Generally yes. A restriction on the managing director imposed by the memorandum of association or the general meeting is, under the Commercial Code, ineffective against third parties even where it has been published, so a contract above the limit generally binds the company. Exceeding the limit is a breach of the director’s duties: if the company suffers damage, the director must compensate it and the general meeting may remove him. What does operate externally is the manner of acting entered in the Commercial Register, for example joint action by two directors. A separate assessment is needed where the director exceeds the powers that the law confers, or permits to be conferred, on the statutory body.
The shareholders wrote into the memorandum of association that the managing director may conclude a contract above EUR 50,000 only with the consent of the general meeting. The director then signed a long-term lease or a loan without that consent, and the shareholders learned of it only from the accounts. The first question is usually whether the contract can be escaped by pointing to the breached limit. The contract generally binds the company, and the dispute moves into the relationship between the company and the director.
An internal limit does not bind the counterparty
The Commercial Code permits restrictions on the managing director, but keeps their effect inside the company:
The authority of managing directors may be restricted only by the memorandum of association or the general meeting. Such a restriction is, however, ineffective against third parties.
— Section 133(3) of Act No. 513/1991 Coll. (unofficial English translation)
The general rule on acting for an entrepreneur underlines this: a restriction on the authority of the statutory body is not effective against third parties even where it has been published, and it is not entered in the Commercial Register (Section 13(4) of the Commercial Code). The counterparty therefore need not examine the memorandum of association, and the fact that it is filed in the collection of documents is of no help either. The company is also bound where the director acts beyond its objects. An exception applies under Section 13(3) where the powers that the law confers, or permits to be conferred, on the statutory body have been exceeded. Whether that exception covers a particular step taken by the director must be assessed case by case.
Czech law is identical on this point. A restriction on a managing director’s authority by the memorandum or by a decision of a body is not effective against third parties even where it has been published (Section 47 of Act No. 90/2012 Sb.). Czech law also expressly addresses the opposite situation: where the consent of the general meeting is missing in a case in which the law requires it, for example on a transfer or pledge of the business under Section 190(2)(i), the legal act is invalid and that invalidity must be invoked within the period laid down in Section 48 of Act No. 90/2012 Sb.
What exceeding the limit means for the managing director
The limit does not thereby lose its purpose. The director must exercise his powers with due professional care and in accordance with the interests of the company and of all shareholders (Section 135a(1)). If he exceeds the limit and the company thereby suffers damage, he must compensate it (Section 135a(2)); he is released from liability only if he proves that he acted with due professional care and in good faith that he was acting in the company’s interest (Section 135a(3)). The general meeting may remove him at any time, as the appointment and removal of managing directors falls within its powers [Section 125(1)(f)]. The procedure is described in how to remove a managing director of an s.r.o. and, where there is damage, in the shareholder action.
What does operate externally
The manner of acting has a different effect. Where there is more than one managing director, each acts individually unless the memorandum of association provides otherwise (Section 133(1)). The memorandum may therefore provide that two directors sign jointly for the company. The manner of acting differs from a restriction under Section 133(3) in that it is entered in the Commercial Register together with the directors Section 11(j) of Act No. 29/2026 Coll. Once a registered particular has been published, no one may claim not to have known of it (Section 7(3) of Act No. 29/2026 Coll.), so a counterparty whose contract was signed by only one of the directors will generally not be heard to plead ignorance of the manner of acting. The same subsection allows an exception only for a short period after publication, where the third party proves that it could not have known of the particular. In Czechia the position is similar: where the constitutional act requires joint action, a member of the statutory body may act alone only as an attorney for a specific legal act (Section 164(2) of Act No. 89/2012 Sb.).
With joint action, however, even an ordinary purchase order must be signed by two people. It is therefore worth considering whether joint action is the better course, or individual action supplemented by internal limits, an approval policy and careful documentation of decisions. A similar rule applies to a procuration holder: restricting procuration by internal instructions has no legal effect against third parties (Section 14(3) of the Commercial Code), as explained in what a procuration holder may sign.
What to do
Where the director has already exceeded the limit, the first step is to establish whether this is an internal limit, a manner of acting or powers laid down by law, and to choose the approach towards the counterparty and towards the director accordingly. If you are only now setting limits, start with the memorandum of association: what is to operate externally belongs in the manner of acting, everything else in internal rules. We can assist through setting up company bodies and reflect the changes in the memorandum of association or articles. For a new company, we set the limits when incorporating an s.r.o. in Slovakia.
This answer provides general information on the law as at 12 September 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.
