Change of the statutory body or termination of office

Why is the correct procedure for changing a statutory body crucial?

It is crucial to understand the difference between the creation of a position and its entry in the Commercial Register. The position of an executive director or a member of the board of directors is established by a decision of the relevant body (e.g., the General Meeting), and from that moment, the person can act on behalf of the company. The entry in the Commercial Register has only a so-called declaratory nature – it merely confirms an already existing state of affairs.  

However, this is where the greatest risk arises. Business partners, banks, authorities, and courts act in good faith based on the data entered in the public register.  

If a dismissed executive director is still registered, their actions can continue to bind the company. They could sign an unfavorable contract, take out a loan, or take other steps for which your company will bear full responsibility. This discrepancy between reality and the register entry creates a dangerous period of legal uncertainty.  

The lawyers at ARROWS help clients navigate this risky period by ensuring that the dismissal and registration process is completed as quickly and flawlessly as possible, thereby protecting the company from unauthorized actions and related damages.

Dismissal and election of an executive director in a limited liability company (s.r.o.) – A step-by-step guide

Changing the executive director in a limited liability company (s.r.o.) is the most common case. Here too, it is necessary to follow a precisely defined procedure to ensure the decision is valid and legally unchallengeable.

The election and dismissal of an executive director are decided by the company's supreme body – the General Meeting. For its decision to be valid, the meeting must be duly convened. This is usually done by the current executive director, who must send an invitation to all shareholders with a clearly defined agenda, including the item on the dismissal and election of the executive director.  

But what if the executive director you want to dismiss refuses to convene the General Meeting? The law also provides for this situation. It can be convened by a so-called qualified shareholder (or shareholders) who holds a stake of at least 10%.  

ARROWS routinely prepares all the necessary documents for holding General Meetings, including invitations and draft resolutions, thereby ensuring they are legally sound and preventing the risk of them being invalidated by a court.

How does the actual vote on dismissal take place?

The General Meeting has a quorum if shareholders holding at least half of all votes are present. For the dismissal of an executive director, a simple majority of the votes of the shareholders present is usually sufficient, unless the articles of association stipulate stricter rules.  

An interesting situation arises if the executive director being dismissed is also a shareholder. Can they vote on their own dismissal? Yes, they can. However, there is a key exception: if they are being dismissed for a breach of their duties in the performance of their office, their voting right is suspended. This mechanism is technically called suspension of voting rights (sistace hlasovacího práva). For it to be applied, it is sufficient that the breach of duty is alleged; it does not need to be proven in court beforehand.  

This is a powerful tool, but its incorrect use can lead to the invalidation of the entire resolution. Legal opinions from ARROWS can assess in advance whether the conditions for the suspension of voting rights are met, thus protecting the company from future disputes.

Do I need a notarial deed to dismiss an executive director?

It is a common myth that every change of an executive director requires a notary. For the mere dismissal of the old director and appointment of a new one, a notarial deed is not required by law. Standard minutes from the General Meeting will suffice.  

However, be careful if, along with the change of person, you are also changing the number of executive directors or the way they act on behalf of the company (e.g., from one to two). Such a change affects the articles of association, and in this case, the form of a notarial deed is mandatory. Registering the change through a notary can also be faster, as the notary can make the entry in the register directly, often on the same day the underlying notarial deed is drawn up.  

ARROWS always advises clients on the most suitable form for their specific situation – whether it's an efficient solution through the registration court or an expedited process via a notary.

Specifics for a joint-stock company: Changes in the Board of Directors

For joint-stock companies (a.s.), the process is similar, but it has its own specifics that need to be known. Given that ARROWS' portfolio includes more than 150 joint-stock companies, we have deep, day-to-day experience with this issue.

As with a limited liability company, the General Meeting is primarily responsible here as well. However, the company's statutes can transfer this authority to the Supervisory Board. This dualistic management system requires careful setting of competencies to avoid disputes. Our Prague-based lawyers help clients set up corporate governance to be functional and meet their needs.  

What are the deadlines for electing a new member?

The Business Corporations Act (ZOK) sets a strict deadline in Section 443. If a board member's position ceases to exist (due to death, resignation, or dismissal), the competent body must elect a new member within two months.  

This deadline is not merely a recommendation. Failure to comply can result in the board of directors not having a quorum, which paralyzes the company's operations. In extreme cases, if the company lacks a functional statutory body for an extended period, a court may decide to dissolve the company and order its liquidation.  

When a board member leaves voluntarily: How to handle resignation from office

A change does not always occur through dismissal. A member of a corporate body can also resign voluntarily. This process also has its rules.

Resignation is a unilateral legal act. However, it must be delivered to the body that elected the member to the position, typically the General Meeting. In a single-shareholder company, it is delivered to that shareholder. Although the law permits oral notification at a meeting of the body, we strongly recommend a written form with proof of delivery to prevent future disputes about when and whether the resignation was announced at all.  

If the resigning member is a foreign national, proper delivery can be complicated. Thanks to the ARROWS International network, built over ten years, we ensure seamless delivery and communication even in cases with an international element, an issue we handle on a daily basis.

When does the position actually terminate?

