How to Set Up a Czech Foundation with a Dual Structure (Governance + Strategy)

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
8.4.2026 | ARROWS law firm

Setting up a Czech foundation ( nadace ) requires more than just filing paperwork—you need a robust governance framework combined with clear strategic direction to ensure your philanthropic or family wealth goals are achieved effectively and sustainably. This article provides practical guidance on establishing a foundation with a dual structure that balances proper governance mechanisms with strategic planning, helping you avoid costly mistakes and regulatory pitfalls while maximizing your foundation's impact and longevity.

Image depicts a lawyer consulting about Czech foundation establishment.

Understanding the dual foundation structure in Czech law

A dual structure foundation in the Czech Republic integrates two critical components that work together to ensure long-term success: the governance framework (the bodies and decision-making processes) and the strategic framework (the purpose, investment approach, and operational direction). The Czech Civil Code (Act No. 89/2012 Sb., as amended) provides considerable flexibility in how founders design these structures, which is both an opportunity and a significant responsibility that requires careful consideration.

The governance component establishes who makes decisions, how those decisions are made, and what controls exist to prevent mismanagement. The strategic component defines what the foundation actually does, how it deploys its resources, and how it measures success against its stated purpose. ARROWS Law Firm regularly advises clients that this imbalance creates operational inefficiencies, potential conflicts between board members and donors, and difficulty responding to changing circumstances.

What many entrepreneurs and investors discover in practice is that the legal framework for Czech foundations is far more intricate than initial impressions suggest. The Civil Code establishes baseline requirements, but the real complexity emerges when aligning governance structures with concrete strategic objectives, securing regulatory approval, and ensuring the foundation operates compliantly while achieving philanthropic or family wealth goals across potentially multiple jurisdictions or asset classes.

The governance foundation: required bodies and decision-making architecture

Czech law mandates that every foundation establish specific governance bodies to create proper checks and balances. The Governing Board ( správní rada ) acts as the statutory body managing assets and directing activities. While the Civil Code sets the default number of members at three, the foundation charter may specify a different number, provided it ensures functional decision-making. The Supervisory Board ( dozorčí rada ) or a Comptroller ( revizor ) provides independent oversight.

Under the Civil Code, establishing a Supervisory Board becomes mandatory if the foundation’s endowment capital exceeds CZK 5,000,000 (approximately EUR 200,000 depending on the exchange rate). If the endowment is lower, the founder may still choose to establish a supervisory body voluntarily—a step ARROWS Law Firm often recommends to ensure transparency and internal control, especially for foundations handling third-party donations.

The board members themselves must meet specific eligibility criteria that founders often underestimate. Members must be persons of integrity, capable of legal acts, not employed by the foundation in a conflicting capacity, and possess a clean criminal record relevant to the foundation's purpose. They cannot simultaneously hold positions in the supervisory body of the same foundation.

The burden of proof rests with the board member to demonstrate they acted with "due managerial care" ( péče řádného hospodáře ) if disputes arise—a standard that imposes significant personal liability and catches many founders off guard. Term length, appointment procedures, and removal mechanisms must be clearly specified in your foundation charter.

The founding charter (the legal document establishing the foundation) determines whether the founder retains the right to appoint or remove board members, whether the board self-selects successors (co-optation), or whether external parties nominate candidates. ARROWS Law Firm's lawyers have repeatedly observed that founders benefit from clear, detailed governance provisions that remain flexible enough to adapt as circumstances change over decades of operation.

The governing board's powers extend to issuing internal bylaws (statutes), approving budgets, making decisions about asset disposal, electing supervisory board members (if not appointed by the founder), and determining board member remuneration. However, the foundation charter can assign additional powers to other bodies or restrict the board's authority in specific domains.

This flexibility means that governance structures can be tailored to your particular needs—perhaps by establishing specialized committees for grant-making decisions, investment oversight, or compliance monitoring. Yet each additional layer of governance introduces procedural complexity that must be carefully documented to avoid disputes or regulatory challenges.

1. Can I appoint myself as a board member?
Yes, founders can serve on their foundation's board and even chair the governing board, provided they meet the legal eligibility criteria and follow proper disclosure procedures regarding conflicts of interest. However, ARROWS Law Firm advises that founder-directors should be aware of heightened scrutiny regarding self-dealing in contractual relationships between the founder and the foundation.

