Companies may now provide financial assistance for the acquisition of their own shares in limited circumstances.
The changes were introduced on 20 July 2009 as part of substantial changes to the Commercial Code and affect limited liability and joint stock companies differently.
The provision of financial assistance, whether by means of a loan or other form of borrowing, prepayment or a security, was previously forbidden.
The Commercial Code now sets out requirements all of which must be satisfied in order for financial assistance to be permitted. These may then be extended (but not limited) by the company's articles of association.
The conditions include:
- approval by the company in general meeting (given in advance for joint stock companies)
- a written report from the board or other statutory body to be filed in the Collection of Deeds at the relevant Commercial Register stating the reasons for giving the assistance, the advantages and risks arising from it, the conditions on which it would be given and why it is in the company's interest to do so
- the financial assistance not leading to the company's bankruptcy
- the company having no unsettled losses
- the financial assistance being provided at arm's length
Law: Act no. 513/1992 Coll., the Commercial Code
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The original publication date for this article was 08/09/2009.