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GENERAL PARTNERSHIP General Characteristics
Quintessential representative of personal companies Can be created only for business purposes by at least two founders Emphasis on personal involvement and abilities of members Designed for small businesses (restaurants, travel agencies, crafts)
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GENERAL PARTNERSHIP Establishment
Legal act necessary for establishment - founding agreement Incorporation - upon registration in the Commercial Register Contributions into company’s assets not mandatory, must be made only if required by the founding agreement Members (partners) - both individuals and legal entities
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GENERAL PARTNERSHIP Corporate organization
No specific corporate bodies created Management of the company carried out by members (partners)
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GENERAL PARTNERSHIP Rights and duties of members
Right to participate in management each member is authorized to manage the company and act on behalf of the company in all matters founding agreement may grant the management right only to one or more members “managing members” are liable to other members for proper management of the company “non-managing” members have the right to be informed and to inspect the books and other documents of the company right of one or more members to manage the company can be terminated by the decision of majority of members the “managing member” may resign from his position
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GENERAL PARTNERSHIP Matters pertaining to the existence of the company may be decided only by all members or majority of members stated in the founding agreement Examples of such decisions: change of founding agreement termination of a company approval of financial statements disposition of major assets appointment of one or more “managing members” other matters stated in founding agreement
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GENERAL PARTNERSHIP Property Rights
right to participate in profits of the company; each member participates equally in profits unless founding agreement states otherwise in case of liquidation - right to participate in liquidation balance
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GENERAL PARTNERSHIP Duties of members
Reflect the personal character of general partnership: obligation to participate in carrying out the business of the company each member – natural person, must have trade authorization relating to business activity carried out by the company obligation to perform member’s tasks with due care obligation to provide contribution in company’s assets – only if provided for in the founding agreement obligation to share losses of the company obligation to refrain from carrying out outside the company business activity identical or similar to that carried out by the company (ban on competition conduct)
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GENERAL PARTNERSHIP Liability of members for obligations of a company
All members are personally and fully liable for obligations of the company Liability is joint, several and unlimited General provisions on suretyship are applicable to liability of members for obligations of the company: member may be requested by the company’s creditor to pay only if company does not perform member has a subrogation right towards the company member has a right to be compensated by other members in proportion to their liability
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GENERAL PARTNERSHIP Specific remedies Each member is authorized to:
claim on behalf of the company damage caused to the company by the other member seek with the court decision on termination of the company for important reasons, in particular, if the other member materially violates his obligations Company may seek with the court expulsion of member who materially violates his obligations
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GENERAL PARTNERSHIP Termination of general partnership
For reasons applicable to all companies decision of all members to terminate the company with liquidation decision of all members on termination through a transformation decision of a court For reasons specific only to general partnership upon the death of a member (natural person), unless the founding agreement permits that the company may continue with the heir and at least two original members remain upon termination of a member (legal entity), unless the founding agreement permits that the company may continue with the legal successor of the member and at least two original members remain upon declaration of bankruptcy over assets of a member
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New Act on Corporations – General partnership
Concept remains the same – personal company, personal liability for obligations of company Several new rules reflecting traditional regulations in other European countries and pre-war regulations in Czechoslovakia Requirement of trade authorization for all members abandoned Person whose property was subject to insolvency or member of statutory body of company declared insolvent within last 3 years cannot be a member in general partnership
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New Act on Corporations – General partnership
New rules relating to contributions in general partnership Member who is in delay with contribution is obligated to pay a delay interest may be expelled from the company by a decision of all other members If permitted by founding agreement the contribution may be done by providing services or works for company
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New Act on Corporations – General partnership
Modification of rules for distribution of profits concept of equal distribution maintained member who provided contribution is entitled to profit equal to 25% of his contribution if aggregate profit does not suffice, it is divided among contributing members pro rata their contributions and the rest equally among other members Each member is authorized to be reimbursed for costs expended for arranging corporate matters
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LIMITED LIABILITY COMPANY
General characteristics legal entity created by one or more founders (individuals or legal entities); number of members limited to 50 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 liability of members for obligations of the company is limited
