Executive Director and Principles and Instructions Approved by the General Meeting

Business Management: What Exactly Falls Within Your Exclusive Powers as an Executive Director?

The term "business management" is not precisely defined in the law, but its content has been shaped in detail by long-standing court practice and legal theory. It is primarily understood as the organisation and management of the company's ordinary business activities, i.e., the day-to-day administration of its operations (the so-called day-to-day business).

This includes a wide range of decisions, from operational matters such as procurement, sales, or advertising, through personnel issues, to concluding ordinary business contracts and deciding on operational financing. Our experts in labour law can help you with this, ensuring that all personnel steps comply with legislation.

This exclusivity of your authority is protected by a key prohibition formulated in Section 195(2) of the Business Corporations Act (ZOK): "However, no one is entitled to give instructions to an executive director concerning business management." This prohibition is not an end in itself. Its deeper purpose is to protect the company itself from uninformed, hasty, or potentially harmful interventions by shareholders who may not have detailed insight into operational management and whose decisions could be based on incomplete data.

Defending your autonomy in business management is therefore not a sign of unwillingness, but rather the fulfilment of your statutory duty to act in the best interests of the company. You can learn more in the article profit distribution in 2026 for 2025: a lawyer advises what an executive director and a limited liability company (s.r.o.) should do?, which deals with other duties of statutory bodies. The lawyers at ARROWS can help you communicate this division of powers clearly to shareholders and set up internal guidelines that clearly define the boundaries and prevent unnecessary conflicts.

Strategic Instruction vs. Impermissible Interference: Where is the Dangerously Thin Line?

While interference in day-to-day business management is prohibited, the law gives the General Meeting the power to issue so-called strategic and conceptual instructions to the executive director. An amendment to the ZOK , effective from 2021, enshrined this possibility directly in the law, whereas previously it had to be explicitly agreed upon in the articles of association. And this is precisely where one of the greatest practical challenges for every executive director lies.

Strategic management concerns fundamental, extraordinary decisions that, by their significance, go beyond the company's ordinary operations. This could include, for example, a decision to sell a key branch, enter a completely new foreign market, fundamentally change the object of the business, or approve a long-term investment policy. In this area, ARROWS provides comprehensive company sales and transaction advisory services. Such an instruction, if it complies with the law and the articles of association, is binding on you as an executive director.

The problem arises when shareholders try to push through decisions that actually fall under business management under the guise of "strategy". An instruction to "enter the Polish market and build a distribution network there by the end of the year" is likely a permissible strategic instruction. In contrast, an instruction to "conclude a contract for the supply of material with company X at price Y" is almost certainly an impermissible interference in your authority.

This ability to issue strategic instructions is a double-edged sword for an executive director. On the one hand, it can provide a clear mandate from the owners for large projects and align visions. On the other hand, it opens the door to more sophisticated attempts at micro-management.

A dominant shareholder can easily formulate an operational instruction to make it look like a strategic one (e.g., "Our strategic priority is to establish an exclusive partnership with my brother-in-law's company."). This puts you in an even more complicated position, where you have to assess not only the content but also the real intent of the instruction.

Distinguishing between these two types of instructions requires considerable experience. ARROWS lawyers daily help clients formulate General Meeting resolutions to be legally unchallengeable and prepare internal guidelines that clearly define this boundary for everyone. We are ready to provide you with a swift legal opinion on proposed resolutions even before the vote, so you can gain the necessary legal certainty.

"Duty of Due Managerial Care": Your Main Shield and Greatest Responsibility

Even if you receive an instruction that is formally valid and falls within the strategic competence of the General Meeting, your responsibility does not end there. On the contrary, it is at this moment that your key and non-transferable duty comes into play – to act with the duty of due managerial care. This duty is defined in Section 159 of the Civil Code as the duty to perform the function with the necessary loyalty, knowledge, and diligence.

