The company's managing director has passed away.

Three Situations After the Death of a Managing Director and Why They Differ

The statutory body of an s.r.o. consists of one or more managing directors, depending on how they were set up in the memorandum of association. Consequently, after a death, a company may find itself in one of three situations, each requiring a different procedure. The decisive factors are the number of managing directors and the manner in which they represent the company externally—meaning who is authorized to sign a contract, order, or payment instruction.

The first situation is the most favorable: the company has multiple managing directors, and each is authorized to act independently. Unless the founding document stipulates how the members of the statutory body represent the legal entity, each member does so independently (Section 164(2) of the Civil Code under Czech legislation). The remaining managing directors can therefore continue to sign, make payments, and manage operations. Even so, the law anticipates that the general meeting will elect a new managing director to replace the deceased within one month, and the company should not delay this process.

The second situation arises when the memorandum of association requires the managing directors to act jointly. In this case, the death of one of them may mean that the remaining managing director cannot sign alone because the second signature is missing. The third situation is the most severe: the sole managing director has died, and the company has no one to represent it in any matters. Both situations require a quick decision and a clear sequence of steps.

If the deceased managing director was also a shareholder, the question also arises as to who exercises the rights attached to their share and who votes at the general meeting. This is a separate topic analyzed in the article on who manages a company during probate proceedings.

All the issues resolved after the death of a company owner or shareholder—namely inheritance, company management, and the fate of the business share—are summarized in the text on what happens to a company after the owner's death. This article focuses solely on the question of who is authorized to act and sign on behalf of the company when a managing director dies, and how the office of managing director is refilled.

The Sole Managing Director Has Died: Who Can Act and How It Is Resolved

With the death of its sole managing director, the company does not lose its legal personality or capacity to act, but it lacks a statutory body that can represent it in all matters. Certain actions may still be taken by other authorized persons: a proxy holder (prokurista), an attorney-in-fact with a power of attorney granted by the company, and employees to the extent customary given their position (Section 166 of the Civil Code). The first task is therefore to determine who holds such authorization and to what extent.

The law gives the general meeting one month to elect a new managing director. In the event of a managing director's death, the general meeting must elect a new managing director within one month (Section 198 of the Business Corporations Act under Czech legislation); the election falls within its competence (Section 190 of the Business Corporations Act). The shareholders convene a general meeting, elect a candidate, and have them registered in the Commercial Register. This is the fastest route, provided the general meeting can form a quorum.

The difficulty arises when this is not possible. If the sole managing director who died was also the majority shareholder, the remaining shareholders may not be able to form a quorum at the general meeting on their own until it is clear who exercises the rights attached to the deceased's share. If the general meeting fails to elect a managing director in time, the court will appoint one upon the petition of a person with a legal interest, until a new one is properly elected; otherwise, the court may dissolve the company even without a petition and order its liquidation.

An administrator (opatrovník) is only the next step. The Supreme Court, in its resolution file no. 29 Cdo 3899/2015, concluded that the Business Corporations Act takes precedence over the Civil Code and that an administrator under Section 165 of the Civil Code can be appointed for an s.r.o. if it has no managing director, the general meeting has not elected one within a month, and no petition for the court appointment of a managing director has been filed or granted. An administrator is a temporary solution, and their office terminates upon the election of a managing director.

Procuration (prokura) is a useful safety net, but it does not replace a managing director. Procuration does not terminate upon the death of a managing director because it was granted by the company itself. A proxy holder (prokurista) is authorized to perform legal acts arising from the operation of the business enterprise; however, they may only alienate or encumber real estate if explicitly stated in the procuration. Internal limitations on procuration have no effect against third parties. However, a proxy holder does not exercise the powers of a managing director or the general meeting, so amendments to the memorandum of association must wait for a new managing director.

The law explicitly addresses the convening of a general meeting for this situation: if the company has no managing director, any shareholder may convene the general meeting. Unless the memorandum of association provides otherwise, the invitation must be sent at least 15 days in advance, though shareholders may waive their right to timely convening. Whether a court petition is already appropriate or a general meeting is sufficient is assessed by the Czech legal team at ARROWS advokátní kancelář individually for each company, based on the distribution of votes and the status of the probate proceedings.

