Transformation act and accounting act

On 11 November 2011, an amendment to the Act on Transformations of Commercial Companies and Cooperatives and Related Acts (the “Amendment”), which was previously passed by the Parliament, was signed into law by the president of the Czech Republic. The Amendment will take effect on 1 January 2012.

The extensive Amendment, which significantly facilitates cross-border mergers and other company transformations, harmonizes the Czech regulation of such transformations with European law, simplifies information obligations for companies, newly allows the merger’s decisive date to be set in the future, regulates the obligation to compile an opening balance sheet and comments thereon, and strengthens the rights of participants and creditors.

In connection with the passing of the Amendment, the Accounting Act was also recently amended. The amendment, which concerns the implementation decree to the Accounting Act which guides entrepreneurs (the “Decree”), addresses the most important changes concerning the accounting period, company transformations, and the reporting of corrections in accounting.

In addition, with respect to a transfer of assets, the successor company, spun-off company, or participant taking over the assets can now extend the accounting period if the decisive date of the transformation occurs within three months before the end of the calendar year or the fiscal year and the company transformation is entered into the Commercial Register within such period. An entity may also  extend its accounting period if the balance sheet date is set within three months prior to the beginning of the current accounting period or within three months following the end of the current accounting period. Moreover, the fiscal year can now be chosen as the accounting period as early as upon the establishment of the entity, even in the case of a company transformation, in which case it can be applied by the successor company, the spun-off company, or the participant taking over the assets in the case of a transfer of assets.

The proposal to amend the Decree seeks to change the accounting methods concerning company transformations, such as accounting for the valuation of a company transformation, including cross-border mergers, compilation of opening balance sheets, etc. 

The amendment to the Accounting Act, along with the Decree, will take effect on 1 January 2012.