The case law of the Supreme Court has repeatedly confirmed that the duty of due managerial care fully applies even when you are acting on an instruction from the General Meeting. This means you must not "slavishly" follow an instruction that you know, or with due care should know, will harm the company. On the contrary, you are obliged to actively warn the General Meeting about the inappropriateness or risks of such an instruction and provide it with all relevant information for a qualified decision.

Your defence in a potential dispute is the so-called business judgment rule. If you can prove that you acted in an informed manner, in good faith, and in the defensible interest of the company in the given situation, you are not liable for any negative outcome of your actions. However, this places enormous emphasis on the careful documentation of the entire decision-making process.

The duty of due managerial care thus transforms you from a mere executor of orders into an active guardian of the company's interests, even against the current will of its owners. You are in a constant test of loyalty to the company, not to individual shareholders. If you receive an instruction that seems risky, you are obliged to act. Our Prague-based lawyers will help you prepare professional materials for the General Meeting, which clearly describe the risks, and provide you with a legal opinion on which you can base your decision not to follow the instruction. By doing so, we protect both you and your company.

The International Element: How to Proceed with Instructions from a Foreign Shareholder?

If you work in a subsidiary of a foreign corporation, you face a specific challenge. Instructions coming from the foreign headquarters may reflect a different legal culture and business customs. However, it is absolutely crucial to realise that as an executive director of a Czech company, you are always governed by Czech law and bear full responsibility under Czech legislation.

In international structures, a clash of corporate cultures often occurs. Foreign managers may expect a degree of obedience that is not only impermissible under Czech law but also personally dangerous for you. Even within a group of companies, where it is possible to issue instructions concerning business management, such an instruction must not conflict with the company's interests and does not relieve you of the duty to act with due managerial care.

You thus find yourself under dual pressure – from your foreign superior and from Czech law. You need a strong local partner who can not only explain the Czech rules to you but also communicate and defend them clearly to the foreign headquarters.

Thanks to our ARROWS International network, built over ten years, we deal with situations on a daily basis where it is necessary to align instructions from a foreign parent company with the requirements of Czech law. We act as "translators" and protectors of local management, ensuring that the executive director does not breach their personal liability and endanger themselves or the company. Moreover, thanks to our extensive contacts, we can connect our clients and create new business opportunities for them.

Consequences of a Bad Decision: What Are the Real Risks You Face?

Ignoring the rules described above is not just a theoretical risk. The consequences of breaching the duty of due managerial care are very real and can significantly affect your professional and personal life. This is not an academic debate, but a matter of concrete threats to your assets and career.

The most serious sanctions include:

• Duty to compensate for damage: If your actions cause harm to the company, you are obliged to compensate for it in full from your personal assets. If there were multiple executive directors, you are jointly and severally liable for the damage.

• Duty to surrender any benefit gained: You must surrender to the company any benefit you have gained in connection with the breach of your duties.

• Liability for the company's debts in case of insolvency: If your actions contribute to the company's insolvency, a court may compel you to be liable for its debts with your personal assets.

• Disqualification from holding office: In serious cases, a court may prohibit you from serving on the statutory bodies of any business corporation for several years.

It is important to realise that your liability cannot be waived or limited by an executive service agreement or any other arrangement.

Act with Confidence and the Support of Experts Who Understand Your Business

The line between the authority of the General Meeting and the responsibility of the executive director is complex, and ignorance of it represents an inexcusable risk. Properly setting up the relationship between management and owners is the foundation for the healthy and secure functioning of any company. At ARROWS, we pride ourselves on speed, high quality, and a deep understanding of our clients' business.

With the trust of more than 2,000 clients, including a portfolio of over 150 joint-stock companies and 250 limited liability companies (s.r.o.), we prove daily that we understand the challenges you face. Whether you need to prepare documents for a General Meeting, obtain a legal opinion on a risky instruction, review contracts, or train management, our specialists are ready to protect you.

Don't wait for a problem to arise. Act proactively. Contact us today to arrange a no-obligation consultation. We would be happy to hear about your business plans and discuss how we can help you grow safely and with legal certainty.