Collective Body: When Only Two Act Jointly

Multiple managing directors form a collective body only if stipulated in the memorandum of association (Section 194 of the Business Corporations Act). For signing, however, another provision of the memorandum is decisive, namely the method of external representation. If the memorandum requires joint action, a managing director can represent the company independently only as an attorney-in-fact for a specific legal act. Therefore, the remaining managing director cannot sign contracts alone without authorization.

The memorandum of association can address this situation in advance. If it so provides, a share may be associated with the right to appoint a managing director. If the managing directors form a collective body and the shareholder does not appoint anyone within one month, the managing directors whose number has not fallen below half may appoint a substitute managing director until the shareholder exercises their right. This is a narrowly defined mechanism that works only if explicitly anchored in the memorandum.

This rule is contained in Section 194a of the Business Corporations Act and protects a company that has it in its memorandum without involving the court. If the memorandum lacks such a provision, the remaining options are the election of a new managing director by the general meeting or, if necessary, a court petition. A company with a collective body should therefore address the issue of a substitute when drafting the memorandum; otherwise, a single death can paralyze signing capabilities.

The size of the body and the signing rule are also important. A two-member body where both managing directors must sign is the most vulnerable, as after the death of one of them, there is no one to provide the second signature. A three-member body where the signatures of two suffice can usually withstand the loss of one. The number of managing directors and their signing method are therefore not just formal matters, but directly affect the company's resilience.

A practical example illustrates the risk. A company has two managing directors who, according to the memorandum, must always act jointly. One dies. The other managing director knows the operations and wants to sign an order, but a joint signature is impossible. Without authorization or a new managing director, the order is delayed, and the counterparty may refuse to wait. A company with two independently acting managing directors would have no problem signing the same order.

Procedure in the First Days After the Death of a Managing Director

The first step is to determine who is authorized to act for the company. The company should review the Commercial Register, procurations, powers of attorney, and internal regulations to compile a list of persons authorized to sign, including the scope of their authority. Without this list, the company risks having an unauthorized person sign after a death.

The second step is to identify which actions cannot be delayed. These include payments, contracts with deadlines, tax and other obligations towards authorities, and decisions on which operations depend. The company categorizes them by urgency and decides which can be handled by a proxy holder or an attorney-in-fact and which must wait for a new managing director. This categorization avoids unnecessary risks and undue haste.

The third step is to convene a general meeting to elect a new managing director. If the company has no managing director, any shareholder may convene it (Section 183 of the Business Corporations Act), and the invitation must meet statutory requirements. If the deceased managing director was also the majority shareholder, it is necessary to determine in advance whether the general meeting can form a quorum, and in case of doubt, plan for a court petition from the outset.

The fourth step is to register the change in the Commercial Register and inform the bank, business partners, and authorities. The bank will typically require proof of who is authorized to manage the account and may restrict access to funds until then. The company should therefore prepare the documents in advance to ensure the new managing director can take over as soon as possible. The sequence and content of the documents vary depending on the bank and whether the managing director was elected by the general meeting or appointed by the court.

The company should also communicate externally in the first few days. It should inform business partners, the bank, and key customers that the company is operating, who is currently acting for it, and when the office of managing director will be filled. Clear communication reduces questions and concerns about disruption and prevents partners from contacting the deceased's family directly, who may know nothing about company matters.

The fifth step is the handover of the agenda. The new managing director needs a list of contracts, deadlines, accounts, login credentials, and files kept by the deceased. If the agenda existed only in the deceased's head or private computer, the company loses time and information. Which documents are critical and who is authorized to take them over from the deceased is assessed by the Prague-based legal team at ARROWS advokátní kancelář based on the specific agenda the managing director personally managed.

Market Standards and Warning Signals

Common preventive solutions include having multiple managing directors, each authorized to act independently or in pairs, procuration, or a pre-arranged substitution mechanism in the memorandum of association. Smaller companies often appoint a second managing director, or at least a proxy holder, who can sign during a managing director's absence. However, neither procuration nor a power of attorney replaces a managing director in all matters, making them supplementary measures rather than a complete substitute.

