Foreign business entities in the Czech Republic often prefer
doing business through a branch (in Czech
"organizační slo~ka") as opposed
to establishing a company.
However, the branch of an enterprise does not have its own legal
personality, even if it is registered in the Commercial Register.
The rights and obligations associated with matters that concern a
branch remain with the branch's founder (i.e. the foreign
business entity (entrepreneur). This fact is of essential
importance also in respect of acts performed by the head of the
branch on behalf of an entrepreneur; and in respect of the option
to be further represented by power of attorney.
Pursuant to Section 13 (3) of the Commercial Code, the head of the
branch of an enterprise (whose name is recorded in the Commercial
Register) is authorised to undertake any and all legal acts
concerning such branch on behalf of the entrepreneur. This is a
special case of legal representation of an entrepreneur. Foreign
business entities frequently appoint foreigners (or more precisely
persons not primarily residing in the Czech Republic) as heads of
their branch in the Czech Republic. Accordingly, it is often
necessary to authorise another person to act on behalf of the
branch.
Czech laws do not expressly provide that powers of attorney may be
granted to act on behalf of the branch. There has been a lack of
unanimity among professional circles (as well as judicature) in
respect of the granting of powers of attorney by heads of branches.
In its decision dated 19 February 2008, the Supreme Court of the
Czech Republic concluded that the authorisation of the head of
branch of an enterprise is a statutory authorisation which is not
transferable. Such authorisation relates exclusively to the person
who is head of the branch. In its decision, the Supreme Court
refers to Section 24 of the Civil Code which generally provides
that: "The representative must act in person; he may appoint
another representative only if this is laid down in statutory
provisions or if the parties have so agreed". The Supreme
Court took into account that no legal regulation provides for an
opportunity to transfer the statutory authority of the head of the
branch. The Supreme Court also took into account that the right of
the head of the branch to act on behalf of the branch is not
subject to an agreement of the parties, but instead ensues directly
from the law. Accordingly, the Supreme Court concluded that the
head of the branch is not entitled to authorise another
representative to act on behalf of the branch.
Accordingly, if it is necessary to authorise a third person to act
on behalf of the branch, we recommend that the power of attorney is
granted to a third person directly by the entrepreneur (i.e. by the
founder of the branch), and not by the head of the branch.
Otherwise, according to the Supreme Court's conclusion, the
deputy head of the branch would not acquire the authority to act on
behalf of the branch.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 14/03/2012.
