Who Is Really Liable in the Czech Republic When the Company Gets Fined: The Firm or the CEO?

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
10.3.2026 | ARROWS law firm

When a Czech company receives a fine, business owners face a crucial question: who bears responsibility—the legal entity or the executive? Under Czech law, both can be held liable simultaneously, though conditions differ significantly. Understanding this distinction is critical, as personal financial exposure for a CEO can be devastating while corporate liability brings severe sanctions.

Photograph captures a lawyer discussing executive liability for fines.

The Czech Republic introduced criminal liability for legal entities through Act No. 418/2011 Coll., on Criminal Liability of Legal Entities (TOPO). This represented a significant departure from the traditional principle that a corporation cannot commit a crime.

Prior to this legislation, only specific employees or managers could be prosecuted for criminal offenses. Subsequent amendments expanded corporate liability and clarified critical defenses allowing companies to exempt themselves.

The legal structure now recognizes two distinct but potentially concurrent forms of liability. Corporate criminal liability means companies themselves can be prosecuted and punished as if they were perpetrators.

However, this does not preclude individual criminal prosecution—in fact, Czech law explicitly establishes the principle of concurrent and independent liability. An employee who commits a crime and the company itself can both be held criminally liable for the same offense.

Understanding the basis of attribution is fundamental to grasping who bears liability. Under Czech law, a crime is attributable to a corporation when it is committed either in the corporation's interest or within its operations.

Critically, it is not necessary to identify the specific individual who committed the act for the corporation to be held liable. This creates a significant distinction from traditional criminal law and opens the door to corporate prosecution even when the perpetrator remains unknown.

The scope of crimes for which a corporation can be held liable is extensive. The law utilizes a "negative list" approach, specifying only those crimes that corporations cannot commit, such as bigamy.

As a practical matter, this means corporations can be prosecuted for the vast majority of criminal offenses under the Czech Criminal Code. This encompasses corruption, fraud, tax evasion, environmental crimes, and serious economic offenses.

Corporate liability passes to legal successors when a corporation undergoes merger or demerger. Even a complete change in ownership structure, executive leadership, or business name does not extinguish existing criminal liability.

The compliance defense: a critical escape route for companies

One of the most important provisions is the compliance defense (exculpation), which fundamentally changes the calculus of corporate liability. The law provides that a corporation shall be exempt if it proves it took all efforts reasonably expected to prevent the offense.

The critical requirement is that the company must demonstrate it adopted these reasonable measures before the crime occurred. What constitutes "reasonable measures" is assessed by courts on a case-by-case basis but generally encompasses effective compliance management systems.

ARROWS Law Firm handles corporate liability matters daily and understands the complexity of proving compliance measures were effective. The Prosecutor General's Office has issued methodological guidelines on this interpretation.

By implementing comprehensive compliance programs, companies can significantly reduce their exposure to corporate criminal liability. However, the defense requires proactive implementation, thorough documentation, and regular updates to reflect legal changes.

Czech companies face a clear choice: invest in quality compliance infrastructure or face severe penalties. ARROWS Law Firm's experience shows that companies copying generic templates frequently discover critical gaps during inspections.

Personal liability of directors: the often-overlooked personal risk

While much discussion focuses on the company, the personal liability of directors represents an equally important dimension. Czech law imposes stringent duties on directors, and breach of these duties can result in personal liability affecting private assets.

The duty of due managerial care

The foundation of directors' personal liability is the duty of due managerial care ( péče řádného hospodáře ). Directors must exercise the care and diligence of a reasonably competent professional manager in similar circumstances.

The standard is objective—courts ask whether a reasonable, competent director in the same position would have acted differently. Directors must ensure they act with loyalty, possess necessary knowledge, and demonstrate diligence in their decisions.

The practical scope of the duty extends far beyond what many executives realize. Directors are personally responsible for ensuring the company complies with all contractual obligations, tax laws, and administrative requirements.

Failure to fulfill any of these obligations can trigger personal liability. Critically, the duty extends to financial oversight—directors must maintain knowledge of the company's financial situation and payment obligations.

The "business judgment rule" provides that if a director acts in good faith and is properly informed, they are not liable for a breach. However, this protection applies only if the director can demonstrate proper deliberation through documentation.

Personal liability for financial losses and damage

When a director breaches the duty of due managerial care, they must compensate the company for any damage caused. This liability is not capped by statutory limits and generally cannot be validly limited by the company's articles.

If a company is declared bankrupt and a director contributed to this through a breach of duty, the court may decide that the director must provide performance into the asset mass. This is a form of "topping up" the assets of the insolvent company from private funds.

Furthermore, if a director fails to file for insolvency without undue delay, they face personal liability to creditors for the damage caused. This liability is explicitly codified in the Civil Code and Insolvency Act.

Criminal liability of directors

Beyond civil liability, Czech law imposes criminal liability on directors for certain offenses. A director can face criminal prosecution for economic crimes committed during the performance of their duties.

