Appointing a Foreign Director in a Czech Company

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What is a "Jednatel" and why does it matter?

For foreign investors entering the Czech market, the společnost s ručením omezeným (s.r.o.) is the most common vehicle. However, the role of its executive director, the jednatel, is frequently misunderstood. Unlike a simple manager, the jednatel is a "statutory body." 

This means their actions are legally the actions of the company itself. There is no requirement for the director to be a Czech citizen or resident, which offers great flexibility for foreign parent companies.

However, this flexibility is deceptive. While you can appoint a director living in London, Berlin, or New York, the practical reality of Czech bureaucracy in 2025—specifically regarding Data Boxes (datové schránky) and bank account access—creates invisible barriers. 

ARROWS Law Firm, a leading Czech law firm in Prague, EU, handles these appointments daily and can bridge the gap between legal theory and operational reality.

The Trap of "Concurrence of Functions"

The most dangerous pitfall for foreign companies is the "Concurrence of Functions" (souběh funkcí). It is common practice abroad to hire a director under a standard employment contract. In the Czech Republic, this can be a fatal mistake.

The Czech Supreme Court has established that a statutory body cannot perform their duties under an employment contract because one cannot be "subordinate" to oneself. If a director operates under an employment contract for management duties, that contract is often invalid (void) from the start.

What do you need to comply with?

To avoid this, you must use a specific "Contract on Performance of Function" (Smlouva o výkonu funkce). This document must be approved by the General Meeting of shareholders. If this contract is missing or invalid, the directorship is presumed to be free of charge, and the director loses labor law protections like severance pay.

Employment vs. Function

How can you avoid legal risk? "Due Managerial Care"

In the Czech Republic, a director must act with "Due Managerial Care" (péče řádného hospodáře). This is an objective standard of loyalty, knowledge, and diligence. It is not enough to be honest; you must be competent.

Key nuances of liability:

• Burden of Proof: In a dispute, the director must prove they acted with due care. The company does not need to prove negligence.
• Insolvency: If the company becomes insolvent, the director must file for insolvency without undue delay. Failure to do so can make the director personally liable for the difference between what creditors receive and what they would have received if the filing were timely.
• Business Judgment Rule: Directors are protected if they can prove they acted in good faith, with adequate information, and in the company's defensible interest. ARROWS acts as your legal shield, ensuring your decisions are documented to meet this standard.

The 2025 Administrative Labyrinth

Even simple steps like getting a "Birth Number" (rodné číslo) or accessing a Data Box have become complex for foreigners in 2025.

The "Rodné Číslo" Problem:

Every director needs a Czech identification number for tax and registry forms. Foreigners don't have one automatically. The application process through the Ministry of the Interior is currently facing delays, often taking months. Without this number, electronic filings often fail.

The Data Box Mandate:

Every Czech s.r.o. has a mandatory Data Box. Login details are sent only to the director's own hands. If your director lives in the US or Asia, these letters often never arrive or are returned. Ignoring the Data Box is dangerous: documents delivered there are legally deemed "served" after 10 days, even if you never read them.

Administration & Compliance

Banking and Transparency: The Real Hurdles

While the law allows a foreign director, Czech banks are often less welcoming. They strictly enforce Anti-Money Laundering (AML) rules. If your director cannot visit Prague in person, opening an account is nearly impossible at major institutions.

Furthermore, you must register the Ultimate Beneficial Owner (UBO). While recent 2025 court rulings have complicated the state's ability to fine companies for non-registration due to privacy concerns, the commercial sanction remains: Banks will simply close your account or refuse to open one if your UBOs are not transparent.

What’s the next step?

Establishing a Czech company with a foreign director is complex. It involves coordinating the Commercial Register, the Trade Licensing Office, the Tax Office, and the bank. ARROWS International law firm operating from Prague, European Union, manages this entire process. We are insured for damages up to CZK 500 million, offering you a safe harbour for your business interests.

Don't want to deal with this problem yourself? More than 2,000 clients trust us, and we have been named Law Firm of the Year 2024. Take a look HERE at our references.