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LIMITED LIABILITY COMPANY
Establishment Legal act necessary for establishment - founding agreement or founding deed Incorporation - upon registration in the Commercial Register. Members obligated to make capital contributions each in the amount of at least CZK One natural person may be a sole member only in three limited liability companies Limited liability company with a sole member cannot become a sole member in another limited liability company (“chaining” of single member limited liability companies is prohibited)
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LIMITED LIABILITY COMPANY
Members’ participation in company Rights and duties of members incorporated (embodied) in ownership interest Ownership interest represents: right to participate in management of the company right to share in profits of the company right to share in liquidation balance in case of company’s liquidation Extent of member’s rights is determined by the size of the member’s capital contribution, unless the founding agreement states otherwise Ownership interest is transferable to other members or persons outside the company; transferability may be restricted
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LIMITED LIABILITY COMPANY
Corporate structure Corporate governance is carried on by specialized corporate bodies: general meeting executive director(s) supervisory board
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LIMITED LIABILITY COMPANY
General Meeting Supreme body comprised all members of the company Powers of general meeting decisions pertaining to existence of the company: changes in the founding agreement increase or decrease of the registered capital termination of a company decisions concerning rights and obligations of members: participation in profits determination of voting requirements imposing duty to contribute to company’s assets amounts in excess of capital contributions
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LIMITED LIABILITY COMPANY
Decisions concerning corporate governance: election of executive directors or members of supervisory board remuneration of executive directors and members of supervisory board Convocation and proceedings of general meeting are subject to strict rules guaranteeing equal treatment of all members: notice of convocation must be sent to members within legally prescribed deadline only matters included in the agenda contained in the notice of convocation can be discussed and decided
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LIMITED LIABILITY COMPANY
Executive Director Statutory body – decides all matters not entrusted to general meeting, acts on behalf of company Elected by general meeting - one or more executive directors Supervisory Board Controlling body – its existence is not mandatory Elected by general meeting
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LIMITED LIABILITY COMPANY
Duties of members Obligation to make capital contribution in the amount prescribed in the founding agreement (minimum CZK ) defaulting member shall pay a default interest may be expelled from the company Other obligations Obligation to pay amounts in excess of capital contribution, if requested by general meeting (up to 50 % of the registered capital) Obligation to refrain from competitive conduct, if stipulated by the founding agreement
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LIMITED LIABILITY COMPANY
Liability of members for obligations of the company Limited by the aggregate amount of unpaid capital contributions as registered in the Commercial Register Liability is joint and several
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LIMITED LIABILITY COMPANY
Rights of members Members participate in management of the company at general meting – discuss and vote on company matters outside general meeting - adopt decisions on company matters subject to certain procedural rules Each member has the right to inspect company’s books to ask questions and require information and explanations about company’s matters from executive directors
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LIMITED LIABILITY COMPANY
Each member may request the court to declare the resolution of general meeting invalid if the resolution is adopted in contradiction with law or founding agreement sue on behalf of the company executive directors for damages incurred as a result of breach of their duties sue on behalf of the company another member in case of delay with payment of capital contribution
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LIMITED LIABILITY COMPANY
Termination of limited liability company For reasons applicable to all companies: decision of general meeting to terminate the company with liquidation decision of general meeting on termination through a certain form of transformation
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New Act on Corporations – Limited Liability Company
Liberalization of internal structure – to reflect new trends in European states legislation Change in concept of registered capital minimum amount of registered capital is abandoned member may invest even CZK 1 valuation of in kind contribution by expert only designated by parties
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Change in concept of ownership interest
one member may own several ownership interests of different kind special rights may be attached to a certain ownership interest a share certificate (security) may be issued to document ownership interest; this certificate cannot be traded on regulated markets
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Voting outside general meeting is more flexible
or telephone participation in general meeting is permissible communication in writing during general meeting is permissible
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Regulation of additional contributions outside registered capital is more flexible
voluntary contribution may be provided without specific authorization in founding agreement with executive director’s consent voluntary contribution may be monetary or in-kind member who disagrees with mandatory contribution may step out from company under certain conditions
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Cumulative voting introduced
for the purpose of election of executive directors or supervisory board number of votes of each member is multiplied by number of elected candidates
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