An Overview of the Czech Commercial Law

By Karel Schelle

For those planning on or already doing business in the Czech Republic, or just wanting to extend their knowledge about the legal framework for conducting business in one of the central European states An Overview to Czech Commercial Law in English will prove worthwhile. Commencing with a concise background of the history and basis of the Czech commercial law, the authors move on to cover the legal regime of the principal business players, commercial companies. Thereafter, the commercial obligations and their main instruments, commercial contracts, are reviewed. A succinct analysis of the competition law represents a logical culmination of the publication. Each of the contributing authors has both an extensive academic background and a wide experience in the practice of law which contributes to a well balanced blend of a theoretical and practical approach demonstrated across this invaluable publication.

• Language: English
• Publisher: Trafford Publishing
• Release date: Oct 27, 2010
• ISBN: 9781426946196

Book preview

© Copyright 2010 Karel Schelle.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the written prior permission of the author.

Printed in the United States of America.

isbn: 978-1-4269-4618-9 (sc)

isbn: 978-1-4269-4619-6 (e)

Our mission is to efficiently provide the world’s finest, most comprehensive book publishing service, enabling every author to experience success. To find out how to publish your book, your way, and have it available worldwide, visit us online at www.trafford.com

Trafford rev. 10/08/20100

missing image file www.trafford.com

North America & international

toll-free: 1 888 232 4444 (USA & Canada)

phone: [phone] fax: [phone]

Contents

1. Introduction

1.1 Origins of commercial law in the territory of the Czech Republic

1.2 Development of commercial law since the establishment of the Czechoslovak Republic till the German occupation

1.3 Development of commercial law during the Protectorate of Bohemia and Moravia

1.4 Extinction of commercial law as a branch of law

1.5 Formation of economic law

1.6 Restoration of commercial law as a separate branch of law after 1989

1.7 Characteristics and structure of the Commercial Code and commercial law

2. Commercial companies

2.1 Common reading

2.1.1 The term

2.1.2 Incorporation and formation

2.1.3 Organisational structure

2.1.4 Registered capital and partners’ investments

2.1.5 Share

2.1.6 Commercial company’s winding-up and dissolution

2.1.7 Commercial companies’ transformation

2.1.8 Business grouping

2.2 Personal companies

2.2.1 General commercial partnership

2.2.2 Limited partnership

2.3 Stock corporations

2.3.1 Limited liability company

2.3.2 Public company limited by shares

2.3.3 Commercial companies as objects of special legal regulations

2.4 Cooperatives

3. Commercial obligations

3.1 General regulation of commercial obligations

3.1.1 Subject matter

3.1.2 Legal acts

3.1.3 Contract conclusion

3.1.4 Joint obligations

3.1.5 Securing an obligation

3.1.6 Termination of an obligation

3.1.7 Breach of contractual duties

3.1.8 Statute of limitations

3.2 Special regulation of selected commercial obligations

3.2.1 Sales contract

3.2.2 Rent and sale contract regarding an enterprise

3.2.3 Sales contract for a leased good

3.2.4 Credit contract

3.2.5 Licence agreement regarding industrial property

3.2.6 Contract for work

3.2.7 Representation contract

3.2.8 Commission agent´s contract

3.2.9 Intermediation contract

3.2.10 Commercial representantion contract

3.2.11 Silent partnership contract

3.2.12 Letter of credit contract

3.2.13 Checking and saving account contract

3.3 Special regulation on contractual relations in international commerce

3.3.1 General provisions on contractual relations in international commerce

3.3.2 Special provisions on contractual relations in international commerce

4. Competition law

4.1 Protection of Competition

4.2 Unfair competition

Literature

1. Introduction

1.1 Origins of commercial law in the territory of the Czech Republic

Commercial law was only restored in the Czech legal system after 1989, however it could pick up the threads of rich traditions going back to the ancient times. This is why we have to point out the basic landmarks of the evolution of commercial law in the territory of the Czech Republic.

Commercial law arises and starts do develop hand in hand with the emergence of the first towns which represented centres of craft and commerce. The foundations for the emergence of medieval towns are seen in town privileges granted to the town by its founders by the time of its foundation. Such privileges consisted in the establishment of internal organization and administration system of the town, delimitation of the citizens’ obligations, law which they were to abide by and authorization to administer justice and carry out administration. This can therefore be referred to as a case of town autonomy, a right to issue its own regulations and town self-government, i.e. right to govern and administer its own issues by its own authorities.