A company with a sole managing director who is also the majority shareholder is a major warning signal. After a death, such a company has no statutory body, and the general meeting may not be able to elect a new managing director. A second warning signal is a two-member body where both managing directors must sign. A third signal is a memorandum of association without rules for a substitute and without a shareholder agreement on how voting will proceed in such a situation.

Prevention does not require high costs. A company can set up at least two managing directors with independent acting authority or a substitute managing director mechanism, arrange procuration and powers of attorney, and ensure that every shareholder knows who would take over management. Operational measures, such as a regularly updated list of authorized persons, complement legal measures and are significantly cheaper than a dispute or court proceedings.

The memorandum of association can contain several safeguards. It can stipulate that managing directors act independently, or at least in pairs, allow for the appointment of a substitute managing director, regulate shareholder decision-making outside of general meetings (per rollam), and determine who hands over the agenda to the new managing director. Each of these safeguards shortens the period during which the company cannot act and reduces the need to turn to the court.

Issues regarding the liability of a managing director in managing a company are discussed in the text on the liability of a managing director of a limited liability company. A new managing director has duties from the moment they accept the office, so it is advisable to become familiar with them before taking over signing authority and starting to act for the company with banks, authorities, and business partners.

The contractual relationship between the company and the managing director—including remuneration, scope of authority, and termination conditions—is addressed in the text on optimizing contractual relationships with managing directors. When electing a new managing director, it is highly beneficial to conclude an agreement on the performance of duties right away, so that open questions of remuneration and authority do not resurface later at a less convenient time.

Typical Mistakes and Their Cost

The first mistake is acting without authorization. An employee or family member signs a contract for the company even though they have no authorization and it does not correspond to their usual job description, leaving the company to resolve whether the contract is binding. The cost is a dispute with the counterparty and the risk that the company will fail to meet its commitment or lose a business opportunity because no one could sign in time.

The second mistake is relying on the company to "somehow" work things out. The company's legal obligations continue even without a managing director. However, the absence of a statutory body can make their proper fulfillment practically impossible or complicated, exposing the company to the risk of default or penalties. Waiting for heirs or the family without a court petition only prolongs the situation, and a timely petition is often cheaper than the damage caused by inaction.

The third mistake is failing to prepare the environment for the new managing director. If no one was prepared for the role, the election is made quickly and without vetting. The new managing director may then take over the company without knowledge of contracts, commitments, and deadlines. It is wise to start preparations immediately after learning of the death, rather than on the day of the general meeting, and ensure the transfer of information.

The fourth mistake is forgetting about statutory deadlines and obligations that continue to run. Tax returns, financial statements, and notifications to authorities are not suspended upon the death of a managing director, and the company therefore needs someone to sign them. If this person is not found in time, fines may be imposed, which is why for every obligation, it must be determined who can fulfill it even before a new managing director is elected.

The Czech legal team at ARROWS advokátní kancelář assesses for each company how many managing directors it had, how they were to act, and whether the general meeting is capable of electing a new managing director within one month, as this determines whether a general meeting is sufficient or a court petition is necessary. Only then do they choose the procedure and sequence of steps.

Risks After the Death of a Managing Director

Final Summary

The death of a managing director does not end the existence or operations of a company, but it can deprive it of the person authorized to sign. The article has shown that the decisive factors are the number of managing directors, their method of acting, and the ability of the general meeting to elect a new managing director within a month; otherwise, the court will appoint one upon petition.

This presents a clear task for company management. It is necessary to determine how many managing directors the company has and how they are to act, secure a second managing director or a substitute, and maintain a list of persons with powers of attorney and procuration. Postponing these steps means decisions will only be made when the company is already unable to act.

The Prague-based legal team at ARROWS advokátní kancelář represents companies in electing new managing directors, files petitions for the court appointment of managing directors or administrators, and sets up rules of representation so that a company is not left without representation after a managing director's death. Write to us at consultation@arws.cz or explore our service for commercial and court disputes.