2. What happens if a board member suddenly dies or becomes incapacitated?
Your foundation charter must specify succession procedures. If the charter is silent, Czech law provides default rules (often involving co-optation by remaining members or appointment by the supervisory board), but having explicit provisions prevents delays and ensures continuity of decision-making in critical situations.

3. Can I change the board composition or governance structure after the foundation is established?
Only to the extent your foundation charter permits. Amendments to the charter itself may require founder approval, supervisory board consent, or court authorization depending on how the original charter was drafted. ARROWS Law Firm regularly advises clients that building flexibility into the initial charter structure is far simpler than amending governance arrangements later.

Strategic architecture: purpose, mission, and operational direction

The strategic component of your dual structure begins with a clearly defined purpose articulated in the foundation charter. Czech law permits foundations established for socially or economically beneficial purposes (public benefit) or for charitable purposes. It also allows for foundations serving a private purpose (e.g., family foundations), though these are taxed differently. However, the law explicitly prohibits foundations established solely for profit-making or to support political parties and movements.

Your strategic framework must address several interconnected dimensions that require careful thought and professional guidance. First is the spending strategy: will the foundation distribute primarily from endowment yields (preserving capital indefinitely) or will it also spend down capital over a defined period? Will it focus on large grants to major institutions, smaller grants to numerous organizations, or direct service provision?

Second is the investment strategy: how will the foundation deploy its endowment to generate returns while potentially advancing its mission? Czech law permits foundations to undertake business activities and investment operations, provided that these are merely auxiliary activities and the profits are used to support the foundation's main purpose. The board must establish clear policies defining acceptable investment parameters, risk tolerance, and performance metrics.

Third is the geographic or sectoral scope: will the foundation operate nationally, regionally, or internationally? International foundations face additional complexity because they must comply with Czech law governing the foundation itself, Czech tax law, Czech beneficial owner registration requirements, and potentially foreign laws in jurisdictions where they operate or hold assets. ARROWS Law Firm's lawyers combine in-depth knowledge of the Czech legal environment with extensive experience in cross-border transactions, which proves invaluable when foundations operate across multiple EU jurisdictions.

Fourth is the governance-strategy alignment: your governance structure must be sized and configured to handle your strategic ambitions. A large foundation distributing millions of euros annually to complex international projects requires different governance architecture than a modest family foundation distributing funds annually to local initiatives. Undersizing governance relative to strategic scope creates bottlenecks and risks.

1. Can I change my foundation's purpose after it's established?
Yes, but only under limited circumstances and typically with court approval or if the founder explicitly reserved this right in the charter. The law generally protects the original will of the founder. ARROWS Law Firm advises that clearly articulating your purpose and building in provisions for future adaptations is far preferable to attempting major purpose modifications later.

2. What investment restrictions apply to my foundation?
Foundations generally cannot become unlimited liability partners in commercial companies. While they can own shares in limited liability companies (s.r.o.) or joint-stock companies (a.s.), the administration of such participation must align with a conservative investment strategy. The foundation charter may further restrict investment authority or direct the board toward specific investing approaches.

3. Do I need to publish my foundation's strategic plans publicly?
No legal requirement mandates public disclosure of strategic plans, though the foundation charter, annual reports, and financial statements are deposited in the Collection of Deeds ( sbírka listin ) and are publicly accessible. Many professional foundations publish strategic frameworks to enhance transparency with stakeholders and grant applicants.

Creating a coherent governance-strategy alignment

The critical insight that ARROWS Law Firm emphasizes to clients is that governance and strategy must work in concert. Many founder problems arise precisely because governance structures fail to support strategic objectives or, conversely, strategic designs exceed the governance capacity to implement them effectively.

Consider a hypothetical scenario: a founder establishes a foundation with minimal governance while pursuing an ambitious international grant-making strategy. The governance structure cannot adequately oversee grant due diligence, monitor compliance with grantee obligations, or handle regulatory filings in multiple countries.

Alternatively, consider a founder who creates elaborate governance with multiple board committees and consensus-based decision-making while maintaining a modest local grant-making strategy. The governance overhead consumes disproportionate resources and slows decision-making unproductively. Strategic flexibility becomes nearly impossible because the governance mechanisms are designed for complexity that the actual strategic scope does not warrant.

Effective dual structures require sizing governance appropriately to strategic scope, defining clear decision-making procedures that match strategic timing requirements, and establishing performance metrics that track both strategic execution and governance compliance. Your foundation charter, bylaws, and board policies should collectively form an integrated system.

