CZECH REPUBLIC Law and Practice Contributed by: Petr Janů, Vladislav Klimeš and Leoš Vavřík, BADOKH
2. Overview of Regulatory Field 2.1 Acquiring a Company
exercise regulatory oversight in cases where M&A activities involve entities such as banks or financial services companies. In addition to the above, and depending on the par - ticular industry sector of the M&A activity, other regu - lators may also be relevant to a particular deal, such as: • the Energy Regulatory Office; • the Civil Aviation Authority; and • the State Institute for Drug Control. 2.3 Restrictions on Foreign Investments The Czech Republic generally welcomes foreign investment and has an open investment climate. As a member of the EU, the Czech Republic generally adheres to EU rules on the free movement of capital and investment within the EU. This means that inves - tors from other EU member states generally face few restrictions when investing in the Czech Republic. However, there are certain sectors of business where restrictions or regulations on foreign investment may apply. The main restrictions on foreign investment in the Czech Republic are imposed by the Act on Review of Foreign Investments, which sets out rules for the review of certain foreign investments and certain obli - gations of foreign investors. The Ministry of Industry and Trade examines foreign investments, conducts consultations, negotiates terms and conditions, decides on foreign investments and monitors compliance with the obligations set out in the respective laws. In some areas, foreign investment is not allowed with - out clearance – eg, investments into companies that deal with arms and military equipment or operate criti - cal infrastructure. For details, see 2.6 National Secu- rity Review . 2.4 Antitrust Regulations The primary antitrust rules applicable to business combinations in the Czech Republic are contained in the Competition Act. In general, it prohibits mergers
The two main acquisition structures used most fre - quently in the Czech Republic are share deals and asset deals. Share deals involve the acquisition of the shares or ownership interest in the target company directly from its current shareholder(s). All assets, liabilities, licences, authorisations, employees, etc, of the target company are retained in their entirety. The business of the target company is therefore not altered and con - tinues without any interruption. In asset deals, the purchaser buys specific pre-select - ed assets of the target company. Such sets of assets may be comprehensive to such an extent that they form part of the target company’s business (or even its whole business). Subject to the fulfilment of certain conditions, the purchaser may select which (poten - tially problematic) assets or liabilities remain outside the scope of the transaction. Thorough legal, financial and tax due diligence is highly recommended in both types of structures as it helps to discover and address the purchaser’s main potential risks upfront. In addition to the typical transaction structures described above, purchasers may wish to explore alternative structures. These include joint ventures – ie, sharing of ownership/control/profits, or mergers/ demergers of target companies. 2.2 Primary Regulators The primary regulators for M&A in the Czech Republic are: • the Czech Office for the Protection of Competition ( Úřad pro ochranu hospodářské soutěže ), which is responsible for ensuring compliance with competi - tion laws, including reviewing mergers and acquisi - tions to assess their potential impact on competi - tion in the Czech market (also see 2.4 Antitrust Regulations ); and • the Czech National Bank ( Česká národní banka ), which supervises financial institutions and may
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