Directors’ Duties in the Czech Republic

>> Powers and Duties in the Czech Republic

You must act within the powers imposed by the Business Corporations Act, the Civil Code, and the company’s Articles of Association. As a company director you are required to act in good faith, with due managerial care and with loyalty.

Duties – skill and care

In exercising directors’ powers, you are required to exhibit due managerial care, ie act with due loyalty and with necessary knowledge and diligence. The test of due managerial care is what another reasonably diligent person would do in a similar position.

Duties – general

Directors are obliged to exercise their office with due managerial care, with the term being defined as acting with:

  • loyalty to the company
  • caution
  • the required knowledge

In cases where a director knows or should have known that they lack the necessary expertise, the director is obliged to arrange for the advice of an expert. This means that while directors are not required to be experts, they have to be able to recognise situations where expert knowledge  is required.

In addition, and more specifically, directors are expected to:

  • maintain the list of shareholders and inform shareholders about the company’s affairs upon their request
  • follow the guidance and general instructions approved by the general meeting (if any)
  • appoint one (1) director responsible for human resource matters (only in case of a collective statutory body)
  • convene the general meeting at least once a year (or in case of threatened insolvency or any other important reasons)
  • ensure that dividend distribution, as well as any other distributions, are compliant with  the law and do not cause the company to become insolvent
  • file the relevant bankruptcy petition if the company has become insolvent pursuant to the Bankruptcy Act

Duties – other

There are several specific responsibilities and liabilities that directors should be aware of that are commonly noted in the Czech Republic:

  • According to the Act on Cash Payment Limitation, the company is not allowed to perform cash payments of CZK 270,000 or more (ie approximately EUR 10,000).  Such payments have to be performed via  bank transfer.
  • The directors and company are obliged to adhere to general anti-bribery and competition legislation just like any other natural person and legal entity. If directors feel that they are in breach of the relevant legislation they should seek advice immediately.

In cases of bribery, the directors could be held responsible (under both civil and criminal liability) together with any other relevant person (namely the employee) and/or the company. Directors should be able to prove that they exercised reasonable efforts when supervising employees to avoid all criminal behaviour, in particular that they trained the employees and adopted adequate internal rules and controlling mechanisms.

Data privacy requirements

Directors have a general responsibility to ensure that the entity remains in compliance with all applicable legislation, including data privacy requirements. It is standard practice for the directors to appoint a compliance/data protection officer who is responsible for this regulatory compliance aspect, or employ an in-house or external counsel to deal with this. However, in such a case, the directors are still responsible for appropriate controlling of the appointed individual.

The key issues to focus on are generally:

  1. how they process a client’s data for reasons which go outside of the prescribed necessities, ie marketing
  2. the regulation of the transfer of human resources data abroad

Annual accounts

Directors are responsible for ensuring that the company keeps proper accounting records. They must ensure that the annual accounts are disclosed and submitted with the Commercial Register within thirty (30) days following their verification and approval by an approved auditor and the respective company body, ie the shareholders. Please note that this must be done no later than the end of the subsequent financial year, ie before 31 December of the following year. The decision of the annual general meeting to approve the annual accounts must also be submitted within thirty (30) days. It is best practice to submit the approval and the accounts at the same time.

Additional reporting requirements

The director must ensure the preparation of a report on ‘relations between related persons’ within three (3) months following the end of the respective accounting year, ie before 31 March of the following year. The report looks at the executives of the company and their relations with the parent company and/or its subsidiaries  to ascertain any conflicts or damages caused to the company.

There is no specific date set for its submission, ie general rules apply and the document has to be filed without undue delay. It is best practice to submit this document together with accounting documents (before 31 December of the next accounting year).

Furthermore, directors must also ensure that all changes to the entity, such as director changes and changes of address, etc are submitted for registration in the Commercial Register within fifteen (15) days following their occurrence.

Latest version updated 22nd March 2018

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