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Take note of upcoming changes to board member agreements. Otherwise you may end up working for free

Take note of upcoming changes to board member agreements. Otherwise you may end up working for free

26.4.2012 10:48
Autor: Alica Stegmannová, KSB

What should you look out for?

Pursuant to the current commercial code, an agreement on the performance of an office (smlouva o výkonu funkce), or more simply a board member agreement, can include remuneration or, as the case may be, other compensation from the company. But it is not required to. If there is no such stipulation in the agreement, the general law provisions governing mandate agreements will reasonably apply and the board member will be entitled to receive remuneration in an amount common for similar activities at the time the agreement was concluded. Board members have a direct right to such remuneration and no further decisions need to be made in that respect.

What isn’t there, doesn’t exist

The new act on commercial corporations (the “Act”) will, however, change things. Primarily, the mandatory provisions of board member agreements will be set forth in greater detail than is currently the case in the commercial code. Pursuant to the new regulation, the agreement will need to specify all components of remuneration, the amount thereof, or at least the method of calculation thereof, as well as the rules for the payment of special bonuses and profit shares (such as royalties).

Where remuneration is to be provided in the form of company shares, this information will need to be included in the board member’s agreement, even when the shares are not acquired directly by the board member, but by a related person.

Bear this in mind: where remuneration is not included in the board member agreement in accordance with the law, the board member’s work will, save in certain exceptional cases, be performed for free. Other potential remuneration may be recognized, as under the current commercial code, but it will need to be approved by the general meeting and include comments provided by the company’s supervisory body. Practically speaking, this means that the board member will not be entitled to anything that is not expressly and specifically stated in the agreement.

It may seem that today’s managers are separated from this new legal regulation by many years and that they need not therefore concern themselves at present with the Act. That, however, is not entirely true. The implementation provisions of the Act also apply to current agreements and set forth a deadline by which they must be revised. If these agreements are not revised to comply with the new requirements within six months after the effective date of the Act, the relevant office will be performed for free. Board members should therefore make sure that they rework their agreements by the deadline (or better yet amend such agreements now) in accordance with the statutory requirements. Otherwise, they may find themselves working for free.

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