Appointing a Foreign Director in a Czech Company Legal Requirements and Risks

Appointing a foreign director to your Czech subsidiary can accelerate international growth, but it also brings liability risks that differ sharply from other jurisdictions. This article explains the key obligations of a Czech statutory representative (jednatel), why standard employment contracts are insufficient, and how to handle the 2025 administrative requirements to keep your Prague management structure compliant and fully functional.

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.

What is a "Jednatel" and why does it matter?

For foreign investors entering the Czech market, the společnost s ručením omezeným (s.r.o.) is the most common vehicle. However, the role of its executive director, the jednatel, is frequently misunderstood. Unlike a simple manager, the jednatel is a "statutory body." 

This means their actions are legally the actions of the company itself. There is no requirement for the director to be a Czech citizen or resident, which offers great flexibility for foreign parent companies.

However, this flexibility is deceptive. While you can appoint a director living in London, Berlin, or New York, the practical reality of Czech bureaucracy in 2025—specifically regarding Data Boxes (datové schránky) and bank account access—creates invisible barriers. 

ARROWS Law Firm, a leading Czech law firm in Prague, EU, handles these appointments daily and can bridge the gap between legal theory and operational reality.

The Trap of "Concurrence of Functions"

The most dangerous pitfall for foreign companies is the "Concurrence of Functions" (souběh funkcí). It is common practice abroad to hire a director under a standard employment contract. In the Czech Republic, this can be a fatal mistake.

The Czech Supreme Court has established that a statutory body cannot perform their duties under an employment contract because one cannot be "subordinate" to oneself. If a director operates under an employment contract for management duties, that contract is often invalid (void) from the start.

What do you need to comply with?

To avoid this, you must use a specific "Contract on Performance of Function" (Smlouva o výkonu funkce). This document must be approved by the General Meeting of shareholders. If this contract is missing or invalid, the directorship is presumed to be free of charge, and the director loses labor law protections like severance pay.

FAQ – Legal tips about Director Contracts

• Can we use a dual contract structure (Manager + Director)?
  This is risky. The lines between "commercial management" (statutory duty) and "operational management" (employment) are blurry. Courts often invalidate the employment part. Safeguard your position by contacting us at office@arws.cz.
• What if we already signed an employment contract?
  You are at risk of retroactive invalidity. We can review your documentation and draft a remedial "Contract on Performance of Function" to legalize the relationship. Email our team at office@arws.cz.

Employment vs. Function

Risks and penalties	How ARROWS helps (office@arws.cz)
Void Contracts: Standard employment contracts for directors are often legally invalid, leaving the director with no contract at all.	Valid Documentation: We draft the correct "Contract on Performance of Function" (Smlouva o výkonu funkce) compliant with the Business Corporations Act.
Unlimited Liability: Without a valid contract limiting liability, a director faces unlimited personal liability for damages under the Civil Code.	Liability Caps: We structure the agreement to define liability limits and procure D&O insurance solutions where appropriate.
Tax & Insurance Chaos: Invalid contracts can lead to the reclassification of income by tax authorities, triggering penalties and interest.	Tax Structuring: Our tax specialists ensure the director's remuneration package is structured correctly for cross-border taxation.
Unpaid Work: If no valid remuneration clause exists, the law may presume the director is working for free (bezúplatně).	Remuneration Security: We ensure the General Meeting properly approves the remuneration to guarantee the director's right to pay.

How can you avoid legal risk? "Due Managerial Care"

In the Czech Republic, a director must act with "Due Managerial Care" (péče řádného hospodáře). This is an objective standard of loyalty, knowledge, and diligence. It is not enough to be honest; you must be competent.

Key nuances of liability:

• Burden of Proof: In a dispute, the director must prove they acted with due care. The company does not need to prove negligence.
• Insolvency: If the company becomes insolvent, the director must file for insolvency without undue delay. Failure to do so can make the director personally liable for the difference between what creditors receive and what they would have received if the filing were timely.
• Business Judgment Rule: Directors are protected if they can prove they acted in good faith, with adequate information, and in the company's defensible interest. ARROWS acts as your legal shield, ensuring your decisions are documented to meet this standard.

