price difference is to be met from the company's own resources. The total of those portions of the issue price or the purchase prices of all shares which are not subject to fullpayment by employees may not exceed 5% of the registered capital at the time when the

decision on subscription to such shares by employees is being made.

(3)

Special rights under subsection (1) can be asserted (exercised) only by the company's employees and retired employees.

Commentary on section 158:

Under the new wording of section J58, employee shares cannot be issued any longer as a separate class of shares. However, the company may issue shares on especially advantageous terms to its current and former (retired) employees within the limits stipulated by law, its statutes and/or a resolution passed by the general meeting of shareholders. (See also the Transitory Provisions [point 25] at the end of this Code.)

Section 159

(1)

The statutes may determine the issue of shares to which priority rights in relation to dividends or a proportionate part of the liquidation balance are attached, but the total nominal value of such preference shares ("prioritni akcie") may not exceed one-half of the registered (share) capital,

(2)

Shares cannot be issued which confer a right to fixed interest, regardless of a company's financial results.

(3)

Unless the statutory provisions of another Act stipulate otherwise, a company's statutes may determine the issue of preference shares to which no voting rights at the general meeting are attached, unless voting according to specific classes of shares is required by law. Owners (holders) of preference shares shall otherwise have all the other rights attached to shares. As of the day after the day when the general meeting decides that no preference dividend will be paid, or as of the day when the company is in default on payment of a preference dividend, the shareholder acquires voting rights until such time as the general meeting decides to pay a preference dividend or, if the company is in default on payment of a preference dividend, until the time the dividend is paid. Holders of preference shares who temporarily acquired voting rights are still entitled to vote on the full agenda of a general meeting which will decide on payment of a preference dividend.

(4)

Repealed

Commentary on section 159:

Preference shares can be issued up to 50% of the registered capital of a joint stock company. They grant shareholders priority rights with regard to payment of dividends and a liquidation share (i.e. a proportionate part of the liquidation balance).

Section 160

Convertible Bonds and Bonds with Warrants Attached

(1)

Where the statutes so stipulate, a company may, on the basis of a resolution of its general meeting, issue bonds (debentures) which entitle the holder to exchange them for shares in such company ("convertible bonds"; in Czech "vymenitelne dluhopisy") or for bonds carrying preemptive rights to share subscription ("bonds with warrants attached" or priority bonds"; in Czech "prioritni dluhopisy"), provided that the general meeting concurrently decides to conditionally increase the company's registered (share) capital (section 207).

(2)

A resolution of the general meeting under subsection (1) must be passed by a two-thirds majority of the attending shareholders, unless the statutes require a higher majority, and contain:

(a)

the nominal value of the bonds and a determination of the yield per bond;

(b)

the number of bonds;

(c)

the place and time-limit for exercising the right from a convertible bond or from a bond with warrant attached, together with a determination of when such time-limit starts to run; the time-limit for exercising the right (option) to exchange bonds for shares (referred to as "exchange right"; in Czech "vymenne pravo") or the pre-emptive right to share subscription may not be shorter than two weeks;

(d)

the class, type, form, nominal value and number of shares that can be exchanged or subscribed for one bond; the nominal value of shares which are to be exchanged for convertible bonds may not be greater than the total of the nominal values of such bonds;

(e)

the issue price of shares being subscribed for through the exercise of pre-emptive rights on the basis of bonds with warrants attached or (he empowerment of the board of directors to determine their issue price, except when this is excluded or restricted by the shareholders' preemptive right to acquisition of such bonds,

(3)

Where the company issues convertible bonds or bonds with warrants attached as uncertificated securities, the right of exchange or the pre-emptive right may be exercised by the person who is entered in the registry of uncertificated securities as the entitled person (beneficiary) on the day when such right could be claimed for the first time (the decisive day).

(4)

A "(share) warrant" ("opcnf list"; section 217a) must be issued to allow separate transferability of a pre

emptive right attached to a bond which is in the form of an uncertificated security.