Certain criminal offenses related to insolvency carry severe penalties, including imprisonment for causing or contributing to insolvency. The thresholds for criminal damage are specific, with "substantial damage" starting at CZK 1,000,000.

Additionally, under the concept of "insolvency criminal offenses," a director may be prosecuted for specific crimes such as causing bankruptcy. A director can also face disqualification from holding office for a fixed period.

1. If the company is fined by a regulatory authority, can the director also be held personally liable?

Yes. The company and director can face separate and independent liability. The company faces corporate penalties, while the director can face personal liability if the fine resulted from a breach of their duty of due managerial care.

2. Can a director be held liable for the actions of employees if the director did not directly commit the wrongdoing?

Yes. A director can be held liable if they failed to exercise adequate supervision and control over the employee's activities. Czech courts apply a strict standard regarding the duty of supervision.

3. Does the limited liability company structure protect directors from personal liability?

No. The limited liability company protects shareholders from liability beyond their contribution obligation, but directors face personal liability for breaches of their duties.

The critical question: when is the company liable and when is the director liable?

The distinction between corporate liability and personal director liability becomes muddled in practical enforcement scenarios. Both the company and director can be liable for the same conduct, but they face different types of liability.

For a corporation to face criminal liability, a crime must have been committed by a person within the specified categories. Critically, the crime must have been committed either in the interest of the corporation or within its operations.

Consider a concrete example: an employee receives a bribe to pass confidential information to a competitor. In this scenario, the company likely bears no liability because the crime was against the company's interests.

By contrast, if an employee accepts a bribe to grant a business contract to a favored vendor, corporate criminal liability would likely attach. This is because the crime was committed in the company's interest.

Personal liability arises from breach of the duty of due managerial care or direct commission of a crime. A director can face personal liability even when the company itself faces no criminal liability.

More relevantly, a director can face personal liability when the company is criminally liable for an employee's misconduct. This occurs if the director failed to establish adequate compliance measures.

In most practical scenarios, both the company and its directors face potential liability simultaneously. The company faces corporate criminal liability because a tax crime was committed, while the CFO might face personal criminal liability.

Sanctions and penalties: what happens when a company gets fined

When Czech regulatory authorities or courts find that a company has committed a violation, the potential sanctions are severe. The most severe is dissolution of the legal entity, though this is rare.

The Criminal Liability Act allows courts to impose daily monetary penalties ranging from CZK 1,000 to CZK 2,000,000 per day. This results in a theoretical maximum penalty of CZK 1.46 billion based on the seriousness of the offense.

Beyond monetary penalties, Czech courts can impose bans on activities for one to 20 years. For companies engaged in public procurement, courts can impose bans on performance under public procurement contracts or participation in public tenders.

Additionally, courts can impose bans on accepting grants and subsidies for up to 20 years. The court may also order forfeiture of property or assets.

Beyond criminal penalties, regulatory authorities can impose administrative sanctions for violations of administrative law. For example, enabling illegal work can result in administrative fines up to CZK 10,000,000.

Here is the critical point: when a company faces corporate criminal or administrative penalties, the directors responsible can be pursued for personal civil liability. If the company incurs a penalty due to a failure to prevent conduct, shareholders can pursue the director for damages.

Risks and sanctions

How ARROWS lawyers help (office@arws.cz)

Corporate criminal fine up to CZK 1.46 billion for tax evasion: Company faces severe monetary penalties, criminal record, and reputational damage.

Compliance program implementation and audit: ARROWS Law Firm will design and implement robust tax compliance procedures.

Director's personal liability for company's criminal fine: Director faces civil damages claims from shareholders/creditors and potential criminal prosecution.

Personal liability defense and risk mitigation: ARROWS Lawyers will defend the director against damages claims and negotiate settlements.

Procurement ban (up to 20 years): Company loses access to government contracts and EU-funded projects.

Strategic defense in criminal proceedings: ARROWS Law Firm will defend the company in criminal proceedings and negotiate regarding sanctions.

Administrative fine (e.g., up to CZK 10,000,000 for illegal work): Immediate cash outflow, penalty added to debts, potential insolvency trigger.

Administrative defense: ARROWS Lawyers will appeal the administrative fine and represent the company in administrative court proceedings.

In facing potential corporate criminal liability, companies have access to specific procedural mechanisms. While the Criminal Procedure Code applies, recent years have seen an increased use of "diversion" strategies.

A key mechanism available is the Agreement on Guilt and Punishment ( Dohoda o vině a trestu ). This allows a company to negotiate with the public prosecutor regarding the penalty.

The advantage is certainty regarding the sanction and a faster resolution. However, it results in a conviction and a criminal record for the company.

For companies seeking to avoid a conviction entirely, the Conditional Discontinuation of Criminal Prosecution is the most favorable outcome. This "diversion" allows the prosecutor to provisionally halt the prosecution if the company admits to the factual circumstances.

If the company fulfills conditions and leads a "proper life" during a probationary period, the prosecution is permanently discontinued. This is a crucial tool for preserving a clean criminal record.