The 2025 Administrative Labyrinth

Even simple steps like getting a "Birth Number" (rodné číslo) or accessing a Data Box have become complex for foreigners in 2025.

The "Rodné Číslo" Problem:

Every director needs a Czech identification number for tax and registry forms. Foreigners don't have one automatically. The application process through the Ministry of the Interior is currently facing delays, often taking months. Without this number, electronic filings often fail.

The Data Box Mandate:

Every Czech s.r.o. has a mandatory Data Box. Login details are sent only to the director's own hands. If your director lives in the US or Asia, these letters often never arrive or are returned. Ignoring the Data Box is dangerous: documents delivered there are legally deemed "served" after 10 days, even if you never read them.

FAQ – Legal tips about Bureaucracy

• Can I access the Data Box from abroad?
  Yes, but you need the login credentials. We can help you obtain these credentials or act as the administrator of your Data Box to ensure you never miss a court notice. Secure your communications at office@arws.cz.
• Do I need a visa to be a director?
  Generally, no. You can perform the function of a statutory body without a work permit if you do not reside in the CZ. However, frequent stays may trigger residency obligations. Check your specific status at office@arws.cz.

Administration & Compliance

Risks and penalties	How ARROWS helps (office@arws.cz)
Data Box Fiction: Missed government notices in the Data Box are deemed "delivered," leading to automatic fines or default judgments.	Data Box Management: We can administer your Data Box, monitoring incoming mail daily and alerting you to legal deadlines immediately.
Bank Account Blockade: Banks often refuse to open accounts for companies with non-resident directors due to strict AML/KYC rules.	Banking Introduction: We assist with the "KYC" packages and represent you in negotiations with foreign-friendly Czech banks.
UBO Sanctions: Failure to register the Ultimate Beneficial Owner prevents the payment of dividends and freezes voting rights.	UBO Registration: We handle the complex identification and registration of UBOs to ensure you can access your profits and vote.
Birth Number Delays: Lack of a Czech "rodné číslo" blocks tax filings and registry updates.	Expedited Processing: We handle the application for your pseudo-birth number to unblock your administrative access.

Banking and Transparency: The Real Hurdles

While the law allows a foreign director, Czech banks are often less welcoming. They strictly enforce Anti-Money Laundering (AML) rules. If your director cannot visit Prague in person, opening an account is nearly impossible at major institutions.

Furthermore, you must register the Ultimate Beneficial Owner (UBO). While recent 2025 court rulings have complicated the state's ability to fine companies for non-registration due to privacy concerns, the commercial sanction remains: Banks will simply close your account or refuse to open one if your UBOs are not transparent.

What’s the next step?

Establishing a Czech company with a foreign director is complex. It involves coordinating the Commercial Register, the Trade Licensing Office, the Tax Office, and the bank. ARROWS International law firm operating from Prague, European Union, manages this entire process. We are insured for damages up to CZK 500 million, offering you a safe harbour for your business interests.

FAQ – Most common legal questions about Foreign Directors

1. Is a criminal record extract required for a foreign director?
Yes. You must provide a criminal record extract from your country of citizenship and any country where you lived for more than 3 months in the last 3 years. This often requires an Apostille or Superlegalization. Need help with legalization? Contact us at office@arws.cz.

2. Can I sign the incorporation documents remotely?
Yes, via a Power of Attorney. You do not need to travel to Prague for the incorporation itself, though a bank visit is usually required later. We can prepare the Power of Attorney for you – email office@arws.cz.

3. What is the minimum capital for an s.r.o.?
The minimum is CZK 1. However, we recommend at least CZK 20,000 to CZK 50,000 to ensure solvency and credibility with banks. Discuss your capital structure with us at office@arws.cz.

4. How long does the appointment take?
Once we have the documents (criminal record, consent), the registration in the Commercial Register by a notary can be done within 24 hours. For immediate assistance, write to us at office@arws.cz.

5. Is the director personally liable for company debts?
Generally, no. However, if the director breaches their duty of "due managerial care" or fails to file for insolvency on time, they can become personally liable. Protect your personal assets by consulting office@arws.cz.

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