(5)

Pre-emptive rights carried by bonds with (share) warrants attached shall be subject to the provisions of section 204a(l) to (5), as appropriate. The provisions of the Bonds Act shall apply to convertible bonds and bonds with (share) warrants attached, unless this Code provides otherwise. Where a company issues bonds as uncertificated securities, the conditions forthe issue of convertible bonds and bonds with warrants attached must contain the date of (he decisive day, so that the person entitled to exercise the rights from such bonds (the beneficiary) can be determined.

(6)

Shareholders of the company have a pre-emptive right to acquire convertible bonds and bonds with warrants attached. The provisions of section 204a shall apply to this right of pre-emption as appropriate (mutatis mutandis).

(7)

Bonds are otherwise subject to other statutory provisions.

Commentary on section 160:

The issue of bonds and the rights attached to them are generally subject to the provisions of the Bonds Act.
The Commercial Code regulates the issue of convertible bonds (in Czech "vymenitelne akcie" or "vymenne
akcie") and bonds with (share) warrants attached (also referred to as "priority bonds"; in Czech "prioritni
dluhopisy") as part of its provisions on joint stock companies.

Each shareholder of a company which issues convertible bonds or bonds with (share) warrants attached has a pre-emptive right to acquire such bonds. This pre-emptive right may be detached from a share and is separately transferable (see also sections 156a, 204a and 217a}.

Acquisition of Own Interim Certificates and Shares

Section 161

(1)

A company may not subscribe for its own shares. The company may only acquire interim certificates and shares which it issues if the law so permits.

(2)

Where shares are subscribed for by a person who acts in his own name but on the account of the company whose shares are being subscribed, such person shall be regarded as having subscribed the shares on his own account,

(3)

Founders (promoters) or, in the case of an increase of registered capital, the members of the board of directors shall be obliged to pay up the issue price of shares which were subscribed for contrary to subsection (1) and become the holders (owners) of such shares. However, they shall be relieved of the said obligation if they prove they did not know and could not have known of such subscription.

(4)

A person on whose account shares are regarded as subscribed for under subsection (2) and the person who is the holder of shares under subsection (3) are not entitled to exercise the rights attached to the shares so subscribed.

Commentary on section 161:

A joint stock company may acquire its own shares or interim certificates only in the cases stipulated by law.

Section 161a

(1) A company may acquire its own shares either itself or through another person acting in own name but on the company's account in the following circumstances:

(a)

if the general meeting passes a resolution on acquisition of own shares; this resolution must determine the details of such proposed acquisition of shares, and at the very least state:

1.         the maximum number of shares which the company can acquire;

2.         the time for which the company may acquire its shares, which may not be longer than IS months;

3.         the maximum and minimum prices for which the company may acquire such shares, if they are acquired for a consideration (i.e. against payment);

(b)

if the nominal value of all own shares in the company's property, including shares acquired by a person who is directly or indirectly controlled by the company, or by another person who acquired the shares in his own name but on the company's account (at its expense), does not exceed 10% of the company's registered capital;

(c)

if the company has resources (funds) to create a special reserve fund related to own shares under section 161d(2), and if the sum of the amount of the registered capital and the amounts under

section 178(2)(a) and (b) after the creation of a special reserve fund under section 161d(2) does not exceed the amount of equity capital.

(2)

The condition stipulated in subsection (l)(a) need not be complied with if the acquisition of shares is necessary to prevent serious and imminent harm to the company. In such circumstances, the board of directors shall inform the next general meeting of the reasons for and the purpose of the effected purchases, the number and total nominal value of the acquired shares, the proportion of the company's registered capital they represent, and the prices paid for them. Shares which were acquired for the said reason must be disposed of within 18 months of their acquisition.

(3)

The provisions of subsection (l)(a) shall not apply to the acquisition of shares by the company, or by another person acting in his own name but on the company's account, for the purpose of selling them to employees under section 158. Shares thus acquired must be sold no later than 12 months after their acquisition.

