Statutory body

What it means

The statutory body is whoever acts for a legal person towards the outside world. In an s. r. o. that is the managing director, in a joint-stock company the board of directors, in a cooperative its board as well; the commercial register states who holds the office and how they act.

It is neither the owner nor an ordinary employee: the office arises by appointment, not by an employment contract, and the relationship runs on a service agreement. It differs from procuration in that the holder of a procuration is an authorised agent, not an organ of the company.

Where an s. r. o. has several managing directors, each acts alone unless the articles of association say otherwise. Internal limits, such as needing the general meeting’s consent for a large purchase, bind the director towards the company but not towards third parties: a contract signed without consent must still be performed by the company, which then settles with the director.

How it works in practice

Appointment and removal belong to the general meeting, though in a joint-stock company the articles may hand the election of the board to the supervisory board, and the change is filed for entry in the commercial register with a signature specimen. Third parties rely on the registered manner of acting, so a signature outside it need not bind the company.

The duties are personal: keeping the books, depositing the financial statements in the register of financial statements, watching for the company crisis and filing for insolvency in time. A breach is answered for to the company and, in the worst case, to creditors out of the director’s own assets.

Remuneration for holding the office is taxed as employment income, and insurance contributions are paid on regular remuneration too, even though there is no employment relationship. We run it in payroll as a separate type of relationship and, before the first payment, check that the service agreement actually sets it and that the competent body approved it.

What to watch out for

A director resigns by letter and treats the matter as closed. When the resignation takes effect is governed by the Commercial Code rather than by the date on the letter, and the company has to file the change: until it does, the register still shows them as the statutory body and the requests and fines keep arriving.

A managing director is bound by a non-compete rule: without the company’s consent they may not trade on their own account in its line of business or sit on the statutory body of another firm with a similar business. On a breach the company can claim the benefit obtained and damages as part of director’s liability, which often comes to light only in a dispute between shareholders.