Directors’ Duties in the Czech Republic

>> Board Requirements in the Czech Republic

Appointment of directors

Directors are appointed by the general meeting of the shareholders. There are no rules relating to the duration of appointment nor rotation of directors. They may be appointed for a duration of time as decided by the shareholders and may be reappointed once this expires.

Under Czech law, an s.r.o. requires at least 1 director, unless the Articles of Association of the company specify a higher number of managing directors. There is no maximum number of directors that may be appointed to an s.r.o.

Board meetings and composition requirements

A natural person or legal entity can be appointed as a director. However, if a legal entity is appointed then a real person representative should be appointed, if one is not appointed a member of the legal entity’s statutory body may represent.

Generally there are no nationality, residence, education and professional requirements. However, this can vary where the director:

  • permanently resides in the Czech Republic
  • is appointed as a responsible person according to the Trade Licence Act

Please note, where any directors permanently resides in the Czech Republic, they are required to meet some additional duties. The duties vary substantially depending on a country of citizenship, eg simple notification duties for EU citizens or an administratively burdensome permanent residence permit for certain non- EU citizens.

The following conditions may restrict an individual from acting as a director:

  • Directors must have full legal capacity and a clean criminal record.
  • It is forbidden to hold office as a director based on an employment relationship, ie the parallel existence of an employment relationship with the company alongside the office of the director is not usually allowed.
  • Directors must generally fulfil the following conditions (although some exemptions may apply):
    • there are or have been no insolvency proceedings in respect of the director’s property
    • no restriction, ban or punishment was issued by a competent authority that relates to the director or a company where the director holds or held a position in a statutory body

Signatory rights/powers of directors

To pass a board resolution, a simple majority is required, ie the affirmative vote of two (2) out of the three (3) directors.

Conflicts

General non-compete clause

Directors may not (without the approval of all shareholders):

  • conduct business that is the same or similar to the company’s business or activities, or do so for the benefit of third parties
  • be a member of a statutory body of another company with the same or similar business or activity
  • participate in the business of another company as a partner with unlimited liability or as a

controlling person

Conflicts of interest on a case-by-case basis

If a director becomes aware of a conflict between their interests and the interests of the company, they must inform the other directors and the general meeting. The same applies where a conflict of interest could occur between a person close to the director, persons influenced by the director or persons controlled by the director. The general meeting is authorised to suspend the director if it considers this an appropriate course of action.

Furthermore, the director must inform the other directors and the general meeting in cases where the director:

  • wants to conclude an agreement with the company outside of ordinary business
  • the company intends to secure a debt of the director outside of ordinary business

The same applies where an agreement is  intended between persons close to the director, persons influenced by the director or controlled by the director. In such situations, the general meeting is authorised to forbid the conclusion  of the agreement.

If the director fails to inform the other directors and the general meeting, the agreement in question is valid and binding to the company until it is claimed invalid by an authorised party (if any).


Latest version updated 22nd March 2018

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