Criminal Liability of Legal Entities

Quick Overview

• A company may be held criminally liable in addition to the liability of a specific individual.
• The decisive factor is whether the criminal offense can be attributed to the legal entity.
• Under certain conditions, a legal entity may invoke so-called exculpation.
• Possible penalties include, for example, a fine, a ban on conducting business activities, a ban on participating in public procurement, or, in extreme cases, the dissolution of the legal entity.
• Effective preventive and corrective measures can play a significant role in assessing liability and in imposing penalties.

If your company is already facing a criminal complaint, a police investigation, or criminal prosecution, contact us as soon as possible. An attorney will assess whether the conditions for a legal entity’s criminal liability have been met and determine the appropriate defense strategy.

What Is a Legal Entity?

A legal entity is an entity to which the legal system grants legal personality, meaning it can have rights and obligations similar to those of a natural person (an individual). A legal entity has the capacity to enter into contracts, own property, be a party to legal proceedings, and generally act as an independent entity in legal relationships. Legal personality enables a legal entity to function within the legal system, even though its actions are actually carried out by the natural persons who represent it ( such as executives, board members, or employees).

Classification of Legal Entities

Legal entities in the Czech Republic are divided into three basic categories:

• Corporations: A corporation is formed as a legal entity by a group of individuals, but even a legal entity consisting of a single member is considered a corporation. These are typically for-profit business corporations. Another type is an association, which has a defined common interest and consists of at least three members. An example of a business corporation is Škoda Auto a.s., and an example of an association is the Czech Sokol Organization, also known as Sokol.
• Foundation: A foundation is a legal entity created with assets set aside for a specific purpose. Its activities are tied to the purpose for which it was established. Typically, this involves charitable purposes in the form of a foundation or an endowment fund. Specific examples include the Charter 77 Foundation and the Kapka naděje Endowment Fund.
• Institutions: An institution is a legal entity established for the purpose of carrying out activities that are socially or economically beneficial, utilizing its personnel and assets. An institute carries out activities whose results are equally accessible to everyone under predetermined conditions. Examples include an educational institute such as Charles University or a cultural institute such as the National Museum.

When Is a Legal Entity Criminally Liable?

Criminal liability is a legal concept meaning that a person can be prosecuted and punished for committing a crime. For a legal entity to be criminally liable, it must meet two basic conditions:

The conduct must be attributable to the legal entity

A legal entity does not actually exist as such but is represented by a natural person or a group of persons. For this reason, its criminal liability is specific and is governed by the Act on the Criminal Liability of Legal Entities and Proceedings Against Them. This Act stipulates that for a legal entity to be criminally liable, the condition of attribution must be met. This means that criminal liability can be imposed only for acts committed by specific individuals associated with the legal entity. These individuals must be:

• statutory bodies, members of a statutory body, or other persons acting on behalf of the company (e.g., managing directors, members of the board of directors); or
• persons in leadership positions responsible for control or supervisory activities , or
• persons in leadership positions who have a decisive influence on the legal entity’s conduct (e.g., directors, managers), or
• employees or other persons subordinate to the governing bodies, provided they acted on the orders or with the consent of a governing body. This also applies if the governing bodies failed to prevent the criminal conduct , even though they could have done so (e.g., by failing to supervise an employee’s work as they should have).

It is not sufficient merely that the perpetrator worked for the legal entity. In the case of employees, it is also necessary to examine whether the responsible persons took the measures that could reasonably be expected of them—for example, the necessary supervision of employees or measures to prevent criminal conduct or its consequences. The Supreme Court specifically highlighted the need for a concrete assessment of these conditions, for example, in its decision, Case No. 7 Tz 9/2021.

The criminal offense must be related to the legal entity’s activities

The unlawful act must be committed in the interest of the legal entity or within the scope of its activities. Thus, it is not sufficient merely that the perpetrator was, for example, an employee or manager of the company—his or her conduct must have the connection to the legal entity required by law.

Let’s imagine a situation in which a manager of a large company bribes a public official to secure a lucrative government contract for his company. This act is committed on behalf of the company and for the benefit of its business, since winning the contract brings the company financial gain.

In this case, the manager, as a person associated with a legal entity (the company), has committed the crime of corruption. If it is proven that the act was committed as part of the company’s operations to secure the contract, the company may be held criminally liable for it.

Why was criminal liability for legal entities introduced?

Criminal liability of legal entities was first legally regulated in 2011 with the adoption of the Act on the Criminal Liability of Legal Entities and Proceedings Against Them. Until then, criminal liability had been attributed to specific natural persons.

However, with economic development and the growing number of various business entities, an increasing number of criminal offenses committed by legal entities began to emerge. These were most commonly related to environmental damage, organized crime, and tax evasion.