The practical difficulty that founders and their advisors encounter is that these alignment decisions require deep understanding of both Czech legal requirements and your specific strategic intentions. The legal framework provides flexibility and options, but exercising those options wisely demands knowledge of how different governance configurations actually function in practice.

The founder's ongoing rights and influence during the foundation's lifetime

A significant advantage of Czech foundation law is that founders can retain considerable influence over their foundations even after establishment and endowment transfer. This reflects modern Czech civil law principles which emphasize founder intent ( vůle zakladatele ) as a governing principle. However, exercising these retained rights improperly creates risks.

The founder may reserve in the charter a right to amend the charter itself (altering the foundation's purpose, governance structure, or asset allocation procedures) or to remove and appoint board members. Such reserved rights must be explicitly stated in the founding charter; they cannot be implied.

Moreover, exercising reserved rights improperly—for example, by amending the charter in ways that fundamentally violate the law or the foundation's essence—may trigger judicial intervention. Courts can declare a foundation's acts void if the founder's exercise of retained rights clearly violates applicable law.

This nuance illustrates why so many founders benefit from professional guidance. ARROWS Law Firm's experience has revealed that founders often underestimate regulatory and reputational risks arising from ambiguous relationships between founder control and foundation independence.

Establishing the foundation: registration, documentation, and procedural requirements

Creating a Czech foundation involves a two-stage legal process: establishment (creating the legal entity via charter) and formation (obtaining formal recognition as a legal person via registration). The foundation exists in a preliminary state until it is registered in the Foundation Register ( nadační rejstřík ) maintained by the registry court.

The founding charter ( zakládací listina ) must be executed as a notarial deed ( notářský zápis ). This is a strict validity requirement. For foundations established mortis causa (through a will), the testament itself serves as the founding charter and must also contain all mandatory elements.

The charter must include specific mandatory content: the foundation's name (which must include the word "nadace"), registered office, clearly articulated purpose, the amount of the endowment capital, identification of the founder(s), the number and composition of board members and supervisory body, and detailed provisions governing the foundation's operation. Omitting any mandatory element leads to a refusal by the notary or the court.

The minimum endowment capital requirement for a foundation ( nadace ) is CZK 500,000 (approx. EUR 20,000). This must be contributed in the form specified in the charter. Non-monetary contributions (real estate, securities) must be valued by an expert, and that expert valuation becomes part of the registration file.

After the charter is drafted and notarized, the founder submits a registration application to the registry court. The application must be accompanied by the notarial deed, proof of the founder's identity, proof of endowment payment/transfer, consent of the members of the foundation's bodies to their registration, and their clean criminal record statements.

1. How long does foundation registration typically take?
From submission of complete documentation to registry court approval usually requires 5 to 15 working days, assuming the documentation is flawless. The statutory deadline for the court is 5 working days for direct entries by notaries or slightly longer for court proceedings. ARROWS Law Firm coordinates with notaries to utilize the "direct registration" process, which is faster and cheaper.

2. Can I establish a foundation with a minimal initial contribution and add assets later?
Yes. You must meet the CZK 500,000 minimum for a foundation at the start. Additional assets can be contributed by the founder or other donors later as "donations" or additions to the endowment, depending on how they are designated.

3. What is beneficial owner registration?
All foundations must register their beneficial owners in the Register of Beneficial Owners. For foundations, this typically includes the founder, members of the governing and supervisory boards, and persons in whose main interest the foundation operates (beneficiaries). Failure to register or update this data can result in fines up to CZK 500,000 and operational blocks.

Tax optimization within your dual structure

Tax treatment significantly influences strategic and governance decisions. Czech foundations are generally subject to Corporate Income Tax (CIT) at the standard rate of 21% (effective rate as of 2026). However, significant exemptions apply depending on the foundation's nature.

Under the Income Tax Act, income generated from the registered endowment (e.g., dividends, interest) is generally exempt from corporate income tax if the foundation is a "public benefit taxpayer" and the income is used for its registered purpose. Donations received by public benefit foundations for these purposes are also generally exempt from income tax.

Foundations established to support the founder's family do not qualify as "public benefit taxpayers" for all exemptions. However, they are powerful wealth management tools. While the foundation pays 21% CIT on its profits/yields, the distributions to beneficiaries (if they are close relatives of the founder) are generally exempt from personal income tax under the Income Tax Act.

ARROWS Law Firm regularly advises clients that optimizing tax treatment requires careful coordination between the founding charter (defining the purpose) and the investment strategy. Misclassifying activities or failing to meet the strict "public benefit" definitions in the Income Tax Act can lead to unexpected tax liabilities.

