Model contract to perform an office: Under what conditions can it be concluded?

For a contract for the performance of an office to be valid, it must be approved by the company’s supreme body. In joint stock companies and limited liability companies this will generally be the general meeting. However, approval by the supervisory board is also possible: in a joint stock company, this applies where the articles of association vest the authority to appoint members of the board of directors with the supervisory board.

As regards the actual approval process of the contract for the performance of an office, it appears most practical for the relevant body of the company to approve a contract already concluded with a member of the statutory body. This approach ensures that the member is fully aware of the contract’s contents, including any remuneration for the performance of the office, at the time the approval is granted.

Alternatively, the supreme body may approve a draft contract for the performance of an office. In such cases, however, the subsequently concluded contract must correspond fully to the approved draft and becomes effective only upon its proper conclusion between the company and the member of the statutory body.
 

A model contract can reduce administrative burden

An alternative approach is the approval of a model contract for the performance of an office. This procedure significantly reduces the administrative burden and is particularly well suited to larger corporate structures.

The permissibility of approving a model contract for the performance of an office, instead of individually approving each contract, has been expressly confirmed by the case law of the Czech courts provided that such an approach is not excluded by the company’s articles of association. At the same time, the case law emphasises that, where a model contract has been approved, all contracts concluded for the performance of an office must correspond in substance to the approved model contract.

A model contract for the performance of an office will typically not include provisions on remuneration, although this is not expressly precluded by law. The reason is that remuneration tends to change over time, whereas the rights and obligations associated with the performance of an office are generally more stable in nature. It is therefore appropriate to regulate remuneration outside the model contract itself, most commonly by way of a separate resolution of the competent company body, internal regulations, or the company’s internal guidelines. Any entitlement of a member of a statutory body to remuneration or other consideration that does not arise directly from statutory provisions is, however, subject to prior approval by the company’s supreme body. This requirement ensures effective shareholder control over the remuneration of elected corporate bodies. In the absence of such approval, the remuneration arrangement is not binding on the company.

According to the case law of the Supreme Court, it is also not necessary for the relevant body to approve a specific amount for each individual member of the body. It is sufficient if it approves clear and predictable rules for determining such amounts. The Supreme Court also confirmed this in its decision concerning the approval of a resolution on the distribution of profits among members of elected bodies. In this case, the general meeting approved the total amount to be distributed and the specific rules for its distribution (e.g. according to a predetermined ratio, or a percentage ratio based on previous years). The amount of the specific remuneration for an individual member of the elected body was subsequently determined in accordance with these agreed rules.

In conclusion, it may be summarised that a company may draw up a model contract for the performance of an office and submit it for approval to its supreme body. As regards remuneration, the model contract may merely refer to internal guidelines or another approved document setting out the applicable remuneration rules. Approval of the remuneration rules as such is sufficient; it is not necessary for the approving body to determine specific remuneration amounts for individual members of the statutory body. However, if a company provides an executive director with a payment or benefit to which they are not entitled under the approved contract for the performance of an office, a resolution of the general meeting, or approved internal remuneration rules, such payment may be regarded as unjust enrichment on the part of the member concerned. In such a case, the company may be entitled to demand the return of the undue benefit.