Can the head of the branch of an enterprise grant power of attorney to a third person?

Czech Republic
Foreign business entities in the Czech Republic often prefer doing business through a branch (in Czech “organizační složka”) as opposed to establishing a company.

However, the branch of an enterprise does not have its own legal personality, even if it is registered in the Commercial Register. The rights and obligations associated with matters that concern a branch remain with the branch’s founder (i.e. the foreign business entity (entrepreneur). This fact is of essential importance also in respect of acts performed by the head of the branch on behalf of an entrepreneur; and in respect of the option to be further represented by power of attorney.

Pursuant to Section 13 (3) of the Commercial Code, the head of the branch of an enterprise (whose name is recorded in the Commercial Register) is authorised to undertake any and all legal acts concerning such branch on behalf of the entrepreneur. This is a special case of legal representation of an entrepreneur. Foreign business entities frequently appoint foreigners (or more precisely persons not primarily residing in the Czech Republic) as heads of their branch in the Czech Republic. Accordingly, it is often necessary to authorise another person to act on behalf of the branch.

Czech laws do not expressly provide that powers of attorney may be granted to act on behalf of the branch. There has been a lack of unanimity among professional circles (as well as judicature) in respect of the granting of powers of attorney by heads of branches. In its decision dated 19 February 2008, the Supreme Court of the Czech Republic concluded that the authorisation of the head of branch of an enterprise is a statutory authorisation which is not transferable. Such authorisation relates exclusively to the person who is head of the branch. In its decision, the Supreme Court refers to Section 24 of the Civil Code which generally provides that: “The representative must act in person; he may appoint another representative only if this is laid down in statutory provisions or if the parties have so agreed”. The Supreme Court took into account that no legal regulation provides for an opportunity to transfer the statutory authority of the head of the branch. The Supreme Court also took into account that the right of the head of the branch to act on behalf of the branch is not subject to an agreement of the parties, but instead ensues directly from the law. Accordingly, the Supreme Court concluded that the head of the branch is not entitled to authorise another representative to act on behalf of the branch.

Accordingly, if it is necessary to authorise a third person to act on behalf of the branch, we recommend that the power of attorney is granted to a third person directly by the entrepreneur (i.e. by the founder of the branch), and not by the head of the branch. Otherwise, according to the Supreme Court’s conclusion, the deputy head of the branch would not acquire the authority to act on behalf of the branch.