Sole shareholder, managing director, and employee in one person: validity of employment contract

Author: Klára Šléglová

In its judgment of 21 July 2026, Case No. 21 Cdo 838/2026, the Supreme Court dealt with the question of the conditions under which an employment contract can be considered valid where the same natural person signed on behalf of both the employer – a limited-liability company – and the employee, whilst being the sole shareholder of that company and the only managing director. The judgment brought much-needed clarification in the matter and this article describes its contribution to Czech law practice.

Case Background

In January 2017, the plaintiff entered into an employment contract with his single-shareholder company for the position of a driver. Over a year and a half later he suffered a work injury and claimed against the employer compensation for pain and social impairment in the total amount of CZK 582,000 (approx. EUR 23,940). However, the insurance company of the employer refused to provide the insurance payout to satisfy the plaintiff’s claim. The plaintiff therefore filed a lawsuit. The courts of first and second instance dismissed the claim on the grounds that the employment contract was invalid, because the plaintiff acted on both sides simultaneously when concluding it and was thus in a conflict of interest within the meaning of Section 437(1) of the Civil Code (Act No. 89/2012 Coll.).

The Supreme Court’s Judgment and its Significance

The Supreme Court rejected the approach of the lower courts. It recalled that Section 54 et seq. of the Business Corporations Act (Act No. 90/2012 Coll.), governing the procedure to be followed in the event of a conflict of interest of a member of a statutory body, constitutes special legislation in relation to the general regulation in Section 437 of the Civil Code. Where the same person is both the sole shareholder and the only managing director and the company has no supervisory board, the notification duty under Sections 54 and 55 of the Business Corporations Act has no practical meaning – the addressee of the notification of the conflict of interest would be the notifier himself. By signing the contract on behalf of the company, the managing director simultaneously approves its content as the sole shareholder; it is unthinkable that the same person would act under a different will in the position of a sole shareholder and then the sole managing director. Therefore, the plaintiff could validly conclude the disputed employment contract.

Instead, according to the Supreme Court, a different corrective applies: Section 13 of the Business Corporations Act, which requires written form with officially certified signatures for contracts between a single-shareholder company and its sole shareholder, unless the contract is concluded in the ordinary course of business. The purpose of this requirement is to protect the legal certainty of third parties, in particular creditors, against subsequent alteration of the content or date of such a contract. Failure to respect this form therefore generally leads to invalidity for conflict with public order. The circumstances of the specific case must always be examined, though – if, despite the absence of official certification, there is no doubt about the content or the moment of conclusion of the contract, public order will not be disturbed.

The decision is significant above all for single-shareholder limited liability companies in which the single shareholder simultaneously acts as the sole managing director and is also active for the company in another capacity, typically as an employee. Insurance companies can no longer easily rely on the argument of invalidity of such an employment contract on the basis of conflict of interest, when declining insurance payouts for work injuries. Nevertheless, the Supreme Court emphasised the requirement for official certification of signatures on such employment contracts. It is therefore advisable to consistently insist on maintaining this requirement.

Key Takeaways

• An employment contract concluded by the same natural person in the position of both the employee and the employer in a single-shareholder company is not automatically invalid for conflict of interests.
• An employment contract between a single-shareholder company and its sole shareholder requires official certification of signatures.
• The Czech Supreme Court has clarified its stance regarding employment contracts where the employee and the employer are the same person, in the context of a single-shareholder company.