Amendments to the Commercial Law were adopted on 15 June 2017, stating, among other things, significant changes in relation to transactions with related persons. The amendments came into force on 13 July 2017.
Until now the procedure for the affiliation of the related persons and agreements between them was regulated by Chapter 1.1. „Restrictions for Conclusion of a Transaction with the Founder of the Company, Shareholder, Member of the Board of Directors or Council and Related Person” of Division XI „Capital Companies”. With amendments, this Chapter is excluded and Division XI is supplemented by Chapter 6 „Transactions with related persons” (Sections 184.1 – 184.2).
Person related with the company
Within the Commercial Law, the concept of „a person related to the company” is understood as:
- A member of the company who has direct, decisive influence in the company
- A member of the board or council of the company
- A member of the company who has direct, decisive influence in the company, a member of the board or council
- A person who is a relative up to second degree of kinship, a spouse or brother-in-law up to the first degree of in-laws, or a person, with whom, they have a common holding
- A legal entity, in which, a person mentioned in items 1, 2 or 4 has a decisive influence.
The decisive influence originates based on Group of Companies Law, as well as on the basis of participation in cases stated in Part 3 of Section 3 of the Group of Companies Law. The undertaking has a decisive influence in the company on the basis of participation if at least one of these conditions is met:
- The undertaking has the majority of voting rights in the company
- The undertaking as a shareholder has the right to appoint or remove the majority of members of the executive body or of the supervisory body of the company
- The undertaking is a shareholder of the company and, exercising only its rights of a shareholder, during the accounting year has appointed the majority of members of the executive body or of the supervisory body of the company
- The undertaking is a shareholder of the company and, on the basis of agreement with other shareholders, has sole control of the majority of voting rights.
It is important to stress that there is a difference of a „related person” in the definition of the Commercial Law and in the „Law on the Enterprise Income Tax”. For example, the Commercial Law provides that a member of the company’s board and council is seen as a person related to a company, whereas in the apprehension of the Law on the Enterprise Income Tax, a member of the board alone is not to be seen as a person related to a the undertaking (do not confuse with a situation where two undertakings are seen as related if they majority in their boards belong to the same members of the board).
Closing deals with a related person
Rules of the transactions of the related persons of Commercial Law are only applicable to those transactions that are not done within the usually carried out commercial activity of the company or do not match with market conditions. These rules do not apply to cases where a transaction is closed, according to a court decision.
If a company closes a deal with a related person, the council or, if there is none, the meeting of the members, provide an agreement for the closing of a transaction.
Before closing a transaction, the board hands the council or the meeting of the members, this information about the transaction:
- News about the related person, with whom the transaction is made
- Substantiation for necessity of the transaction
- Rules of the transaction
- Evaluation of the transaction’s influence to the company’s business activity and company’s financial state
- Evaluation of the transaction’s influence to the company’s members who are not treated as related persons in relation to the transaction mentioned.
If the interests of the company collide with interests of a member of the council or person related to them as a result of such transaction, the interested member of the council does not have voting rights, and this is to be recorded in the protocol of council’s meeting. Voting rights are also not provided to the member of the council, who is a relative of the interested council member up to second degree of kinship, a spouse or brother-in-law up to the first degree of in-laws, or a person, with whom, they have a common holding. If none of the members of the council has voting rights, the agreement for closing the transaction is given by the meeting of members.
A transaction between a company and a related person is not in force if the stated order for closing the transaction is not followed, and the related person knew or should have known that the agreement of the council of the meeting of the members was necessary, and it has not been given.
A transaction between a one-member company and its member has to be in written form!
Commercial Law contains a number of other amendments in relation to such issues:
- Personnel shares
- Options of (share) personnel
- Preemptive rights of the members in case of foreclosure of the shares (comes into force on 1 January 2018)
- Election and liability of the members of the board and council
- Quantity of the board
- Election of members of the board
- Election of members of the council
- Liability of the members of the board and council
- Issues of increase and decrease of capital assets
- Acquisition and holding of the company’s own shares
- Conversion of bonds
- Liquidation of the company
- Annulment of the members’ decisions
- Foreign subsidiary
- Applications to the Enterprise Register
- An obligation to disclose the actual beneficiary.