(Czech Supreme Court Judgment No. 26 Cdo 1478/2015 of 21 July 2015)

The applicant in this case sought a declaration of invalidity of a lease agreement that the defendant LLC had concluded with her four days before its incorporation, i.e. before execution of the Articles of Incorporation by the founders/natural persons.

The lower instance courts disagreed with the defendant company’s assertion, i.e. that it was possible to act in a legal capacity at the time the lease agreement was executed prior to the incorporation of the business company, and found the respective lease agreement to be null and void.

On the contrary, in its decision the Supreme Court concurred with the view of the defendant and stated that the law (in the case at hand, the Commercial Code in force at the lease agreement execution date) contained a provision giving rise to the possibility to act on behalf of a company before its incorporation. The Supreme Court therefore concluded that dealings undertaken on behalf of a business company before its commercial register entry are not invalid for being conducted at a time when the company had not yet been incorporated.

It is our view that the above finding may also be applied to existing legislation and that a valid agreement may be executed on behalf of a company prior to its incorporation.