CZECH LOWER HOUSE PASSES REFORM OF COMPANY

UNCLAS PRAGUE 000198

SIPDIS

STATE FOR EUR/NCE, EB/CBA AND EB/IFD/OIA
COMMERCE FOR 4232/ITA/MAC/MROGERS

E.O. 12958: N/A
TAGS: EINV PGOV EZ
SUBJECT: CZECH LOWER HOUSE PASSES REFORM OF COMPANY
REGISTRATION PROCESS, FULFILLING LONG-HELD AMCHAM AND
EMBASSY GOAL FOR IMPROVEMENT OF BUSINESS CLIMATE



1. On February 9 the lower house of the Czech parliament,
the Chamber of Deputies, passed a bill designed to speed up
registration of companies in the so-called "commercial
register", a sine qua non for doing business in the Czech
Republic. Foreign and domestic businesses alike have long
complained about delays and uncertainties in the process of
registering companies and subsequent changes in their
management structure or capitalization. The process has been
under control of judges, and their arbitrary demands for
documentation, not limited by law, were a chronic concern of
the business community. The vagaries of the process made
registration a frequent source of allegations of
bribe-seeking by Czech judges and clerks. The new procedures
should help to curb and perhaps even eliminate corruption
from the process.


2. Registering a company or changing an existing
registration in the Czech Republic has taken an average of 88
days in the Czech Republic, compared to hours in some
jurisdictions such as Delaware in the United States. The
close scrutiny of the process by the courts may reflect a
traditional suspicion of business that is slowly
disappearing. Some would add that judges' reluctance to give
up control reflects that the process was a significant source
of income to them. The new law sets a five-day period for
the courts to act, after which the company is presumed to be
validly registered and papers must be issued. The law also
sets up clear criteria for registration, simplifies
authentication of documents and prescribes forms for
submission of applications. Ultimately, the process should
be accessible through the Internet. If approved by the
Senate as expected, the law will be effective in July.


3. The law was a rare example of a successful legislative
proposal originated by the opposition party, the ODS, with
the acquiescence and support of the government. Most laws in
the Czech Republic originate as government proposals. The
ODS, in particular its shadow minister of justice, Jiri
Pospisil, who sponsored the bill, saw an opportunity to make
political capital from the government's long delay in
bringing forward this reform. Additionally, reform of the
commercial register has been a key point of advocacy by both
the American Chamber of Commerce in the Czech Republic and
the Embassy over the past few years and governments. The
AmCham and experts associated with it worked closely with
Pospisil to produce the draft law. Deputy Prime Minister
Martin Jahn had also made this reform a priority in his
campaign to improve the climate for doing business in the
Czech Republic. Radek Spicar, an advisor to Jahn,
recognized the AmCham's and Embassy's efforts as extremely
important to the bill's passage in a conversation with the
Embassy's Economic officer after the bill was passed.
CABANISS