In many cases, however, it was not possible to effectively prosecute the specific individual behind the legal entity’s unlawful conduct. This is because those responsible are often hidden behind complex organizational structures. Consequently, it was often impossible to convict a specific individual. Criminal liability of legal entities therefore simplifies the entire prosecution process. Furthermore, the introduction of criminal liability for legal entities creates pressure on corporations to implement internal mechanisms and control measures to prevent unlawful conduct.

Another important reason was the effort to align the Czech legal system with those of other countries and to comply with various international obligations. Many international treaties and agreements—such as the United Nations Convention against Corruption (UNCAC) or the OECD Convention on Combating Bribery of Foreign Public Officials—require states to establish liability of legal entities for certain criminal offenses.

The Act on the Criminal Liability of Legal Entities and Its Scope of Application

The criminal liability of legal entities is primarily governed by the Act on the Criminal Liability of Legal Entities and Proceedings Against Them. Unless otherwise provided by this Act, the Criminal Code also applies, and the Code of Criminal Procedure governs the proceedings themselves. The following discussion is based on the legal provisions in effect in 2026.

The scope of the Act defines the extent to which it applies. This includes specifying to whom, when, where, and in what situations the Act applies. The scope of the Act is divided into four basic categories:

Personal Scope

This determines which entities the Act applies to. These may include natural persons, legal entities, or specific categories of entities (e.g., citizens, business owners, government agencies).

In the context of legal entities, this refers to all legal entities with the exception of the Czech Republic as a state—including its organizational units (e.g., courts and ministries)—and local government units (regions, municipalities) when exercising public authority.

Subject Matter

This defines what types of conduct or situations are governed by the law. In other words, it specifies which areas of life, activities, or legal relationships the law regulates.

The Act applies to criminal offenses that may be committed by legal entities, as defined in the Criminal Code. However , there are criminal offenses that legal entities, by their very nature, cannot commit, and which are specifically listed in the Act. These include, in particular, personal offenses such as manslaughter, drunkenness, or failure to pay child support.

Territorial Scope

This specifies the territory within which the law applies. It may cover the entire country, certain regions, or specific locations.

In the case of legal entities, this refers to criminal offenses committed by a legal entity that has its registered office in the Czech Republic, or has a business or organizational unit located within the territory of the Czech Republic, or at least carries out its activities here or has its property here.

A criminal offense is considered to have been committed within the territory of the Czech Republic even if the legal entity acted wholly or partially within the territory of the Czech Republic, even if the consequences of the offense occurred abroad. Liability also applies if the legal entity acted abroad, provided that the consequences of the act occurred at least in part within the Czech Republic.

Criminal liability under Czech law also applies to acts committed abroad if they were committed by a legal entity with its registered office in the Czech Republic. Similarly, the law applies to acts committed abroad by a legal entity that is not headquartered in the Czech Republic, provided that the act was committed for the benefit of a legal entity headquartered in the Czech Republic. The law also applies in cases where required by an international treaty that forms part of the legal system.

Furthermore, the law applies to specific criminal offenses, such as torture, counterfeiting, or terrorism, even if committed by a legal entity that is not based in the Czech Republic.

Temporal Scope

This specifies the period during which the Act is in effect. The Act on the Criminal Liability of Legal Entities applies to criminal offenses committed after it took effect, i.e., after January 1, 2012. Therefore, if a legal entity committed an offense prior to that date, the old legal provisions (i.e., the Criminal Code) apply. An exception applies if the newer legal provisions (i.e., the Act on Criminal Liability of Legal Entities) would result in a more lenient punishment for the offender.

What penalties does a company face for a criminal offense?

The penalties a company faces for a criminal offense depend on the nature and severity of the specific act, as well as on the circumstances of the legal entity. The Act on Criminal Liability of Legal Entities allows for the imposition of, in particular:

• dissolution of the legal entity,
• forfeiture of property,
• a fine,
• forfeiture of property,
• a ban on conducting business activities,
• prohibition on owning or keeping animals,
• prohibition on performing public contracts or participating in public tenders,
• a ban on receiving grants and subsidies,
• publication of the judgment.

Under the conditions prescribed by law, individual penalties may be imposed separately or concurrently. In doing so, the court considers not only the criminal offense itself but also the company’s circumstances and other factors specific to the case.

Criminal prosecution of a company can affect not only its assets but also its ability to continue doing business, participate in public contracts, or receive grants. The sooner you understand the actual risks of a specific case, the better you can plan your next steps. We’re here to advise you.

Exculpation of a Legal Entity

Exculpation of a legal entity is a process in which a legal entity proves that it is not liable for the unlawful conduct attributed to it. The result may therefore be the exculpation of the legal entity from criminal liability. Exculpation may occur if the legal entity has made every effort that could reasonably be expected of it to prevent the commission of the crime. This is related to compliance with the so-called duty of care.

