How Danish Firms Should Approach Business Deals in the Czech Republic:

Are you a Danish company expanding into the Czech Republic? Your commercial contracts are your first line of defense, but a simple translated agreement is not enough. This guide provides specific, practical answers to common legal traps that Danish businesses face. As a leading Czech law firm with a team of English-speaking lawyers, ARROWS, a law firm based in Prague, European Union, has seen costly mistakes. We wrote this article to help you avoid them.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

The Danish-Czech Legal Gap You Can't Ignore

As two EU member states, the Danish and Czech legal systems share a common foundation. This familiarity, however, often creates a false sense of security. The greatest risks lie in the subtle but profound differences between your Danish legal traditions and the realities of the Czech Civil Code.

In Denmark, your Aftaleloven (Danish Contracts Act) is flexible. Danish courts are famously willing to "see through the strict wording" to determine the parties' intent. Oral agreements are a standard and generally binding part of doing business.

The Czech legal system can be far more formalistic. Your direct, "good faith" Danish communication style might secure a "yes" in a meeting, but that verbal agreement could be legally worthless. This "cultural-legal mismatch" is where Danish companies suffer financial losses. Our English-speaking lawyers at ARROWS are trained to bridge this exact gap. For immediate assistance, write to us at office@arws.cz.

Mistake 1: The "Gentleman's Agreement" Trap – When Your Contract is Legally Void

In Denmark, the law is clear: "oral agreements are just as valid and binding as written agreements". This flexibility, central to the Aftaleloven, is part of your business culture.

Assuming this applies in the Czech Republic is a legal "time bomb". While our Civil Code is modern, it imposes strict formal requirements for certain critical contracts. If you fail to meet these requirements, your agreement is legally void from the start, no matter what was said or intended.

How can this risk destroy your market entry?

Let's use a real-life scenario. A Danish tech company agrees via email and phone calls for a Czech sales agent to represent them. The agent works for 12 months, builds a client list, and then resigns to join a competitor, taking your entire database with them.

Your lawsuit to stop them will fail. A Czech court will find that no valid Agency Agreement ever existed because it was not in the mandatory written form. The emails and verbal understandings are legally worthless. This is a total loss of your market entry. ARROWS provides expert contract drafting to ensure your agreements meet all formal requirements of the Czech Civil Code.

FAQ – Legal tips about Contract Formation

• Are email agreements binding in the Czech Republic?
  It is highly risky. While emails can form a contract, they may not satisfy the mandatory written form for key agreements (like agency) unless they include a qualified electronic signature. To ensure your electronic communications are legally binding, get tailored legal solutions by writing to office@arws.cz.
• What contracts absolutely must be in writing?
  Any contract for the transfer of real estate, a commercial agency agreement, and any agreement where one party simply (and validly) requests it. Relying on oral agreements is not a safe strategy in the Czech Republic. For a full review, contact our lawyers at office@arws.cz.

Mistake 2: The ‘Smluvní Pokuta’ – A Penalty That Is Meant to Punish

This is our first critical legal term: smluvní pokuta (contractual penalty). In Danish law, you may be used to penalty clauses being scrutinized for "reasonableness" or being limited to a "genuine pre-estimate of loss".

The Czech smluvní pokuta is fundamentally different. It is not a tool for compensation; it is a powerful "preventive and punitive" tool designed to force compliance.

Why is this a trap for Danish companies?

Danish companies are often shocked by three facts about the smluvní pokuta:

1. It is payable without damage: The penalty is due for the breach itself. It is enforceable even if the other party "suffered zero financial damage".

2. It is payable without fault: The debtor is liable even if they were not at fault (e.g., their own supplier was late, a tree fell on the cargo).

3. It applies to anything: It can be used to secure any contractual obligation, including a simple delay in payment, creating a "critical asymmetry" in negotiations.

The hidden trap: Does the penalty replace damages?

Yes, by default. Under § 2050 of the Czech Civil Code, if you have a penalty clause, "the creditor shall not be entitled to damages caused by the breach... unless otherwise agreed". If your Czech partner's breach costs you €100,000, but your contract has a €5,000 penalty, you may only get the €5,000.

Furthermore, the law on this is not static. A ground-breaking 2023 Supreme Court decision fundamentally changed how courts can "moderate" (reduce) penalties. Our lawyers can review your contracts to ensure they are compliant with the latest Czech case law. Email us at office@arws.cz.