These procedural tools create opportunities but require swift and strategic action. ARROWS Law Firm regularly advises clients on whether to fight charges based on the compliance defense or to negotiate a diversion.

1. If my company discovers employee misconduct, should we immediately report it to prosecutors?

Not necessarily. Consult with experienced corporate counsel first to assess whether the compliance defense applies. Contact ARROWS Law Firm at office@arws.cz to discuss your specific situation.

2. Does a diversion agreement for the company protect individual directors?

No. A conditional discontinuation or plea bargain for the company does not automatically apply to the individual directors. They are separate defendants.

3. What happens if our company violates the probation period after conditional discontinuation?

If the company commits another crime or fails to fulfill obligations during the probationary period, the prosecution resumes, and the company faces a standard trial.

Practical scenarios: when companies get fined and who actually bears liability

Understanding the abstract legal framework is important, but the real challenge lies in applying this to concrete business scenarios. ARROWS Law Firm encounters numerous real-world situations where companies face fines.

In a tax evasion case, a company might underpay corporate income tax by deliberately underreporting revenue. The company faces corporate criminal liability because the crime was committed by its employees in the company's interest.

If the company can prove that it implemented all reasonable tax compliance procedures, it may successfully claim the compliance defense. The CFO, however, remains personally liable.

In an environmental violation case, a chemical company might violate regulations causing contamination. The company can mount a compliance defense if it proves it had a robust environmental management system.

If the violation resulted from a rogue employee acting against explicit protocols, the company might be acquitted. The Environmental Director faces personal criminal liability and potentially civil liability.

In a procurement fraud case, a company wins a government contract through fraudulent data submitted by an executive. The company faces severe penalties, including a potential ban on public procurement.

The compliance defense is difficult to prove if senior management was involved. This scenario often results in the "death penalty" for the business if it relies on public money.

Protective measures: how companies and directors can mitigate risk

Understanding the liability landscape is the first step; implementing protective measures is the crucial second step. The most important measure is implementing a comprehensive compliance program.

An effective program must include written policies, training, reporting channels, and audits. Importantly, the compliance program must be genuinely implemented, not merely documented.

Directors and Officers (D&O) insurance covers damages claims asserted against directors. It typically covers defense costs and civil damages for breach of duty of care.

However, D&O insurance generally does not cover criminal fines imposed on the director or the company. It is a vital tool for negligence claims but not a protection for criminal conduct.

Directors must implement financial controls, including regular financial reporting and cash flow monitoring. These controls create evidence that the director acted with due care.

Directors must ensure that significant contracts are reviewed by counsel. Simple checks of the Czech Commercial Register regarding business partners can prevent liability for dealing with unreliable entities.

Executive summary for management

1. Dual liability structure: Both companies and directors can face independent criminal, civil, and administrative liability.

2. Compliance defense is critical: The Criminal Liability Act offers a defense if the company proves it implemented all reasonable preventative measures.

3. Director liability is unlimited: Directors face unlimited personal liability for breach of due managerial care, including damages to the company.

4. Penalties can be fatal: Procurement bans and massive fines can end a business.

5. Expert guidance is essential: Professional guidance from ARROWS Law Firm reduces compliance risks and creates the necessary documentary evidence.

Conclusion of the article

The question of who bears liability when a Czech company receives a regulatory fine does not admit a simple answer. The company faces corporate criminal liability and administrative penalties while directors face personal liability.

The compliance defense offers a critical lifeline for well-managed companies, but the practical complexity requires professional legal support. ARROWS Law Firm has extensive experience handling corporate liability matters.

If your company faces potential regulatory penalties, ARROWS Law Firm can provide the guidance necessary to protect your organization. Contact ARROWS Law Firm at office@arws.cz to discuss your situation.

FAQ – Frequently asked legal questions about corporate and personal liability in the Czech Republic

1. If the company is criminally convicted, can the director escape personal liability by claiming ignorance?

No. Directors bear responsibility for supervision. Claimed ignorance often evidences a failure to exercise due managerial care.

2. Does a company face more severe penalties if senior management participated in the misconduct?

Yes. While corporate liability exists regardless of who committed the crime, courts consider management's involvement as an aggravating factor.

3. If the company pays the regulatory fine, does that satisfy the company's liability?

It satisfies the penalty to the state, but it does not prevent shareholders or creditors from suing the directors for the value of that fine.

4. Can a company claim the compliance defense if the program was implemented after the crime?

No. The measures must have been in place before the crime occurred. Post-crime implementation helps with mitigation but does not provide full exculpation.

5. Does D&O insurance cover criminal fines?

Generally no. D&O insurance typically covers civil damages and defense costs, but excludes criminal penalties and intentional misconduct.

6. What should a director do upon discovering a crime?

Secure evidence and immediately contact legal counsel to determine whether to self-report or apply for a diversion. Contact ARROWS Law Firm at office@arws.cz.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve. 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 accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation.

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