Commission for the Application of New Civil Legislation – New Opinions on Corporate Commercial Law
The new provisions of the Business Corporations Act (BCA) can raise several questions of interpretation. The Commission for the Application of New Civil Legislation (CANCL) at the Ministry of Justice has attempted to address these questions. One of the current opinions is, for example, the response to the distribution of profit and other equity, as well as the shareholder’s surplus payments to equity outside of share capital.
We have chosen some of the most interesting opinions:
- Opinion re the concept of an entrepreneur under the new Civil Code: According to the opinion of the CANCL expert groups, the new Civil Code does not distinguish between an authorised and unauthorised entrepreneur. An entrepreneur without a business licence, if legally required, is deemed with regard to this activity to be an entrepreneur under Section 420 (1) of the new Civil Code.
- Opinion re the acquisition of title to an enterprise when it is purchased or deposited into a business corporation: In the case of the purchase of an enterprise, the purchaser acquires title to the property constituting the enterprise as soon as it acquires title to the business as a whole. The registration of title in the Land Register to real estate registered in the Land Register belonging to the purchased enterprise has a declaratory effect. In case of the incorporation of an enterprise into a business corporation at the time of its establishment, the business corporation acquires title to the business as a whole upon its establishment, and in other cases upon publication of the information on the registration of the contract of incorporation in the Collection of Documents. The registration of property rights in the Land Register to real estate registered in the Land Register belonging to the incorporated enterprise is of a declaratory nature.
- Opinion re the distribution of profits and other equity: For all business corporations, the condition set forth in Section 40 (1) of the BCA applies to the payment of funds from other equity (other capital funds), i.e. that such payment may not lead to bankruptcy under the Insolvency Act. Only for a joint stock company is there a further condition for the payment of funds from other equity under Section 350 (1) of the BCA, namely that, as a result of such a division of other equity, the equity below the subscribed capital plus funds which according to the BCA or Articles of Association are to be distributed among shareholders. The allocation of funds from other equity does not fall under Section 350 (2) of the BCA. Distributable profits under Sections 161 (4) and 350 (2) include all profit for the prior period, i.e. not only retained earnings, but also gains recognised in other profit funds or other profit or loss from previous years.
- Opinion re shareholder’s surplus in equity outside the registered capital: According to the expert opinion, the surplus of the shareholders in the equity capital of a joint stock company outside of the share capital is not regulated by the Business Corporations Act; similarly, it was not regulated by the Commercial Code. There is nothing to change the nature of the amendment, and it remains possible and allowed.
- Opinion re interim financial statements prepared for the payment of advances on profits under Section 40 (2) of the BCA: According to the expert commission, payment of advances for the payment of profit share under Section 40 (2) of the BCA is conditional upon the business corporation compiling interim financial statements. The payment of the advance on profits is an independent legal reason for the preparation of the interim financial statements under Section 40 (2) of the BCA, as foreseen by Section 19 (3) of the Accounting Act.
- Opinion re power of attorney: Power of attorney for representation at a general meeting, a member meeting of a cooperative or other body of a legal person, or for a decision on a sole shareholder, may not be given in the form of a notarial record.
- Explanatory opinion on machines (Section 508 of the Act): A group of experts has concluded that machines according to Section 508 (1) of the New Civil Code may be installations which, in the specific case, are constructively linked to a property that meets the criteria in Section 505 of the New Civil Code, e.g. passenger lifts, air-conditioning drives, boilers and transformers (i.e. items pertaining to the real estate – as the main thing – according to their nature physically and functionally). Therefore, it is not every “fixed” machine but only those whose exclusion causes such damage to the value of the property that it will no longer be able to serve its original purpose for the most part or not at all.