Lze stanovami upravit neomezené funkční období členů představenstva?

Can the Articles of Association provide for an unlimited term of office for the members of the Board of Directors?

The Act on Business Corporation provides that the term of office of the members of the Board of Directors of a joint-stock company is 3 years, unless the Articles of Association or the service agreement concluded with the board member provide otherwise. Until December 2020, this term was only 1 year. From the above, it can be seen that the regulation is so-called dispositive. The company may deviate from the statutory term of office and determine it differently.

But how "different" can the length of the term of office be? This question was addressed by the Supreme Court a few months ago when it considered whether it is possible to modify the unlimited term of office of the members of the Board of Directors in the Articles of Association and who is affected by such a change in the Articles of Association.

At the heart of the dispute was a situation where a company had amended its Articles of Association to provide for an unlimited term of office instead of a five-year term of office. However, the existing members of the Board of Directors had been elected when the “old” version of the Articles of Association was in effect. Was it therefore possible to provide for an unlimited term of office? And did the unlimited term also apply to the present board members?

According to the opinion of the Supreme Court expressed in the decision of 17 May 2023, case no. 27 Cdo 1915/2022, nothing prevents a company from adjusting the unlimited term of office of the members of the Board of Directors. In a situation where the General Meeting may remove the members of the Board of Directors (whom it elects) from the office at any time, even without giving reasons, there is no reason why it should not be possible to provide in the Articles of Association that the term of office of the members of the Board of Directors is unlimited.

With regard to the impact of the amendments to the Articles of Association on the existing members of the Board of Directors, the Supreme Court took into account the specific nature of the Articles of Association (which bind both the shareholders and the members of the corporate bodies without being expressly accepted or signed by these persons). The court concluded that the term of office is modified by the decision of the General Meeting of the company, i.e., it is extended indefinitely also for the existing members of the Board of Directors. However, it should be noted that the relationship between the company and the board member is a contractual relationship. Therefore, the extension of the term of office also goes beyond the consent to the performance of the duties given by the board member at the time of his or her election. If the extension of the term of office of such a member is to be effective against him, he must consent to it in the same way as if he had been re-elected. A member may also implicitly consent to the extension of his or her term of office (e.g., it is sufficient that he or she continues to serve after his or her original term of office has expired).

The Supreme Court followed this decision in another decision (dated 18 May 2023, case no. 27 Cdo 2554/2022), in which it considered the opposite situation, i.e. the shortening of the term of office by means of an amendment to the Articles of Association. It came to the conclusion that an amendment to the Articles of Association consisting in the shortening of the term of office of the members of the Board of Directors is, in principle, effective against the present and future members from the moment the General Meeting decides on it, unless the decision of the General Meeting, the law or the Articles of Association provides otherwise. Since the General Meeting may remove the members of the Board of Directors at any time, their consent is not a condition for the effectiveness of the shortening of the term of office.

It should be added that the above conclusions can in principle also be applied to members of other elected bodies of a joint stock company, or to the managing directors of a limited liability company. Although the law does not regulate the length of their term of office, it is possible to regulate it in the Articles of Association and subsequently amend them.

For more detailed information, please contact the authors of this article or other members of the EY team with whom you work.

Authors:

Dalibor Šimeček

Klára Hurychová