A Czech joint-stock company with an administrative board or with a board of directors: choosing the structure on formation

A Slovak joint-stock company is required to have a board of directors and a supervisory board. A Czech one chooses its structure itself. The articles of association must state which system of internal structure the founders have chosen (Section 250(2)(f) of Act No. 90/2012 Sb.). The Act distinguishes the dualistic system, with a board of directors and a supervisory board, from the monistic system, with an administrative board, and if the articles of association are unclear, the dualistic system applies (Section 396). The choice is not final, as the system can be changed later by amending the articles of association (Section 397(1)). On formation, however, it determines how many people you will need and who will be responsible for what.

The dualistic system: board of directors and supervisory board

The board of directors is the statutory body and business management of the company is vested in it (Sections 435(1) and (2)). The general meeting may approve principles and instructions for it, but no one is entitled to give the board of directors instructions concerning business management (Section 435(3)). The board of directors has three members unless the articles of association provide otherwise, and where neither the articles of association nor the service agreement specifies a term of office, it lasts three years (Section 439).

The supervisory board supervises. On the basis of a resolution of the supervisory board, its members may inspect all the company’s records and check the accounts and whether the company’s activities comply with the law and the articles of association. The supervisory board examines the financial statements and the proposal for distribution of profit and submits its opinion to the general meeting (Sections 447(1) and (3)). The supervisory board, too, has three members unless the articles of association provide otherwise; its member may not at the same time be a member of the board of directors, and where the company has more than 500 employees in employment, one third of the members is elected by the employees (Sections 448(1), (2) and (4)). The articles of association may provide that the members of the board of directors are elected by the supervisory board, and a right to appoint a member of the board of directors may be attached to a particular share (Section 438a of the Czech Business Corporations Act).

The monistic system: the administrative board

In the monistic system the statutory body is the administrative board, in which both business management and supervision of the company’s activities are vested (Sections 456(1) and (2)). The administrative board may not delegate to other persons the determination of the basic direction of management and supervision (Section 456(4)). The rule on the number of members is decisive:

Unless the articles of association provide otherwise, the administrative board has 3 members.

— Section 457(1) of Act No. 90/2012 Sb. (unofficial English translation)

The articles of association may therefore provide that the administrative board has a single member. A Czech joint-stock company is then run by one person, without any further body to supervise them, and supervision is exercised directly by the shareholders at the general meeting. Care is needed when taking over older Czech templates of articles of association. If they work with a statutory director alongside the administrative board, they do not correspond to the current wording, under which the statutory body is the administrative board.

A legal entity in a company body

Unlike Slovakia, where only a natural person may be a member of the board of directors or of the supervisory board (Sections 194(2) and 200(4) of Act No. 513/1991 Coll.), Czech law permits a legal entity to sit in a company body as well:

Where another legal entity is a member of an elected body of a legal entity, it shall authorise a natural person to represent it in that body; otherwise, the legal entity is represented by a member of its statutory body.

— Section 154 of Act No. 89/2012 Sb. (unofficial English translation)

For capital companies, and therefore for a joint-stock company as well, the rule is stricter. The legal entity must, without undue delay, authorise a single natural person who satisfies the requirements for holding the office (Section 46a(1) of Act No. 90/2012 Sb.). Without the entry of that representative it cannot be entered in the Commercial Register, and if the representative is not entered within three months of the office arising, the legal entity’s office lapses (Sections 46a(4) and (5)). A Slovak parent company may thus, for example, be the sole member of the administrative board of its Czech subsidiary. The same mechanism in a Czech s.r.o. is described in our answer on a Slovak s.r.o. as managing director of a Czech s.r.o..

The service agreement and remuneration

In both systems, a service agreement in a capital company must be concluded in writing and approved by the general meeting, failing which it does not take effect. Where remuneration is not agreed in the service agreement, the office is held without remuneration (Sections 59(2) and (3)). The agreement must also contain the particulars of remuneration listed in the Act, that is all components of the remuneration, its amount or the method of its calculation and the rules on extraordinary remuneration (Section 60). With a single-member administrative board whose member is also a shareholder, these requirements are easily overlooked. A comparison with the Slovak rules is offered by the article on the remuneration of a managing director in Slovakia and Czechia.

How to choose

The monistic system with a single-member administrative board suits a company owned and run by a single entrepreneur or by a parent company, typically a project or holding company. The dualistic system makes sense where the shareholders are removed from day-to-day management, where an investor with a claim to oversight is coming in, or where a financing bank expects it. Where there is an investor, it is worth attaching to their shares a right to appoint a member of the board of directors or of the supervisory board.

We will design the structure of the bodies and reflect it in the articles of association as part of our formation of an a.s. in Czechia service. We arrange the notarial deed with a Czech notary on the basis of a power of attorney and also arrange official certification of signatures. If you are changing the structure of an existing company or setting the powers and approval limits of its management, we can help through our structuring of company bodies service. The differences between the Czech and Slovak joint-stock company are summarised in the article on a joint-stock company in Slovakia or in Czechia.