The Government plans to amend the Civil Code and reform the registration of legal persons

The Government has recently submitted two bills concerning legal persons, T/16206 and T/16207, amending the provisions of Act V of 2013 on the Civil Code („Civil Code”) regarding legal persons and introducing a unified register of legal persons (companies and NGOs).

According to the Minister’s explanatory memorandum, the amendment of the Civil Code is necessary because, while maintaining the dispositive approach of the law of legal persons, it has become timely to take into account the success of the incorporation of certain provisions of the Civil Code and the regulatory proposals developed by case law. In addition, the revision of the Third Book of the Civil Code will further strengthen the coherence, stability and competitiveness of the law of legal persons and, in particular, of company law. The amendments, which are expected to enter into force on 1 January 2022 (with certain exceptions), will affect, among other things, the following:

  • The rules on the invalidity of a legal person’s instrument of incorporation and the review of its organs’ decisions will change.
  • The correction generalises the institution of supplementary payment, which is currently regulated for limited liability companies, by placing the relevant regulations among the general rules for companies so that it will apply to all types of companies (although this is currently possible due to the dispositive nature of the Civil Code). The positioning of supplementary payment as a general company law instrument provides companies and their members with an effective and rapid means of providing for a capital injection in the event of a loss of solvency.
  • The bill eliminates the statutory dissolution of general partnerships, limited partnerships and cooperatives due to the absence of a minimum membership requirement, which imposes an unjustifiably severe consequence on the legal entity.
  • The proposal reformulates the section on business shares in limited liability companies. The reason for this is that, although the case law is unanimous on the substantive issues relating to business shares, it is not possible to derive a unanimous interpretation of the law from the current rules without reservations.
  • The rules on public limited companies (PLCs) will also be amended on several points. Firstly, it is made clear that not all shares of a PLC need to be listed on a stock exchange. The stock exchange and securities market rules require that at least one series of shares must be listed. Another change relevant for public limited companies is that the amendment stipulates that, where the public limited company does not have a management board ensuring single management, the corporate governance report can only be submitted to the general meeting with the approval of the supervisory board.

More important than the amendment to the Civil Code is the proposed law on the single registry of legal persons, which is expected to enter into force on 1 July 2023. The Civil Code regulates not only classic civil law relationships but also company law and the main private law legal persons and, unlike the previous Civil Code, also regulates, for example, associations and foundations. From the general provisions of the Civil Code on legal persons, it follows that a single register of legal persons is required. This is also confirmed by the fact that the Civil Code does not distinguish between different types of legal persons regarding the general provisions defining the most important guarantee rules (establishment, dissolution, registration, name, seat, organisation, representative, etc.). Examples of uniform registration of companies and NGOs can currently be found in several EU countries (e.g., Austria, Belgium, Denmark, Poland).

For legal persons whose legal supervision is not exercised by the court (e.g., a law firm), the registration procedure is not carried out by the court but by the body designated in the substantive law governing the legal person (bar association, treasury, etc.), which enters the result of the registration and the data to be registered not in a separate register, but this single register.

The single register will bring several benefits, including uniform procedural rules, speedy procedures, standardisation of enforcement practices, increased accuracy of the data in the register, and further reduction of the clients’ administrative burden.

The bill introduces a major change of approach (both in procedural and IT terms) in the regulation of non-litigious proceedings before the courts, which cannot be accommodated within the framework of the existing company registration and civil registration laws. The concepts of private law registration (formerly company law) have been harmonised and will become applicable to the registration of all legal persons. Civil non-litigious proceedings relating to companies and civil and other entities that do not qualify as companies (currently named in the NGO registration act) are uniformly referred to as registration procedures and are subject to common general rules. The current procedures for registration (incorporation), registration of changes and registration of transformations, mergers and divisions are referred to as registration procedures, which will simplify cross-references.

The court’s primary task will be the constitutive registration of the creation and dissolution (cancellation) of the legal person and keeping the public register of the legal person and its data. To this end, according to the ministerial explanation, the approach of the court will have to be changed to ensure that the registration procedure and the registration of changes to the articles of association only cover those elements that are of material importance and that the members retain competence for matters that, under the dispositive provisions of the Civil Code, fall within the autonomy of the members. The court does not ’authorise’ the members to form a legal person or amend its articles of association but examines whether the legal conditions for registration are fulfilled.

The proposal introduces automatic decision-making in the vast majority of registration cases along the latter lines. To simplify the work of the courts and reduce the caseload in automatic registrations, the proposal places greater emphasis on the review procedure, so that the control function of courts, which are relieved of a significant caseload by the introduction of automatic decision-making, can be shifted to review procedures. To ensure the public authenticity of the register, review procedures may also be opened ex officio based on a signal from the IT system. As in the case of the automatic registration procedure, the aim is to speed up the procedure, shorten the procedural time limits and automate the administrative steps that the automatic system can take.

The bill introduces new special legality supervision procedures (e.g., legality supervision procedure in case of lack of official contact under the e-administration act or failure to publish the accounts under the accounting act) and regulates in more detail certain existing special legality supervision procedures (e.g., organisation concerned by the cancellation of its tax number, legality supervision procedure for convening the supreme body).

Uniform rules for the winding-up procedures of companies and NGOs will be set out in a separate law, which will also include rules on the winding-up and compulsory winding-up of these organisations by the courts. Insolvency rules will, however, continue to be treated separately.