Risks and penalties	How ARROWS helps
The "Punitive" Penalty: You agree to a 0.5% daily penalty for a late delivery, assuming it's an unenforceable "slap on the wrist." Financial Consequence: A 60-day delay on a €100,000 order triggers a €30,000 penalty, payable even if the client suffered no loss.	Contract review: We identify and help you renegotiate unreasonable smluvní pokuta clauses before you sign. Need your contract reviewed? Write to office@arws.cz.
The "Damages" Trap: Your partner's breach costs you €50,000 in lost profits. Your contract has a €10,000 smluvní pokuta for that breach. Financial Consequence: You claim the €10,000, but by default, you lose the right to claim the other €40,000 in damages.	Contract drafting: We draft specific language ensuring you can claim both the contractual penalty and compensation for any damages in full. Get tailored legal solutions by writing to office@arws.cz.
The "Force Majeure" Fallacy: You are prevented from performing by an obstacle and claim force majeure. Financial Consequence: Under Czech law, a statutory force majeure event may only excuse you from damages, but not from paying a smluvní pokuta.	Legal opinion: We provide analysis on how your contractual force majeure clause interacts with its penalty clauses to prevent this trap. For immediate assistance, write to us at office@arws.cz.

Mistake 3: Assuming You Aren't Liable for Your Subcontractor's Failures

Whether you are hiring a Czech contractor or acting as one, you must understand the strict rules on liability. Under §§ 2913 and 2631 of the Czech Civil Code, the law is simple: "Anyone who uses another person to fulfill an obligation is liable as if they performed it themselves".

In a real-life case, a contractor hired a separate firm to do the wiring. When serious faults appeared, the contractor’s defense was "We didn't do that part." The court ruled this is not a valid defense. You are fully responsible to the client, period.

A new risk for construction and project management

This legal trend is expanding. A recent amendment to the Czech Labour Code (effective 1 January 2024) created a mandatory liability for contractors in the construction industry for the wage claims of their subcontractor's employees.

This means the Czech legal system is actively making main contractors the "guarantor" for their entire supply chain. As an international law firm operating from Prague, European Union, we understand the complexities of cross-border supply chains.

Our ARROWS International network, built over 10 years with partners in 90 countries, allows us to draft and manage the complex, multi-party contracts necessary to mitigate these subcontractor risks from a central, EU-based point of contact.

Mistake 4: Wasting Time and Money on Flawed Jurisdictional Challenges

This is a critical, high-level mistake that Danish businesses often make. You know that Denmark has a unique position regarding certain EU justice policies. You may believe that your company's "opt-out" from the Brussels I bis Regulation (on jurisdiction and enforcement of judgments) means you can avoid Czech courts.

What’s the real rule?

This belief, while common, is incorrect and leads to "flawed jurisdictional challenges, causing unnecessary delays and costs".

Here is the vital piece of information: Denmark has a "separate, parallel agreement" with the EU that fully implements the provisions of the Brussels I bis Regulation.

The default rule applies: you must generally sue a defendant in their country of domicile. If your dispute is with a company registered in the Czech Republic, the "starting point... will almost always be the Czech courts".

Knowing this fact is a strategic advantage. While a counterparty wastes time and money preparing a flawed motion, we can file in the correct Czech court and apply for an interim measure to freeze assets, giving you immediate leverage. We provide legal opinions on jurisdiction before a dispute begins. Get tailored legal solutions by writing to office@arws.cz.

Risks and penalties	How ARROWS helps
The Flawed Jurisdictional Challenge: Your Czech partner breaches. You instruct your Danish lawyer to sue in Denmark, citing the "EU opt-out." Financial Consequence: You waste €20,000 and 6 months on a challenge that is legally unwinnable due to the parallel agreement.	Legal consultations: We provide immediate, correct analysis on jurisdiction to ensure you file in the right court the first time. Need legal help? Contact us at office@arws.cz.
Missing the "Hard" Deadline: You spend 12 months negotiating with your debtor, and then 2.5 years trying to find a lawyer. Financial Consequence: Your claim is dismissed. The Czech statute of limitations (promlčecí lhůta) for B2B claims is a strict three years.	Representation in court: We act quickly to file your claim and secure your rights before the promlčecí lhůta expires. Do not hesitate to contact our firm – office@arws.cz.
Losing Control of Proceedings: Your dispute goes to a Czech court. Financial Consequence: All official proceedings are conducted exclusively in the Czech language. You are now reliant on slow, expensive third-party translations.	English-speaking legal representation: Our team handles all proceedings in Czech while reporting to you in perfect English, ensuring you remain in full control. For immediate assistance, write to us at office@arws.cz.

Mistake 5: Terminating Negotiations Too Casually (and the "1-Koruna" Insult)

Our final critical legal term is culpa in contrahendo (pre-contractual liability). In many legal systems, walking away from a deal before a contract is signed is normal business. In the Czech Republic, this is a "significant departure".