(4)

The board of directors shall be responsible for discharging the duties under subsection (l)(b) and (c).

Commentary on sections I61a to 161f:

The amended wording of sections 161 a to 161 f is in compliance with the EU legislation (Second Council Directive 77/91/EEC of 13 December 1976).

Section 161b

(1)

A company may acquire own shares and interim certificates even without meeting the conditions stipulated in section 161a, provided that it acquires them:

(a)

in order to implement a general meeting's resolution to reduce its registered capital;

(b)

as a legal successor assuming all the rights of the person who was their owner (holder);

(c)

in order to meet a duty imposed on such company by law or by a judicial decision whose objective was to protect minority shareholders, particularly in the case of a merger or division, a conversion of its legal form, a restriction of the transferability of registered shares or the cancellation of the public tradability (i.e. listing) of shares;

(d)

at a judicial auction when executing a writ to exact such company's receivable against a holder of its paid-up shares.

(2)

Even without meeting the conditions stipulated in section 161a, the company may acquire its own shares if they are acquired without a consideration (free of charge). The provisions of subsection (l)(a) to (c) shall similarly apply to acquisition of own interim certificates.This shall also apply to interim certificates acquired from a subscriber who is in default with payment of his investment contribution, if the company decided to follow the procedure under section 177(3) to (7).

(3)

Shares and interim certificates acquired under subsection (2) must be disposed of within 18 months of their acquisition by the company, and shares and interim certificates acquired under subsection (l)(b) to (d) must be disposed of within three years of their acquisition.

(4)

Where the company does not dispose of its own shares and interim certificates within the time-limits stipulated in subsection (3) or in section 161a, it shall reduce its registered capital by their total nominal value without undue delay. The company shall also reduce its registered capital when its own shares, as shown in the balance sheet, and the sum of the amount of the registered capital and the amounts stipulated in section 178(2)(a) and (b) exceed the value of equity capital by at least an amount equal to such difference (balance). Should the company fail to reduce its registered capital, the court may, even without any motion to that effect, wind up the company and order its liquidation.

(5)

When the company acquires an interim certificate, the obligation to pay the full issue price of the share(s) which such interim certificate replaces shall not expire, unless the company decided to acquire them in connection with the reduction of its registered (share) capital.

Section 161c

(1)

An act in law (legal transaction) which was made contrary to sections 161a and 161 b shall not be void, provided that the other party was acting in good faith.

(2)

A company shall dispose of shares or interim certificates acquired contrary to the provisions of sections 161a and 161 b within one year of the day when it acquired them, otherwise it shall have to reduce its registered capital by their total nominal value. Should the company fail to meet this duty, the court may, even without a motion to this effect, wind up the company and order its liquidation. Section 161d

(1)

Should a company acquire own shares or interim certificates itself, it cannot exercise the voting rights and pre-emptive rights attached to such shares and interim certificates.

(2)

Where the company declares own shares or interim certificates in its balance sheet, it must create a

special reserve fund in the same amount. Such fund shall be cancelled or reduced if the company disposes of its own shares or interim certificates fully or partly, or uses them for a reduction of its registered capital. The said special reserve fund cannot be used in another way.

(3)

The company may make discretionary use of retained profits or other funds to create or top up the special reserve fund for the purposes set out in subsection (2).

(4)

The duty to create and top up the reserve fund under section 217(2) shall not be affected by the provisions of subsections (2) and (3).

(5)

Where the company acquires own shares or interim certificates itself, the report under section 192(2) of its property position presented to the general meeting shall also contain at least the following information:

(a)

the grounds for acquiring shares during the accounting period;

(b)

the number and nominal value of shares acquired and disposed of in the course of the accounting period;

(c)

the sum of the purchase and sale prices of the purchased and sold shares in the accounting period, including details of the lowest and highest prices if the shares were acquired for a consideration (i.e. against payment);

(d)

the number and total nominal value of all the company's shares which are in its ownership and the proportion of the registered capital they represent, both at the beginning and the end of the accounting period.

