Capital companies, i.e. limited liability and joint stock companies, are established by a Memorandum of Association, which must take the form of a notarial deed according to Section 8 of Act No. 90/2012 Coll., on business corporations (hereinafter “ABC”).

However, having all founders attend a notary at the same time can be administratively demanding and difficult, especially when some founders may come from other countries. In practice, this situation is often solved by one of the founders, or a third party such as an attorney, being authorised to establish the company by proxy. Thus only one person, with the relevant power(s) of attorney has to visit the notary at a time that suits them.

The establishment of a company on the basis of a power of attorney is therefore much easier and more convenient for some founders than attending proceedings before a notary in person. In the case of founders from several different countries, the establishment of a company on the basis of a power of attorney is a necessity.

However, Act No. 89/2012 Coll., the Civil Code (hereinafter “NCC”) and the ABC have made this practice more difficult, when Section 441 of the NCC states that, where a special form is required for a certain legal act, a power of attorney must be granted in the same form. Section 582 of the NCC further states that if a legal act is not executed in the form agreed by the parties, or as prescribed by law, it is invalid.

The professional public and registration courts have interpreted this provision to mean that if a Memorandum of Association requires a notarial deed, a power of attorney must also take the form of a notarial deed. If a power of attorney is not drawn up in this manner the power of attorney and Memorandum of Association drawn up on the basis thereof are invalid.

Registration courts thus require the submission of powers of attorney drawn up in the form of notarial deeds. Yet, drawing up a power of attorney in the form of a notarial deed is an administratively and financially demanding process that significantly complicates the establishment of a company.

However, in its judgement of 27 November 2011 in case no. 29 Cdo 3919/2014, the Supreme Court of the Czech Republic assisted entrepreneurs, when it relaxed this previously strict interpretation of Sections 441 and 582 of the NCC.

Although the Supreme Court maintains the legal view that where a Memorandum of Association requires a notarial deed, a power of attorney must also take the form of a notarial deed for the preparation of a Memorandum of Association, it does not, however, consider a Memorandum of Association drawn up on the basis of a power of attorney in a form other than a notarial deed to be invalid.

The Supreme Court reached this conclusion based on the provisions of Section 580 (1) of the NCC, under which legal acts contrary to law are only invalid if so required by the meaning and purpose of the law. According to the court, such a limit also applies to cases of invalidity on the grounds of deficient form.

The court concluded that if this legal act requires the form of a notarial deed, the meaning and purpose of the requirement for the form of the power of attorney under Section 441 of the NCC is to ensure verification of the identity of the mandator(s), while ensuring the power of attorney is granted for the intended legal act (i.e. that the mandatary’s authorisation to execute the required legal act is clear from the power of attorney).

In general, therefore, according to the court, it applies that if there is no doubt of the identity of the mandator, i.e. it is evident who granted the power of attorney, the power of attorney is not invalid simply because it was not granted in the form of a notarial deed, even if granted for a legal act that must be executed in the form of a notarial deed by law.

Signatures on a power of attorney for the establishment of a company must, however, be at least notarised. This requirement is stipulated in Section 6 of the ABC, which expressly states that a legal act without notarised signatures is invalid.

Thus, while it generally applies under Section 441 and Section 580 (1) of the NCC, that legal acts that do not meet the form prescribed by law (power of attorney in the form of a notarial deed) are only invalid if so required by the meaning and purpose of the law, invalidity under Section 6 of the ABC is a special regulation, which states that without notarised signatures, the relevant legal act (power of attorney) is always invalid, even if not required by the meaning and purpose of the law.

The conclusion of the Supreme Court is, therefore, that it is sufficient for a power of attorney for the adoption of a Memorandum of Association on the establishment of a limited liability or joint stock company to be granted in writing, with the notarised signature(s) of the founder(s). However, on a failure to comply with this form, the power of attorney is invalid.

Thus, founders no longer have to grant a power of attorney for the establishment of a company in the form of a notarial deed, and registration courts cannot require a notarial deed of a power of attorney. By its interpretation, the Supreme Court has therefore simplified the process of establishing limited liability and joint stock companies.

For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.