Duty of Care

The duty of care means that the statutory body has an obligation to act with due care, prudence, responsibility, and in the best interests of the legal entity. This includes careful and thoughtful decision-making based on sufficient information. It also entails the obligation to act in accordance with legal regulations, internal policies, and in the best interests of the legal entity. To this end, it is usually necessary to establish effective control and oversight mechanisms. If a legal entity fails to act with due diligence, this may result in criminal liability. However, if the legal entity can prove that it acted with due diligence, it may be exempt from criminal liability.

Compliance Management System

The duty of care goes hand in hand with what is known as a compliance management system. This is a structured framework and set of processes that legal entities use to ensure compliance with laws, regulations, internal policies, and ethical standards. The goal of a CMS is to identify, manage, and minimize the risks associated with non-compliance with these requirements and to ensure that the organization acts in accordance with legal and ethical standards.

A Real-World Example

Let’s look at an example: Imagine Company XYZ, s.r.o., which is deciding on a major investment in a new technology project focused on raw material extraction. The members of the board of directors must decide whether to approve the project. They make their decision with due diligence and using a Compliance Management System (CMS).

This means they gather detailed information about the technology project, including technical specifications, financial analysis, risk analysis, and potential benefits. They assess the project’s potential risks, including technological issues, market risks, competition, and financial costs. They also assess environmental risks, such as impacts on local ecosystems, greenhouse gas emissions, and potential pollution. Once the investment is approved , control mechanisms are put in place to monitor the project’s progress, minimize risks, and ensure compliance with environmental standards and regulations.

After some time, it becomes apparent that a technology project is having serious negative impacts on the environment. As a result, XYZ s.r.o. faces environmental penalties. The board of directors will therefore present evidence that, when making decisions regarding the project, it acted in accordance with the duty of care and utilized the CMS.

Based on this evidence, the court will likely rule that the board of directors acted with due diligence and utilized the CMS, and therefore bears no criminal liability for the project’s failure and its environmental consequences. The exoneration is based on the fact that the board of directors demonstrated that it proceeded appropriately and with all due care when making decisions, and that the project’s failure was not the result of their negligence but of unavoidable risks associated with doing business.

Effective Repentance

A legal entity may be exempt from criminal liability if it voluntarily refrains from further unlawful conduct and, at the same time:

• eliminates the danger posed to an interest protected by criminal law,
• or prevents the harmful consequence,
• or remedies the harmful consequences,
• or reports the criminal offense to the public prosecutor or the police at a time when the danger to an interest protected by criminal law could still have been eliminated or the harmful consequences of the criminal offense could still have been prevented.

The purpose of effective repentance is therefore to motivate the perpetrator (in this case, a legal entity) to take active steps that will lead to the repair of damages and the mitigation of the negative consequences of the crime. However, this option applies only to a limited group of crimes. For example, it cannot be applied to the acceptance of a bribe, bribery, or indirect bribery; fraud in the awarding of public contracts and in public tenders; or other criminal offenses listed in the law.

Extinction of Criminal Liability Through the Division of a Legal Entity

The termination of criminal liability through the division of a legal entity does not mean that criminal liability automatically ceases. On the contrary, this liability is transferred to the individual parts that are created as a result of the division. Criminal proceedings are thus brought against the newly formed entities, and an assessment is made as to which of these parts has taken over the activities of the original legal entity or is operating with proceeds from criminal activity. The termination of a legal entity’s criminal liability does not occur as a result of the division itself, but may occur, for example, if none of the new legal entities assumes a substantial portion of the activities related to the criminal conduct. Another reason for the termination of criminal liability may be a situation in which none of the successor entities corresponds to the original legal entity to the extent necessary to transfer liability. In all cases, however, the specific situation is assessed, and it cannot be automatically assumed that criminal liability ceases whenever a company is split up.

Statute of Limitations on Criminal Liability of Legal Entities

The same rules apply to the statute of limitations for the criminal liability of legal entities as to natural persons, with the exception that a legal entity is not subject to a prison sentence. The length of the statute of limitations is determined based on the severity of the crime as follows:

• thirty years for an offense for which the Criminal Code permits the imposition of an exceptional sentence, and for an offense committed during the preparation or approval of a privatization project under another legal regulation;
• fifteen years, if the maximum term of imprisonment is at least ten years;
• ten years, if the upper limit of the sentence of imprisonment is at least five years;
• five years, if the upper limit of the sentence of imprisonment is at least three years;
• three years for other criminal offenses.

Summary

Criminal liability of legal entities makes it possible to hold not only a specific individual but also the company itself or another legal entity liable for a criminal offense. The decisive factors are, in particular, whether the act was committed by a person defined by law and whether it can be attributed to the legal entity. A company may face, for example, a fine, a ban on conducting business, a ban on participating in public procurement, forfeiture of assets, or, in extreme cases, dissolution. A legal entity may be exempt from liability if it proves that it made every effort that could reasonably be expected of it to prevent the commission of the criminal offense. Therefore, it is essential to have truly effective preventive, monitoring, and compliance mechanisms in place, rather than merely internal rules that exist on paper.