Legal Entity as a Statutory Body

Another new rule provided by the new Civil Code, a key Act in the Czech legal system, is that a legal entity can now name other legal entity as its statutory body (e.g. a managing director of a limited company).  This seems to be attractive mainly for foreign companies that have a daughter company in the Czech Republic.

The legal entity as a statutory board must of course meet the same conditions as every other statutory body (namely the physical persons). Its key aspects are the integrity and absence of the conflict of interest.

At the same time, the legal entity must name a physical person to represent it for exercising its function as the statutory body. This physical person is then entered into the commercial registration. However, the point is that the physical person is not representing the daughter company but the legal entity, as he or she acts as the statutory body.

Some advantages of this option are:

–          Combined acting of the statutory body and a procurator (otherwise it would not be possible in the Czech legal environment)

–          Limited responsibility of the physical person

–          Easier and far less expensive remuneration of the physical person

–          The relationship (including, among others, remuneration or liability of the physical person) is governed by the legal system of the foreign company (e.g. a German company manages such issues in Germany under the German law). This can be quite convenient for foreign companies.

Like every new rule, it is not yet very common and not sufficiently known. This may generate some initial complexity and complications, e.g. for business negotiations or the acceptation of the signature power.

Should you have any doubts or you need more details, please do not hesitate to contact our Prague office.