International foundations and cross-border considerations

If your foundation operates internationally or holds assets outside the Czech Republic, additional legal frameworks apply. Czech law permits foundations to engage in international activities, but the foundation must comply with Czech law governing its establishment and ongoing operation while also adhering to foreign law where it conducts activities.

For example, a Czech foundation holding real estate in Austria or Germany must navigate Czech corporate governance rules alongside local property and tax laws. Legal structures differ substantially across the EU; a "foundation" in the Czech Republic may have different liability or reporting rules than a Stiftung in Austria.

ARROWS Law Firm brings particular expertise to these cross-border issues. As a leading Prague-based law firm operating within the European Union, our lawyers understand how Czech foundations interact with foreign legal systems and can advise on structuring your foundation to remain compliant across multiple jurisdictions.

Risks and sanctions

How ARROWS helps (office@arws.cz)

Inadequate governance structure : Poorly designed governance that fails to provide oversight or ambiguous decision-making procedures can trigger disputes or liability for board members.

Governance structure design

Tax compliance failures : Misinterpretation of the "public benefit" tax exemptions or failure to properly tax family foundation income can result in penalties and retroactive tax assessments (21% CIT + sanctions).

Tax optimization and compliance

Beneficial owner registration non-compliance : Failure to register beneficial owners results in fines up to CZK 500,000 and prevents the foundation from exercising voting rights in subsidiaries.

Beneficial owner registration

Governance-strategy misalignment : Governance structures that cannot effectively oversee strategic activities result in operational paralysis or liability risks.

Strategic alignment review

Charter deficiency : Charters lacking mandatory provisions or violating the Civil Code result in registration rejection by the court/notary.

Charter drafting

Executive summary for management

Establishing a Czech foundation requires integrating governance architecture and strategic direction. Misalignment creates operational bottlenecks and risks. This complexity demands professional expertise to design integrated systems.

Public benefit foundations enjoy specific tax exemptions on endowment yields, while family foundations offer tax-exempt distributions to close relatives. Achieving these benefits requires strict adherence to the Income Tax Act.

The establishment process involves notarial deeds, mandatory capital contributions (min. CZK 500,000), and beneficial owner registration. Errors delay launch and increase costs.

Cross-border activities trigger dual-compliance obligations. Professional guidance is essential to navigate conflicting legal requirements.

Foundation establishment requires detailed legal and tax planning. Managing this internally diverts leadership focus. Professional services reduce risk and timelines.

Conclusion

Establishing a Czech foundation with a properly integrated dual structure requires careful coordination among legal compliance, tax optimization, and operational reality. The flexibility of the Czech Civil Code creates opportunity but demands disciplined decision-making.

The lawyers at ARROWS Law Firm have extensive experience establishing Czech foundations and guiding clients through the complete lifecycle of foundation governance. We work with family offices and philanthropic institutions to design governance structures, draft comprehensive charters, navigate registration, and optimize tax treatment.

If you are planning to establish a Czech foundation, contact us at office@arws.cz. ARROWS Law Firm combines in-depth knowledge of Czech law with experience representing international clients. We are insured for damages up to CZK 400,000,000, ensuring professional guidance backed by comprehensive protection.

1. Can I establish a foundation with minimal governance and add complexity later?
Technically yes, but modifying a charter later can be difficult depending on how it was drafted (requiring court or supervisory board approval). It is more efficient to design appropriate flexible governance from inception. Contact office@arws.cz to discuss appropriate sizing.

2. How much detail should my founding charter contain regarding strategy?
Your charter must define the purpose clearly to meet Civil Code requirements but should leave tactical operational decisions to the bylaws or board decisions. This prevents rigidity.

3. What role should I retain as the founder?
You can retain rights to appoint/remove board members or amend the charter, but these must be explicitly reserved in the charter. The right balance depends on your long-term goals.

4. Can my foundation hold assets outside the Czech Republic?
Yes, but this creates dual-compliance obligations under Czech law and the foreign jurisdiction's law. Professional cross-border legal advice is essential.

5. How often should the board meet?
The law does not mandate a specific frequency, but the "due managerial care" standard implies meeting often enough to manage assets effectively. Minutes must be kept of all meetings.

6. What happens if I want to change my foundation's purpose?
Changing the purpose is restricted by law to protect the foundation's identity. It is usually only possible if the founder reserved this right or if the original purpose becomes impossible to fulfill, often requiring court intervention.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (office@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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