The obligation to determine the subject of business of a business corporation
In May 2021, the Supreme Court issued a landmark decision on the question of how business corporations should define the subject of their business in the founding documents.
It is common practice for corporations to state as a subject of business "production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act," and thus enter it in the Commercial Register. Until now, this practice has not been substantially questioned and has been promoted by notaries. It was advantageous for the companies because it saved the costs of changes to the founding documents when changing activities within free trade.
However, the Supreme Court has now concluded that the founding documents provision stating that the corporation's business is “production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act” does not satisfy the requirement of certainty, since it is not clear what the company's business is.
According to the Supreme Court, such a provision is even non-existent and as such is not taken into account at all. This means that, on the basis of such provision it should not be possible, among other things, to enter the subject of business in the Commercial or Trade Register. As a result, registry courts should reject applications that contain subject of business defined in this manner. In the event that this subject of business is already entered in the register, according to the Supreme Court, it is necessary to arrange a remedy.
This rationale is formalistic in a way, considering that, in addition to the entry in the Commercial Register, all corporations have a detailed breakdown of the fields of free trade in the Trade Register. It will only bring additional costs for companies. Although this is the first decision of its kind we can expect that the same view will be taken by the court in other similar matters. It is also more than likely that notaries and registry courts will follow this decision the near future.
For the corporations themselves, this means the need to change their founding documents and enter this change in the Commercial Register, in the extreme case even under penalty of liquidation. Therefore, we encourage clients to bring their matters in line with the Supreme Court's findings. Our office is fully available to you in this matter.
Amendment to the VAT Act and sale on the internet
An amendment to the VAT Act enters into force on 1st July 2021, focusing in particular on the regulation of administrative obligations related to VAT for entrepreneurs who operate cross-border trade and provide services in the form of so-called e-commerce. Given that the amendment is still in the parliament's approval process at the moment, it is possible that its effectiveness will be postponed. However, it is necessary to take into account that sooner or later entrepreneurs will have to comply with it.
First of all, the amendment will abolish the limits for the sale of goods to individual EU countries. The rule that if the limit of EUR 35,000 or EUR 10,000 is not exceeded, the VAT is paid in the Member State where the sale has been realized, will therefore no longer apply. There will be only one new limit of EUR 10,000, which will apply for sales to all Member States together.
Taxes on cross-border sales of goods over the internet - apart from below-threshold sales - will generally be levied at the consumer's place of residence. This would bring an extreme administrative burden for the seller. It is therefore possible to register in OSS (One-Stop-Shop) mode. Such registered entrepreneurs will be able to manage their taxes within a special application. Therefore, they will not be forced to register for VAT in all states where they supply goods or provide services.
Starting from the amendment effectiveness, all goods and packages imported from abroad will be subject to VAT. The VAT exemption on imports of low value goods will therefore be abolished. In the case of this type of goods, a special regime will be introduced in which eligible entrepreneurs will pay VAT on their imports in total for a calendar month.
If this amendment applies to you and you are not sure about any of the new obligations it imposes on you, do not hesitate to contact us.
Secret amendment to the Act on Business Corporations and Housing Association
While the major amendment to the Commercial Corporations Act concerning capital companies was discussed long before its adoption, the amendment to the Commercial Corporations Act, which was annexed to the amendment to the Civil Code and entered into force on 1st July 2020 and 1st January 2021 without any special attention. However it has serious impacts on the functioning of housing association. For most housing associations, this amendment will require a change of their articles of association.
Higher demands on the detail of the association’s statutes are now placed in the matter of routine maintenance and minor repairs. The current regulation requires that the scope of routine maintenance and minor modifications, as well as the circumstances under which it is possible to modify the construction of an association unit, is regulated in the statutes themselves. It is no longer possible to resolve this issue e.g. by a simple reference to legislation, as has been possible so far.
Regarding the practical functioning of the housing associations, the amendment brought the possibility to waive the obligation to place invitations to the association’s meetings on its websites. At present, their placement on the association’s information board will suffice. However, in situations where the obligation to publish invitations on the website is incorporated in the statutes of the housing association itself, it continues to be necessary.
For the amendment of the association’s articles which concerns the conditions for concluding a contract for renting an association’s apartment or adjusting the rights and obligations of housing association members associated with this right and use of the apartment, only three-fourths of all members of the housing association are required. Among them, of course, are those members who are to be affected by such a change.
Minutes (with attachments) from the meetings of the housing association must be kept from 1st January 2021 for the entire period of the association’s existence. In the event that a decision is taken outside the meeting, this obligation applies mutatis mutandis.
In the event that a housing association generates profit, it is possible, if the legal conditions are met, that it is divided among the members of the housing association.
These are just a few of the major changes that housing association have to deal with in the near future.
Due to the fact that from 1st January 2021 those parts of the articles of association that contradict the mandatory provisions of the law have ceased to be effective, and housing association are obliged to adapt their cooperative articles to the new regulation by 1st January 2022 at the latest, we recommend not to wait with the required amendments.