JOINT STOCK COMPANY General characteristics Legal entity Created by one or more founders (individuals or legal entities); a sole founder may be only a legal entity May be created for business but also for other purposes Must have registered capital at least in the amount prescribed by law, i.e. minimum CZK , members required to make capital contributions Internal corporate structure prescribed by law, shareholders are not personally involved in the management of the company Rights of shareholders to participate in the management and other matters of the company are embodied in a share Shareholders are not liable for obligations of the company 1

JOINT STOCK COMPANY Share Share - security representing shareholders’ participation in the company Rights and obligations of shareholders are determined by number and nominal value of shares they hold Rights embodied in share: right to participate in the management of the company right to share in profits of the company right to share in liquidation balance in case of company’s liquidation 2

JOINT STOCK COMPANY Form of shares Registered shares Issued in the name of shareholder, company must maintain the list of shareholders Transferable by handing over the share to the transferee and by endorsement Transferability may be restricted by statutes of the company Bearer shares Name of shareholder is not known Can be issued only in electronic form Transferability cannot be restricted 3

JOINT STOCK COMPANY Kinds (types) of shares Common shares (stock) Ordinary shares representing all rights of shareholders Priority shares Shares which may carry certain priority rights (payment of dividends or payment of liquidation balance in case of company’s liquidation) 4

JOINT STOCK COMPANY Establishment of joint stock company Process of establishment involves: founders sign founding agreement and undertake obligation to pay the whole amount of the registered capital founders approve the statutes founders elect board of directors and supervisory board company is inscribed into the Commercial Register - incorporated 5

JOINT STOCK COMPANY At least 30% of monetary contributions to the registered capital or all in-kind contributions must be paid prior to submitting application for registration of the company in the Commercial Register After its incorporation the company issues shares in case the whole amount of registered capital is paid, or interim certificates in case the registered capital is subscribed but not paid in full 6

JOINT STOCK COMPANY Duties Obligation to make capital contribution – shares subscribed but not paid Defaulting shareholder shall pay a default interest may be expelled from the company Rights Rights incorporated in share right to participate in a management of the company right to share in profits of the company right to a liquidation balance if the company is terminated 7 Shareholders, Rights and Duties

JOINT STOCK COMPANY Right to participate in management Decide (vote) on matters entrusted to general meeting General meeting is the only forum for shareholders’ participation in management of company Voting right is attached to share – voting power depends on number and nominal value of shares held by a shareholder Right to ask questions and request explanations regarding matters on the agenda of the general meeting - information and explanation may be refused only if confidential and release of it may be detrimental to a company 8

JOINT STOCK COMPANY Right to request for convocation of general meeting and determine agenda of general meeting Voting agreements - increase of voting power Following agreements are null and void to follow instructions given by company or any of corporate bodies to support proposals tabled by corporate bodies to vote in predetermined manner in exchange for advantages provided by company 9

JOINT STOCK COMPANY Right to share in profits Right to receive dividends determined by number and nominal value of shares held by a shareholder Dividends may be paid only if assets of company exceed amount of company’s registered capital together with amounts not distributable among shareholders pursuant to the Act on Corporations Payment of dividends decided by general meeting on the basis of annual financial statements 10

JOINT STOCK COMPANY Protection of shareholders’ rights General rules of protection - similar to protection of rights of members in limited liability company: right to ask court to declare invalidity of a resolution of general meeting right to seek damages sustained as a result of resolutions of general meeting inconsistent with law or the statutes 11

JOINT STOCK COMPANY Corporate Structure, governance Corporate structure prescribed by the Commercial Code - corporate governance ensured by specialized bodies Monistic and Dualistic structure Newly introduced posibility for founders to chose between traditional dualistic structure or new monistic structure 12

JOINT STOCK COMPANY Monistic structure Corporate bodies General meeting Management (administrative) board Statutory director Management board executive members non-executive members (similar position to members of supervisory board in dualistic structure) 13

