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Transformations of legal entities

Czech Republic: As of 1 January 2014, transformations may occur not only at business corporations but also at other legal entities

Until the end of 2013, transformations could only be performed pursuant to the "Act on transformations of companies and cooperatives", and thus only affect such companies and cooperatives. The new Civil Code, which has come into force on 1 January 2014, contains basic provisions governing the transformation of all private-law legal entities. In addition, it provides detailed rules applying to the transformation of the following legal entities: (i) societies (formerly "citizens' associations") - which may engage in both mergers and consolidations (in U.S. parlance - i.e., in "amalgamations" which either result in a new successor society or in which one surviving society absorbs the other), as well as in de-mergers and spin-offs; (ii) foundations and endowment funds, which may merge with another foundation or endowment fund (though the successor entity in the case of a merger with an endowment fund must always be the foundation) or change their legal form (from foundation to endowment fund or vice versa); and (iii) not-for-profit institutions (whose transformations, according to the new Civil Code, are governed by the provisions on foundations, mutatis mutandis).

The only transformations recognized by the basic provisions of the new Civil Code are mergers, demergers, and changes of the legal form (to which the Transformations Act adds asset transfers to the shareholder and cross-border transfers of the registered seat). A change of the legal form is permissible only in cases specifically set out in the law. In general terms, the new Civil Code also addresses the relocation ("transfer") of the legal entity's registered office, though it does not consider this to be a transformation (unlike the Transformations Act).

In relation to the basic provisions of the new Civil Code on transformations, its provisions on the transformation of societies, foundations, endowment funds, and not-for-profit institutions are special law, and as such apply preferentially. This means that the basic ("general") provisions will only be taken into account in those cases which are not governed (or only partly governed) by the special provisions.

We tend towards the opinion that transformations of public-law legal entities (such as e.g. public universities) are not possible unless a special law governing the legal status of such public-law legal entities provides detailed rules for their transformation.

Source: New Civil Code (Act No. 89/2012 Coll.), Transformations Act (Act No. 125/2008 Coll., on the transformation of companies and cooperatives)