The management function in the typical Czech limited liability company is carried out by one or more executives (also referred to as "managers" or in the Czech language, "jednatele"), who constitute the statutory body of the company. Each of the executives, if there is more than one, has the right to act independently in the name of the company, unless the memorandum of association or the articles of association provide otherwise.
The issue of personal liability of executives of Czech limited liability companies can be expected to become an issue of concern for those individuals presently acting in this capacity or considering to do so. This results primarily from a mid 1996 amendment of the Czech Commercial Code, which subjects these individuals to increased liability for negligent acts in performance or non-performance of their duties.
The Czech Commercial Code specifies the obligations and duties of company executives in only a general manner. Company executives, according to this Code, are entitled to make decisions concerning the business (commercial) management of the company, if such decisions fall within their competence. (Section 134). They are responsible for making arrangements for the proper keeping of the prescribed records and accounting, maintaining a list of the shareholders of the company and informing the shareholders about the affairs of the company. (Section 135). The executives must follow the principles and instructions approved by the shareholder meeting, provided that they are in conformity with legal provisions and the articles of association of the company. (Section 194 (4)). Executives are required to exercise their range of powers with due diligence and not disclose confidential information or facts to third parties, if such disclosure might be detrimental to the company. (Section 194(5).
Section 193 (1), which now applies to executives, requires that they convene an extraordinary shareholder meeting, without undue delay, should they ascertain that the company's loss has exceeded half of its capital or that the company has become insolvent. Furthermore, they are required to propose to the shareholder meeting the winding-up of the company and the commencement of its liquidation or adoption of another measure, unless a special law provides otherwise. Section (2) of this provision directs that the executive file with the appropriate court, without undue delay, a motion for adjudication of a bankruptcy order on the company, if the conditions stipulated by law are met. A breach of this duty by an executive due to negligence could result in his/her liability for the company's obligations, which arise after the day when he / she breached such duty.
Section 194(5) stipulates that executives who cause damage to the company by breaching legal duties while exercising their powers shall be liable for such damage jointly and severally. A contract between the company and that individual, or the provisions of articles of association excluding or limiting the liability of an executive would be deemed null and void under the current law. However, under the wording of this section, the executives would not be liable for damage which was caused by their execution of a particular instruction given by the shareholder meeting, provided that at least one executive brought the unsuitability of such instruction to the shareholder meeting's attention and asked for his / her protest regarding this instruction to be recorded in the minutes of the shareholder meeting and the meeting insisted on execution of the instruction; this would not apply if the shareholder meeting's instruction is contrary to legal provisions.
Section 194 (6) stipulates that executives who are responsible to the company for damage shall be jointly and severally liable for the company's obligations, if the company did not claim or exact from the executive concerned its right to compensation for damage and creditors cannot satisfy their claims from the company's property due to its insolvency or the company's cessation of payments. The scope of such liability shall be limited by the extent of the duty of the executive to provide compensation for damage.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