How can this affect you?

Under §§ 1728 and 1729 of the Czech Civil Code, parties must negotiate in good faith. If your company engages in advanced negotiations (e.g., signing a Letter of Intent) and then terminates them without a just cause (e.g., you simply get a better offer), a Czech court can hold you liable for the other party's wasted costs.

A related "soft" mistake is a purely commercial one. In Denmark, an ApS requires DKK 40,000 capital, which is seen as a sign of a serious business. A Czech s.r.o. (LLC) legally only requires CZK 1 (less than one Euro cent).

Danish companies sometimes choose this option thinking it's efficient. This is a major commercial error. Czech banks, landlords, and partners will view your "1-Koruna company" as unstable and having no financial backing, preventing you from securing loans, leases, or supplier credit.

Risks and penalties	How ARROWS helps
Walking Away from a "Done Deal": You terminate advanced negotiations for a joint venture to pursue a better offer. Financial Consequence: You are sued for culpa in contrahendo and are forced to pay the (now-ex) partner's legal, travel, and due diligence costs.	Legal consultations: We advise on the Czech rules for "good faith" negotiations and how to terminate discussions properly to avoid liability. Need legal help? Contact us at office@arws.cz.
The "1-Koruna Company" Insult: You form your Czech s.r.o. (LLC) with the legal minimum capital of CZK 1, thinking it's efficient. Financial Consequence: Czech banks, suppliers, and landlords refuse you credit, loans, and leases, viewing your company as "unstable" and not serious.	Company formation services: We provide legal consultations to ensure your Czech entity is structured and capitalized properly to be commercially credible from day one. For immediate assistance, write to us at office@arws.cz.

How ARROWS Lawyers Secure Your Entry into the Czech Market

We are not just a law firm; we are a strategic partner for Danish companies entering the Czech market. As a leading Czech law firm in Prague, EU, ARROWS has the "speed and high quality" to protect your investment.

Our team supports over 150 joint-stock companies and 250 limited liability companies, many of them foreign-owned. We know the mistakes you are about to make, and we draft documentation to prevent them.

We provide full contract drafting and review to protect you from smluvní pokuta traps and void oral agreements. We offer legal opinions on complex issues like jurisdiction and culpa in contrahendo. We provide representation in court or before public authorities, communicating with you in flawless English. We can also deliver professional training for your management to make your entire team aware of these Danish-Czech differences.

Our lawyers are ready to assist you and welcome your innovative business ideas. Secure your Czech venture by emailing us at office@arws.cz.

FAQ – Most common legal questions about Danish-Czech Contracts

• What is the promlčecí lhůta?
  This is the Czech term for the statute of limitations. For most B2B commercial claims, it is a strict three-year period from the date the right could first be exercised (e.g., invoice due date). If you file a lawsuit after this, the debtor can object, and the court must dismiss your claim. To check if your claims are still valid, contact our team at office@arws.cz.
• Can I claim both a smluvní pokuta and compensation for damages?
  Only if your contract explicitly states this. The default rule in the Czech Civil Code (§ 2050) is that the penalty replaces your right to damages for that specific breach. This is a common trap. We can review your contract to fix this. Email us at office@arws.cz.
• Is a Letter of Intent (LOI) or "Heads of Terms" binding in the Czech Republic?
  It can be. While it's not a final contract, it is strong evidence of "advanced negotiations." Under the doctrine of culpa in contrahendo (pre-contractual liability), if you sign an LOI and then walk away without a just cause, you may be liable for the other party's costs. For advice on LOIs, contact us at office@arws.cz.
• What is the biggest corporate setup mistake Danish companies make?
  Establishing a Czech s.r.o. (LLC) with the minimum CZK 1 capital. While legal, it signals financial instability to Czech banks and partners, who are used to the serious DKK 40,000 capital of a Danish ApS. We advise on proper capitalization for commercial credibility. Get tailored legal solutions by writing to office@arws.cz.
• Does Denmark's EU "opt-out" on justice help me avoid Czech courts?
  No. This is a critical misunderstanding. Denmark has a parallel agreement that fully implements the Brussels I bis Regulation. You cannot use the "opt-out" to make a flawed jurisdictional challenge against a Czech-domiciled company. Our lawyers can provide a full legal opinion on this. Do not hesitate to contact our firm – office@arws.cz.
• Should I use arbitration instead of Czech courts?
  Arbitration is an excellent option and is fully supported by Czech law. It allows for a neutral, private, and often faster resolution. As an international firm, ARROWS lawyers are experienced in drafting arbitration clauses and representing clients in these proceedings. To discuss your dispute resolution options, email office@arws.cz.

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