Section 161e

(1)

A company may not grant advance payments, loans and credits for the purpose of acquiring its shares, and it may not secure credits or loans for such purposes or other obligations (debts) relating to acquisition of its snares.

(2)

The company may only accept its own shares as a pledge (security) under the conditions stipulated in sections 161a(l) and (4), 161b, 161d and 161e(n( � this restriction shall not apply to banks.

(3)

The provisions of subsection (1) shall not apply to acquisition of own shares for employees of the company under section 158(1). The provisions of subsections (1) and (2) shall also apply to interim certificates.

Section 161f

(1)

The provisions of sections 161,161a(l) and (2), 161b(l)(b) to (d),

(2)

and (5), 161c(l) and 161e shall apply to subscription, acquisition and pledging of a controlling person's shares or interim certificates by a person controlled by such controlling person.

(2)

Should a controlled person acquire shares or interim certificates of the controlling person, it shall dispose of them within the time-limits stipulated in sections 161a to 161c, otherwise, even without a motion to that effect, the competent court may order that such person (entity) be wound up and go into liquidation. The provisions on reduction of registered capital shall not apply. The provisions of section 161d(2) to (5) shall apply as appropriate. A controlled person may not exercise the voting rights and pre-emptive rights attached to shares of the controlling person.

(3)

The provisions of subsection (1) shall not apply if a controlled person:

(a)

acts on someone else's account, except when this person acts on the account of a person controlling the former or on the account of a person whom (which) this person controls, or when this person acts on the account of someone else controlled by this person;

(b)

is a brokerage house, and such activity is effected within the framework of the brokerage house's activity; or after

(c)

acquired the status of a controlled person only acquisition of such shares or interim certificates.

(4)

The voting rights attached to shares or interim certificates acquired under subsection (3) may not be exercised, and such shares and interim certificates shall be included in the 10% share of registered capital under section 161a(l)(b),

(5)

The provisions of sections 161a to 161d and 161e shall also apply when shares or interim certificates are acquired by a third person acting in his name but on the account of the company which issued them, or on the account of a person controlled by this company.

Subdivision 2

Formation and Incorporation of a Joint Stock Company

Section 162

(1)

A joint stock company may be formed (founded) by a single person if such person is a legal entity; otherwise by two or more persons. The concentration of shares in the hands of one individual (natural

person) shall not cause the nullity of such company or be the ground for the company's winding-up by a court order.

(2)

Should a joint stock company be formed by two or more founders, they shall conclude an agreement (deed) on the company's formation. A single person (entity) shall form the company by means of a deed of formation (a founding deed).

(3)

The registered capital of a joint stock company being formed by a public offer of shares for sale must be at least CZK 20 million, unless other statutory provisions stipulate a higher amount. The registered capital of a joint stock company formed without a public offer of shares for sale must be at least CZK 2 million.

(4)

If a joint stock company whose registered capital is less than CZK 20 million wishes to increase its registered capital by a public offer of shares for sale, it must increase its capital to no less than CZK 20 million.

Commentary on section 162:

A joint stock company may be formed by one legal entity, or by two or more individuals and/or entities. However, another Act may stipulatethat a joint stock company which is to engage in a particular business activity

(e.g. a stock exchange) must have a different minimum number of founders. Until the end of 2000, the minimum amount of a joint stock company's registered capital required by the Commercial Code was CZK I million. Joint stock companies incorporated by 31 December 2000 do not have

to increase the amount of their registered capital according to the new wording of section 162 (see point 18 of the Transitory Provisions relating to Act 370/2000 Coll.), unless subsection (4) above is applicable.

