Setting roles in corporate structures: what are practical limits for concurrence of functions?

Members of statutory bodies may not simultaneously hold an employment position with the company if the duties performed under that employment fall within the scope of the company’s business management. The courts interpret the concept of “business management” broadly, and in practice it is therefore often not possible for a member of a statutory body to simultaneously serve as, for example, a CEO, head of the legal department or HR manager. Any employment relationship must therefore be approached with caution.

We often encounter situations where a member of a statutory body also has an employment contract with the company, and their job involves administrative activities – either for the company or for the statutory body itself. However, the Supreme Court has repeatedly ruled that administrative and support activities (e.g. convening general meetings, tax agenda, bookkeeping) are an integral part of exercising an office as a member of a statutory body and cannot be performed on the basis of an employment relationship.

Conversely, a member of a statutory body may be employed in a position unrelated to business management, such as a doctor, IT programmer, lecturer, etc. In such a case, the employment contract may be validly concluded.

The mutual rights and obligations between a member of a statutory body and the company are governed by a contract on exercising an office, which must be in writing and approved by the supreme body of the company. The case law of general courts and the Constitutional Court allows parties to contractually agree to have their relationship governed by the Labour Code. However, this does not rule out the application of mandatory provisions of the Corporations Act, particularly regarding liability for the exercise of an office, remuneration, or the commencement and termination of an office.

Corporate representation and supervisory board

In practice, a corporate agent often acts on behalf of the company and may also hold an employment position with the company, typically in roles such as finance director, HR director, or in another senior management position. However, it is not possible to contractually stipulate that a breach of duties arising from their mandate as a corporate agent can be automatically deemed grounds for termination of their employment relationship.

The Supreme Court's case law has further concluded that it is not possible to stipulate that a statutory body and a corporate agent shall be acting jointly, and any contractual arrangement allowing for such a possibility is null. At the same time, it is not possible to grant corporate representation to an existing member of the statutory body; this approach differs, for example, from German or Austrian legal regulations, which allow for ‘combined corporate representation’ (i.e., joint action by the executive director and the corporate agent).

The law also prohibits a member of the supervisory or administrative board of a joint-stock company from being a corporate agent. A member of the supervisory board may not simultaneously be a member of the board of directors or another person authorised to act on behalf of the company according to the entry in the commercial register. The possibility of concurrent employment and membership in the supervisory board remains an unresolved issue. In view of the legal possibility of electing employees to the supervisory board, this issue must be approached with caution.

For supervisory board members, it is always necessary to assess the content of the employment contract individually and verify that it does not overlap with their supervisory function; a comprehensive interpretation of the subject matter / scope of supervisory board’s activities has not yet been addressed by the courts. If the supervisory activities of a member of the supervisory board overlap with their job description, it can be assumed that similar rules will apply as for members of statutory bodies. However, we have yet to wait for case law on concurrence of functions for members of the supervisory board.

Given the complexity and development of case law on concurrence of functions, we recommend proceeding with caution when setting up a corporate structure and always evaluating the specific job description and contractual relationships of individual persons on a case-by-case basis after thorough consideration.

If you have any questions, please do not hesitate to contact us. We will be happy to help you find a suitable solution.