or should and ought have to been aware of the fact that the business corporation was under imminent threat of bankruptcy, and contrary to acting with due diligence did not take all the necessary and reasonable steps to avert bankruptcy. Under certain conditions a member of the statutory body can be excluded by the court from his/her office in any business corporation in the Czech Republic, and during this exclusion cannot be appointed to any such position. If a statutory body member fails to settle damages to the business corporation caused by breach of obligation in the performance of his/her duties, he/she is liable for the debt of the business corporation towards the creditor to the amount of non-settled damages if the creditor cannot satisfy its debt from the business corporation. Apart from liability for damage pursuant to the Insolvency Act when failing to submit an insolvency petition or for its late submission, a member of the statutory body might be under certain circumstances liable for fulfilling all the obligations of the business corporation if a legal decision on bankruptcy was issued. Members of a company’s bodies also have several other obligations, such as notification duties. For example, they must inform the supervising or supreme body if their interest conflicts with the company’s interests, or if they intend to conclude a contract with the company. Special attention is to be attached to the contract executed between the member of the statutory body and the company to avoid a situation where his/her performance of the office will be for free which is generally the case when no contract on performance of office has been concluded and approved by the general body of the company.

Since 1 January 2021, this rule of free performance of office was adjusted so that if such contract is invalid or ineffective or no contract for the performance of office has been concluded for reasons on the side of the company, vis major or generally another reason independent of the will of the member of the statutory body, the member is entitled to the usual remuneration. A company’s problem -free existence is also ensured by what is known as an insolvency test which prohibits the company to pay out the profit if it caused its own bankruptcy. 3.2 Reporting requirements An existing company must regularly publish in the Collection of Deeds held by the Commercial Register, in particular the following documents: (i) annual reports, (ii) annual, extraordinary and consolidated financial statements (if not included in the annual report), (iii) proposal for distributing profit and its final form or settling losses, if not included in the ordinary financial statement, (iv) auditor’s report certifying the financial statement, and (v) report on relations between related parties. The annual reports and financial statements must be certified by an auditor before being published if the conditions of the accounting act are fulfilled. 3.3 Requirements for local shareholdings/ directors For shareholders, there are no requirements in respect of their nationality – they may be

ILN Corporate Group – Establishing a Business Entity Series

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