Contract on the Performance of the Function of Managing Director

Hello,

in connection with the approval of the contract on the performance of the function of a managing director, we draw attention to the following provisions of Act No. 513/1991 Coll., the Commercial Code:

“§ 125 para. 1: “The general meeting of shareholders is the highest body of the company. Its powers include:

a) approval of acts performed by persons acting on behalf of the company before its establishment,

b) approval of the regular individual financial statements and extraordinary individual financial statements and decision on the distribution of profit or coverage of losses,

c) approval of the articles of association and their amendments, unless otherwise provided by law,

d) decision on the amendment of the memorandum of association (§ 141), if entrusted to the general meeting by law or the memorandum itself,

e) decision on the increase or decrease of share capital and decision on non-monetary contributions,

f) appointment, removal, and remuneration of managing directors,

g) appointment, removal, and remuneration of members of the supervisory board,

h) exclusion of a shareholder according to § 113 and 121 and decision on filing a petition under § 149,

i) decision on the dissolution of the company or change of legal form, if permitted by the memorandum, decision on approval of a contract for the sale of the enterprise or part thereof,

j) other matters entrusted to the general meeting by law, the memorandum of association, or the articles of the company.“

If the managing director has entered into a contract on the performance of function with the company, it must be in written form and approved by the general meeting of the LLC. An agreement on remuneration (i.e. compensation as such) can be considered one of its essential elements. Given the commercial law nature, compensation should be regarded as an essential element. It can be assumed that if a contract on the performance of function is concluded with the managing director, it will always include remuneration for the performance of this function, the method and amount of which depend solely on the agreement of the contracting parties. As remuneration, or part of it, the contract may also stipulate a share in the company’s profit or a fixed amount of compensation regardless of the company’s economic results.

“And what is the relationship of the managing director to the company based on the performance of their function?

According to § 66 para. 6: “The relationship between the company and a member of the company’s body or a shareholder when handling the company’s affairs is governed appropriately by the provisions on a mandate contract, unless otherwise determined by the contract on the performance of function concluded between the company and the member of the company’s body or shareholder, if such a contract was concluded, or unless otherwise provided by law. The contract on the performance of function must be in written form and approved by the general meeting of the company or in writing by all shareholders who are liable for the company’s obligations without limitation. The statutes of a joint-stock company or a simple joint-stock company may stipulate that the contract on the performance of function of a board member is approved by the supervisory board.”

In this case, it is not obligatory (mandatory) for the relationship to be established or defined in writing. The Commercial Code clearly states that if no contractual relationship is created, the provisions on mandate contracts under the Commercial Code shall apply.

Although the written contract on the performance of function of the managing director has no mandatory content beyond the written form and the designated approving authority, it must always be a contract that is expressed as a legal bilateral act in a definite and understandable way. That means mutual rights agreed upon between the company and the managing director must be defined clearly and specifically.

Also read: Changes in the Commercial Register