JOINT STOCK COMPANY Management board has 3 members unless statutes state otherwise law does not limit the number of members of management board rules applicable to supervisory board (dualistic structure) apply mutatis mutandis to management board chairman of management board in charge of organizational matters of management board acts in name of company in actions against statutory directors 14

JOINT STOCK COMPANY Statutory director is a statutory body of company only an individual who fulfills conditions for membership in board of director may serve as a statutory director rules applicable to board of director apply mutatis mutandis to statutory director Dualistic structure Corporate bodies General meeting Board of directors Supervisory board 15

JOINT STOCK COMPANY General meeting Supreme body of the company consisting of all shareholders Shareholders participate in management of the company only through voting in general meeting Strictly formalized requirements as to convocation and proceeding of general meeting: notice of convocation must be made at least 30 days in advance, notice period cannot be waived notice of convocation must clearly state the agenda of general meeting in certain cases documents to be discussed must be made available to all shareholders in advance general meeting can discuss and decide only matters included in the agenda (unless all shareholders are present and approve change in the agenda) 16

JOINT STOCK COMPANY Powers of general meeting Decisions pertaining to the existence of a company, such as change of the statutes increase or decrease of the registered capital termination of a company Decisions concerning rights and obligations of shareholders, such as participation in profits determination of voting requirements major disposition of assets (sale of enterprise or part of enterprise) changes relating to the shares (change in rights attached to the share, change of form, kind and nature of shares) 17

JOINT STOCK COMPANY Decisions regarding corporate governance, such as election of members of board of directors or supervisory board remuneration of members of board of directors or supervisory board Powers of general meeting cannot be delegated to other bodies, except for the right to elect members of board of directors (statutes may grant this right to supervisory board) 18

JOINT STOCK COMPANY Voting at general meeting Simple majority of votes – as a rule, 2/3 or 3/4 majority of votes required by law in certain cases Examples of cases where qualified majority is required: matters essential for the company change of statutes increase or decrease of registered capital matters affecting essential rights of shareholders change of form, type or nature of shares change of transferability of shares or rights attached to shares Statutes may extend cases requiring 2/3, ¾ or higher majority of votes Voting at general meeting possible via technical means (telephone, ) if permitted and regulated by statutes 19

JOINT STOCK COMPANY Decisions outside general meeting - procedural rules Draft resolution sent in writing to all members Approval must be delivered within 15 days No reaction = refusal 20

JOINT STOCK COMPANY 21 Board of Directors Statutory body – manages the company and acts in company’s name in all matters Membership in the Board of Directors Members elected by general meeting, unless statutes grant this authority to supervisory board Term of office is determined by the statutes but cannot exceed 5 years Number of members is determined by the statutes, if nothing stated, there are three members

JOINT STOCK COMPANY 22 Powers of Board of Directors, Duties Board of directors decides on all matters not reserved to general meeting and supervisory board Nobody can give instructions to board of directors regarding day-to day management

JOINT STOCK COMPANY Directors owe to company Duty of skill and care – directors required to act on informed basis while taking decisions Duty of loyalty (fiduciary duty) – directors required to act in the interests of the company and not their own or somebody else’s: duty to refrain from competitive behavior (ban on competitive conduct) certain contracts between company and directors are subject to special procedure (no self-dealing) 23

JOINT STOCK COMPANY Supervisory Board Controlling body – oversees activities of the company, its board of directors, reviews financial statements of the company No decision-making powers Membership in Supervisory Board Members elected by general meeting Number of members divisible by three Term of office determined by the statutes but cannot exceed 5 years 24

JOINT STOCK COMPANY Powers of Supervisory Board, Duties The same standard of duties as members of board of directors 25

JOINT STOCK COMPANY Changes in registered capital Subject to strict rules under the Act on Corporation– protection of creditors against non-transparent actions Increase Means of raising funds from existing shareholders or other persons Decrease Means of covering losses or return to shareholders some of the amounts paid to company as their contribution to the registered capital 26

JOINT STOCK COMPANY Termination of joint stock company For reasons applicable to all companies decision of general meeting to terminate company with liquidation decision of general meeting on termination through a certain form of a transformation decision of a court in cases set forth by the Act on Corporation 27