Section 163

Deed of Formation

(1)

A deed on the formation of a company must contain the following particulars:

(a)

its commercial name, seat and objects (the scope of its business or other activity);

(b)

the proposed amount of its registered (share) capital;

(c)

the number of its shares and their nominal value, the form in which they will be issued (certificated or uncertificated), a determination of whether such shares will be registered in name or made out to bearer, and, if appropriate, the number of registered shares and bearer shares, whether shares of different classes are to be issued, along with their designation and a description of the rights attached to such shares, and information about any restriction concerning the transfer ability of registered shares;

(d)

the number of shares subscribed by each founder (promoter) and the issue price of these, and the manner and time-limit for paying up the issue price, and by what investment contribution (monetary or nonmonetary) such issue price is going to be paid up;

(e)

a description of each nonmonetary (i.e. in-kind) investment contribution which is to be used to pay up the issue price of shares, the object of each nonmonetary investment contribution, the manner of its providing and reckoning as payment for the shares, and the number, nominal value, form and type of shares to be issued for such nonmonetary investment contribution;

(f)

an estimate of the set-up expenses related to the company's formation and incorporation;

(g)

determination of the administrator (manager) of investment contributions under section 60(1);

(h)

the details under subsection (2)(a) to (g) if at least a part of shares is to be issued on the basis of a public offer of shares for sale;

(i)

the draft text of the statutes (by-laws).

(2)

If a company is to be formed on the basis of a public offer of shares for sale (public offering), the company's valid formation (founding) shall be conditional on approval of its prospectus by the (Czech) Securities Commission in accordance with other statutory provisions. In addition to information under subsection (1), a public offer of shares must also include the following:

(a)

the place and time of subscription for such shares, which may not be less than two weeks;

(b)

the procedure to be observed in the subscription for shares, in particular whether the effectiveness of the share subscription on its attaining of the amount of the proposed registered (share) capital, or its oversubscription, will be considered according to the time when the shares were subscribed, or whether the number of shares subscribed by individual subscribers at the same time can be curtailed according to the proportion of the total nominal value of the shares subscribed by them;

(c)

the procedure to be followed if the proposed registered (share) capital is oversubscribed, if subscription exceeding the amount of the proposed registered capital is admitted;

(d)

determination that the issue price of shares can only be paid up by monetary contributions;

(e)

the place, time and, if possible, the bank account number for paying the issue price of the shares;

(f)

the issue price of shares to be subscribed for or the method of determining it; the issue price or the method of its determination must be the same for all subscribers, unless the law provides otherwise;

(g)

the method of convening the constituent general meeting and its venue;

(h)

the method of creating a reserve fund;

(i)

the conditions for exercising voting rights.

(3)

Nobody can be relieved of his obligation to pay up his investment contribution, except when the registered (share) capital of the company is reduced. A company cannot apply set-off to payment of an investment contribution, except when this is approved by a general meeting increasing the company's registered capital.

(4)

No special advantages can be granted to persons who participated in the formation of the company or in obtaining authorizations (licences, permissions) required for the company's activity.

Commentary on section 163:

Subsection (!) stipulates the essential particulars of a deed of formation {founding agreement) in the case of a joint stock company which is formed without a public offer of shares for sale; if shares are to be subscribed on the basis of a public offer of shares, the requirements under subsection (2) must be met.

Section 163a

Issue Price of a Share

(1)

The issue price of a share may not be lower than the price for which the company issues its shares. The issue price may not be lower than the nominal value of a share.

(2)

Should the issue price of shares be higher than their nominal value, the difference between them is a share premium (in Czech "emisní ážio"). Where part payments are made towards settlement of the issue price of shares, or where the amount of a nonmonetary investment contribution which was provided is lower than the issue price, the part payment is first accounted for in respect of the share premium. Where the amount paid towards part payment of the issue price, or the amount of a nonmonetary investment contribution, is insufficient to pay for the nominal value of all the subscribed shares, it shall be accounted for successively as part payment of the payable portion of the nominal value of individual shares, unless some other arrangement is agreed in conformity with the statutes.

(3)

The difference between the amount of a nonmonetary investment contribution and the nominal value of shares to be issued to a shareholder as counterperformance is considered as a share premium, unless the statutes, the deed of formation or the founding deed, or a resolution of the general meeting stipulates that such difference, or its part, must be paid out by the company to the subscriber concerned or that it is going to be used for the creation of a reserve fund.

