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Financial Participation

The legal framework in the Czech Republic does not contain any specific laws or measures regarding employee financial participation. Share acquisitions by employees and profit-sharing in joint-stock companies are the only forms of corporate ownership made available to employees by law. Cooperatives are regulated by a special legal framework. Since the end of the privatisation wave in the 1990s, the issue of employee financial participation has attracted little political attraction.

Share Ownership

Employee share ownership in the Czech Republic has two sources: the privatization process and the acquisition of shares on a preferential basis in private companies.

The privatization process provided two opportunities for acquiring employee shares: through the privatization plan submitted by the management of every company and through voucher privatization.1

Privatization plans showing how the firm was to be privatized had to be submitted by the company’s management. This proposal could involve any combination of available privatization methods (e.g. voucher scheme, domestic direct sale, foreign direct sale, public auction or tender, free transfer, or employees’ shares). Competing privatization plans for all or part of each enterprise could be submitted by anyone other than the company’s management. The responsible ministries and the Ministry of Privatization decided on the winning project (foreign sales had to be approved by the government). Voucher privatization itself provided another way of creating employee ownership within the privatization process. The concept allowed for a small portion of shares to be reserved for employees.

The Law No. 370 of 1 January 2001 abolished ‘employee shares’ as a special type of share. Instead of this provision, companies can define rules in their statutes under which employees may buy company shares at a discount. ‘Employee shares’ previously issued had to be converted into regular shares by January 2003. As Art. 186.3 ff. CC gave dissenting shareholders the right to be bought out by a public offer, employee shareholders were given the de facto opportunity to cash out.

Art. 161a.3 of the Commercial Code, introduced in 2004, allows an exception from the general prohibition of companies buying their own stock: a company can acquire its own shares in order to transfer them to employees on preferential conditions within twelve months of acquisition.2 Joint-stock companies can also issue new shares granting employees favourable conditions in the context of so-called mixed capital increases, i.e. the capital increase of a company issuing new stock financed out of its own capital. 50% of the purchase price must be paid before registration of the increased capital in the commercial register and the remaining 50% may be paid for by instalments. In order to facilitate the acquisition of shares by employees, the legislation also permits the company to fully pay for the stock acquired by its own employees. Nevertheless, the overall value of the discount granted for these shares must not exceed 5% of the enterprise’s equity capital and must be covered by the company’s own resources. Another amendment to the Commercial Code, from 2005, allows a shareholder owning at least 90% of total shares to make a final buyout offer to the remaining shareholders (squeeze-out). Minority shareholders – maybe employee shareholders - would then be obliged to sell their shares to the majority shareholder.3

Cooperatives

Cooperatives were not subject to mass privatization, but were transformed via the 1992 Law No. 42 (“Transformation Law”).4 The Commercial Code provides the further legal framework for the functioning of cooperatives. These are voluntary associations of natural and/or legal persons and every member of a cooperative has the right to participate in management decision-making, with each member having one vote. The cooperative is liable for obligations to the extent of its total assets; members are not liable unless its Articles of Association stipulate that by decision of the general meeting some or all of its members have to cover losses up to a maximum of three times their share. Each member is entitled to a share of the profit – unless its Articles of Association stipulate otherwise – according to the investment of the respective member. In the event of liquidation each member receives a liquidation quota according to his share.5

Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.