With time, as towns were being founded, the need to codify town laws arose. The foundations for this were laid in town privileges as well as in the practice of own courts which is documented in the Brno Book of John the scribe (Kniha písaře Jana). This book was later reworked and extended by Brikcí of Licko and titled as the Town laws. The most significant work of codification was unquestionably the Code of Koldín called the Town Laws of the Czech Kingdom which was issued in 1579 and 1580 and it became binding for the then judicial practice. This code of law was in effect also in the 18th century and it was only gradually replaced and annulled by the legal codes of feudal absolutism. The last significant part of the code regarding property law was abolished as late as in 1811 by the General Civil Code.

The first European codification purely regarding commercial law was the Code de commerce created by Napoleon in 1807 which was meant to be the basis of the droit commun de l´Europe. However, the Bohemian lands had to wait for a similar codification for several decades to come. While the codification efforts in the area of civil and family law culminated by the publication of General Civil Code in 1811, in the area of commercial law there was no such codification by then. Nevertheless, the gateway to modern commercial law was opened.

However, the work on the unification of commercial law was in progress since as early as 1809 when codification work was started. These effort, however, did not bring the expected results. Under these circumstances, at the federal convention of German states on April 17th of 1856, a resolution was adopted on establishing a special committee which was assigned the task of preparing a draft of a new legal code. In 1861, the work of this committee resulted in a draft of Commercial Code which was presented at the federal convention and it was recommended by a resolution of this convention to be approved and adopted by the states. Austria adopted the draft in the form of a bill of December 17th 1862 effective as of July 1st 1863 and this law was promulgated under number 1/1863. However, Austria did not adopt the entire code since it refused to accept the fifth book regarding the maritime law and so the existing legal provisions remained in effect. The adopted code was designated as the General Commercial Code (ADGHB). The indisputable advantage of the new code can be seen in the fact that it annulled all existing laws and regulations which were related to the subject of commercial code unless otherwise provided.

1.2 Development of commercial law since the establishment of the Czechoslovak Republic till the German occupation

The independent Czechoslovak Republic was established on October 28th 1918 when its official independence was proclaimed by the National Committee. On the same day, at the plenary session of the National Committee, a new norm was adopted creating the mainstay of the entire legal system of the newly formed state. It was the reception norm as it was called, published in the statute book under number 11. According to this law, all existing provincial and imperial laws and regulations remained in effect and all authorities whether independent, national or municipal ones were subordinated to the National Committee.

The Reception law thus implied the adoption of the Austrian and Hungarian legal system. While in the Czech lands the General Civil Code remained the main source of law as it was subsequently amended, in Slovakia and the Carpathian Ruthenia the foundations of commercial law lay in legal article XXXVII – the Slovak commercial code as it was called, as subsequently amended. The need of new unified codification showed to be essential because it was necessary for the development of the economy within the entire state to unify the existing norms and regulations by means of a new codification of commercial law.

After long-lasting procrastination based on the pretext that it was necessary to codify the civil law first, the Ministry of Justice finally set up a committee for the unification of commercial law in 1929. In 1937 its activity resulted in the creation of a draft structure of the Commercial Code which was published in print but the draft was virtually just a torso of the desirable commercial law provisions. If the code had been adopted in its draft form it would have been less comprehensive than the analogous Hungarian code and even less comprehensive than the then effective fragmental Austrian Commercial Code.

The attempt to create a new codification of commercial law could not be carried through because the entire process was interrupted by the German occupation. The only attempt to bring closer together both systems existing within the territory of the republic can be seen in the law No. 271/1927 which extended the effect of the imperial law No. 58 of 1906 regarding limited liability companies for Slovakia and the Carpathian Ruthenia.

Throughout the entire duration of the interwar Czechoslovak Republic, the basis of commercial law lay in the General Civil Code adopted by the Reception law. The system of commercial law, however, was supplemented by law No. 111/1927 regarding unfair competition. Unfair competition was defined for one thing by a general clause and for another by individual states of facts defining the most frequent types of conduct in breach of fair competition. Finally, legal provisions regarding bills of exchange were codified by law No. 1/1928.

