Negotiations and due diligence in the Czech legal system

Abstract

Following 1 January 2014, a series of completely new legislation entered into effectiveness in the Czech legal environment. In the area of private law, it comprises the new Civil Code, referred to as Law No. 89/2012, and the Act on Business Corporation, No. 90/2012 Coll. (hereinafter referred to as the "BCA"). The legal institute of negotiations and due diligence is governed by the Civil Code. This is defined such that it constitutes performance of the function with the necessary loyalty, knowledge and diligence (see § 159 of the Civil Code). This legal structure is modified for the corporate environment by the business judgment rule (see § 51 of the BCA). According to this rule, a person acts carefully and with all necessary knowledge under circumstances of the same having the capability, in good faith, to reasonably assume in business decision-making matters that he or she acts in the informed and defensible interest of the given commercial corporation. Emphasis is placed on maintaining loyalty. It can be stated that such responsibility is merely limited to that for uninformed, barely defensible decisions, regardless of the result. The law expressly prohibits limiting this legal liability, for example, in the contract for performance of this function.