(4)

Monetary investment contributions by which the issue price of shares is being paid up must be paid into a special bank account opened by the administrator of contributions for that purpose in the commercial name of the company being formed. The bank shall not allow disposal of the paid-up amounts in such account before entry of the company in the Commercial Register, except when it is proved that set-up expenses are involved or the contributions are refunded to subscribers.

Commentary on section 163a:

Section I63a(l) of the Commercial Code states that the issue price of a share is the pecuniary (monetary) amount for which the company issues the share. The issue price of a share may not be lower than its nominal (face} value. Where the issue price of a share is higher tlian its face value, the difference is a share premium ("emisni dlio"). A share premium is not part of an investment contribution; it does not affect the amount of the registered (share) capital, but it does belong to the company's equity and increases the company's business assets. In the case of an in-kind (nonmonetary) investment contribution, the difference between the valuation of the investment and the nominal value of the shares subscribed by this investment contribution isregarded as a share premium, unless the company's documents determine otherwise.

Formation of a Company Based on a Public Offer of Shares
Section 164

(1)

The founder (promoter) or founders (promoters) arrange for the creation of registered capital over and above the nominal value of shares subscribed by them through a public offer of shares.

(2)

A public offer of shares must be published (advertised) in an appropriate manner and its contents may not be changed.

(3)

The draft terms of the statutes must be available for inspection at every subscription place.

(4)

Should shares of a company be subscribed through a public offer of shares, the relevant prospectus must be published no later than concurrently with such offer, as stipulated in other statutory provisions, and meet the requirements of other statutory provisions. A copy of the prospectus must be delivered to the Securities Commission before the prospectus is published. A public offer of shares may not be published before the prospectus is approved by the Securities Commission.

Commentary on section 164:

When the founders' (promoters') investment contributions are insufficient to create the registered (share) capital, a public offer of shares is advertised, after the relevant prospectus has been approved by the Securities Commission.

Section 165

(1)

A share is regarded as subscribed through a public offer of shares under section 164(1) when it is entered in the subscribers¹ list, The entry shall include the number, nominal value, type, form and, if appropriate, the class of the subscribed shares, their issue price, the time-limits for part payments of the subscribed shares, the commercial name or designation and seat of the subscriber if it is a legal entity, and the full name and residential address of a subscriber, who is an individual, and the subscriber's signature, otherwise the subscription is ineffective [section 167(2)]. The signature on the list of subscribers need not be authenticated.

(2)

Shares subscribed through a public offer cannot be settled by nonmonetary investment contributions.

(3)

Each subscriber shall pay the share premium and at least 10% of the nominal value of the subscribed shares into a bank account within the time-limit specified in the public offer of shares. If the subscriber fails to meet this duty, his subscription is null and void [section 167(2)],

Commentary on section 165:

A share is subscribed for on the basis of a public offer of shares when the name of the subscriber and all necessary details concerning his person and the requested shares are recorded in the list of subscribers. Only monetary payments are now permissible when shares are subscribed for in this manner.

Section 166

(1)

After the proposed registered (share) capital has been subscribed, the founders (promoters) or founder (promoter) may reject any subsequent subscriptions, unless the deed of formation (founding deed) provides otherwise. Should they not do so, the constituent general meeting shall decide whether to accept or reject share subscriptions which exceed the full subscription of the proposed registered capital. Should such subscriptions be rejected, the founders (promoters) shall be jointly and severally liable to return to each subscriber concerned, without undue delay, the amount which he paid (after full subscription of the shares were fully subscribed) and to add interest to such amount. The interest shall be computed according to the rate of interest granted by banks to customers under current account contracts at the place where the company has its seat on the day when the duty to return the said amount arose.

(2)

The founders (promoters) or founder (promoter) must reject any subsequent subscription if the deed of formation (founding deed) did not permit subscription of shares in excess of the proposed registered capital.