In the thirties, similarly to other countries, also in the Czechoslovak Republic there was a growing domination of the market by monopoly corporations and there was an increasing departure from economic liberalism. The most important regulation regarding this area was law No. 41/1933 on cartels and private monopolies. This law defined cartel agreements as agreements between independent entrepreneurs by which the parties are bound to limit or eliminate mutual economic competition by adjustments to production, sales, terms and conditions, prices or in case of transportation, credit or insurance companies, also to rates, if such agreements are aimed at dominating the market in the most efficiently. Cartel agreements always had to be made in writing. The cartel law also established the institute of cartel register together with a collection of documents which was kept by the statistical office.

1.3 Development of commercial law during the Protectorate of Bohemia and Moravia

There was a double legal system during the Protectorate of Bohemia and Moravia – the protectorate law and the German Reichs law. Its application was dependent on the citizenship of the subjects of legal relations. Citizens of the Protectorate were subject to the law of Czechoslovak republic received after March 15th 1939 together with the newly adopted protectorate regulations which means primarily the General Commercial Code. Citizens of the Third Reich were subject to the Commercial Code effective from 1897 (RGBl. I., S. 219).

During the war period, there were interferences in the provisions of commercial law by the state. The Minister of Justice had wide authorities and authorizations to take action especially in order to maintain public order or in relation to the wartime circumstances, limitations or exemptions from obligations laid down by commercial law regulations. That affected above all the obligation to publish the annual final accounts and the like. (Executive order No. 312/1942 regarding the exemption from obligation to abide by the commercial law regulations). The state also significantly regulated trading of securities which could not be sold outside the stock exchange at a price higher than that currently effective at the Prague stock exchange (Executive order No. 137/1941 regarding securities trading).

In connection with the implementation of forced labour under the Third Reich, various exemptions were introduced in 1944 for some areas of private law. This referred for example to the suspension of limitation periods or a ban on the transformation of joint-stock companies into limited liability companies (Regulation by the Minister of Justice No. 228/1944).

Similarly to the Reich, also under the Protectorate Jews were subject to racial persecution. Jews were not allowed to run and later even to own business enterprises as well as own securities. Such property and assets of the Protectorate citizens would often pass into the hands of German occupiers who thus tried to take control of the economy under the Protectorate.

1.4 Extinction of commercial law as a branch of law

After 1945 the legal system of the pre-war Czechoslovakia was preserved, but its basic principles and institutes were being dissipated, abolished or remained in effect only formally. Thus in Bohemia the Czech Commercial Code continued in effect for a short period as did the Slovak Commercial Code in Slovakia but the changes which took place in the organization of the post-war economy and especially the process of nationalization and introduction of planned economy brought about significant changes. The goal of the changes implemented during this period was to create a centralized economy based on the principle of economic planning and subjecting the economy to administration authorities.

After 1948, elimination of private enterprise and market economy took place. Basic changes in the development of legislation were brought about by the legal two-year plan as it was called (1949 - 1950). Some institutes of commercial law (such as procuration) were surviving within the middle Civil Code No. 141/1950 but in large part they were eliminated. The Civil Code abolished the Commercial Code without replacing it by another norm providing for commercial law. Thus, for the first time since the first modern codifications, a situation occurred where no specific provisions of commercial law were in place at all. Only some institutes were transferred into the Civil Code. Therefore it can be said that by creating the Civil Code, commercial law was abolished as a legal branch.

The planned economy, however, necessitated certain legal regulations. First of all, it was necessary to legally regulate relations between economic entities. Therefore in 1958, a law No. 69/1958 was enacted regarding economic relations between socialist organizations providing for a wide range or property relations between socialist organizations.

1.5 Formation of economic law

The requirement of codification of economic relations in a comprehensive form arose in 1960 in connection with the issuance of the Socialist constitution, as it was termed. Their legal regulation was incorporated into the economic code No. 109/1964 which provided for the relations arising during the management of national economy and when managing the economic activities of socialist organizations. Thus, a new branch of law was formed – the Economic law. This code together with the new Civil Code and the International Trade Code created a three-pronged code providing for property relations. The Commercial Code remained in effect until January 1st 1992 when, among others, a new commercial code was enacted and together with the amendment to the existing Civil Code and that is when the International Trade Code was abolished.

1.6 Restoration of commercial law as a separate branch of law after 1989

The political and economic changes following 1989 necessitated