The position does not terminate upon delivery of the resignation. It terminates on the day the resignation is discussed by the competent body. If the resignation is announced directly at a meeting of this body, the position terminates two months after this announcement, unless the body approves an earlier date at the request of the resigning member. Throughout this period, the member is still in office and bears full responsibility.  

What to watch out for: When is it not possible to resign from office?

The right to resign is not absolute. The law stipulates that a member of a corporate body may not resign from their position at a time that is inappropriate for the company. This could be, for example, a situation where the company is facing an existential crisis, key business negotiations are underway where the person is irreplaceable, or their departure would paralyze the company's operations.  

The term "inappropriate time" is legally vague, and its assessment depends on the specific circumstances. Resigning at such a time could be considered a breach of the duty of due managerial care and lead to liability for damages. Our Prague-based lawyers can help you assess whether your situation constitutes an inappropriate time for resignation and propose a procedure that minimizes legal risks for all parties.

Entry in the Commercial Register: A necessary step towards legal certainty

After the change has been decided internally, the second, equally important step follows: reflecting this change in the Commercial Register. Only by taking this step do you ensure legal certainty towards third parties.

The application for registration of the change is filed with the competent registration court, which is the regional court in the company's registered office location. The filing must be done exclusively using the so-called intelligent form available on the Ministry of Justice website. The court fee for registering a change is CZK 2,000. The registration court has five working days to make a decision.  

An alternative is direct registration by a notary. If the underlying decision (e.g., a General Meeting resolution) was drawn up in the form of a notarial deed, the notary can make the entry in the register themselves. This procedure is usually faster, and the fee is lower, at CZK 1,000.  

ARROWS can handle the entire filing process for you, whether through the more efficient route via the court or the expedited process via a notary, ensuring that all formal requirements and deadlines are met.

What documents will I need?

The application must be accompanied by documents proving the facts to be registered. Typically, these include:

• Minutes from the General Meeting on the dismissal and election of the new member (or the decision of a sole shareholder).

• A declaration from the new member stating that they meet the legal conditions for holding the office.

• The new member's consent to be registered in the Commercial Register, with a notarized signature.

• Possibly other documents depending on the specific situation.

Preparing flawless and complete documentation is our daily practice, saving clients time and eliminating the risk of the application being rejected and unnecessary delays.

What if the new executive director is a foreign national?

An executive director can also be a foreign national who does not have a residence permit in the Czech Republic. However, to be registered, their criminal record integrity must be proven. This means submitting not only an extract from the Czech Criminal Register but also an extract from the criminal register of their country of origin (and possibly countries where they have resided long-term). This foreign document must generally be certified with a higher form of authentication (an apostille) and officially translated into Czech.  

Thanks to the ARROWS International network, built over ten years, and our daily practice with international elements, obtaining the necessary documents from abroad, including apostilles and certified translations, is a routine matter for us. We simplify this process as much as possible for our clients.

What if the company fails to make the registration? Can the dismissed member act on their own?

If the company does not file an application to remove the dismissed member from the register without undue delay (the law mentions a 15-day period), a problem arises. In such a case, the dismissed member has a legal interest in ensuring the register data corresponds to reality and can file an application for their own removal. This step is a signal that something is not working within the company.  

ARROWS helps prevent such situations and, if necessary, also represents dismissed members of corporate bodies in protecting their rights.

An outdated register is a ticking time bomb: What risks do you face?

Neglecting to update data in the Commercial Register is not just a formal error. It is a ticking time bomb that can seriously damage your business.

• Penalties and company dissolution: The registration court can impose a disciplinary fine of up to CZK 100,000 for outdated data or for failing to file documents in the Collection of Deeds (e.g., financial statements). The tax authority can impose a fine of up to 3% of total assets for failure to publish financial statements. In cases of repeated and serious non-compliance, the court may even initiate proceedings to dissolve the company with liquidation.  

• Problems with banks and business partners: Banks are legally obliged to verify information about their clients, including beneficial owners. An outdated entry can lead to the blocking of a corporate account, loan rejection, or even termination of the contractual relationship. Likewise, business partners check your credibility by looking at the register. Discrepancies can lead to the loss of a contract.  

• Invalidity of actions and liability: As already mentioned, actions taken by a dismissed but still registered member can be binding on the company. Moreover, if a company's statutes state, for example, that two executive directors must act jointly, and a contract is signed by only one, such an act is not binding on the company unless it is subsequently approved (ratified). This introduces huge uncertainty into business relationships.  

ARROWS: Your partner for safe and effective company management

A change in a company's management is a strategic step that requires precise legal execution. As this article shows, even seemingly minor mistakes can have far-reaching consequences. At ARROWS, we transform this complex and risky process into a managed and secure transaction. We pride ourselves on speed, high quality, and a proactive approach.

Moreover, we understand that law and business are interconnected. We not only provide our clients with legal certainty but also actively connect them with each other when we see interesting business or investment opportunities. We are also happy to hear your business ideas.

Whether you are facing the dismissal of an executive director, dealing with the resignation of a board member, or want to be sure that your company is complying with all its legal obligations, we are here for you. Contact us to arrange a consultation.

We will ensure that changes in your company are carried out with the utmost professional care, protecting both your business and your personal assets. We provide comprehensive services ranging from the preparation of executive service agreements and expert training for management to representation before courts and administrative authorities.