Are you a shareholder in a limited liability company? What does the share represent, what rights and obligations are associated with it and how can the share be transferred or otherwise disposed of? We have looked at this in our article.
Are you a shareholder in a limited liability company? What does the share represent, what rights and obligations are associated with it and how can the share be transferred or otherwise disposed of? We have looked at this in our article.
A business share represents the participation of individual shareholders in the company in the form of a set of mutual rights and obligations between them and the company. It can be said that it is essentially the main conceptual feature of a limited liability company (s.r.o.), thanks to which the shareholder exercises all the rights associated with it. A shareholder may also own more than one share in a business corporation. When the contribution is increased, the amount of his share increases, but it can also decrease. However, its value is essentially independent of the amount of the contribution.
From a quantitative point of view, the share is characterised primarily by its size, which expresses its legal position in relation to the other shareholders, and its value, i.e. its valuation in money, which is of particular importance in the case of dispositions of the share, such as sale, donation, etc.
It must be said that the value of a share is not a stable number and can change significantly from year to year or even from minute to minute. The basic contribution of an individual shareholder is not crucial for determining the value. What it does affect is:
Negative factors such as debts of the company, criminal proceedings against the company or execution proceedings against the company also have an impact on the calculation of the value of the share.
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Mr David, who had a construction company in the form of a limited company, contacted the office of an Accessible Solicitor. His intention was to somehow gift the business shares to his son Prokop, but he was unsure what form the gift should take.
In this case, the procedure is clear. There will be a (gratuitous) transfer of the shareholding even though Mr David was the sole shareholder at the time. In the first place, a contract (in writing, with certified signatures) must be concluded for the transfer of the shareholding. If it was not a transfer of the sole shareholder’s business share, then the approval of the general meeting would be required for the transfer of the business share.
The aforementioned consent is usually not the only one to be obtained. It is often forgotten that a business share acquired during the marriage becomes part of the community property of the spouses (however the spouse of the partner does not attend general meetings or otherwise participate in the operation of the company). For this reason, the spouse’s consent is also required for the transfer of the business share (as well as for any other disposition).
As Mr David also wished to transfer the role of Managing Director to his son, we have drawn up an affidavit for his son in which he has agreed to act as Managing Director and has complied with the conditions attached to it.
We also helped Mr David with the registration in the Commercial Register, where all changes in the management of the company must be reported. The change will occur within five working days and involves the payment of a fee of CZK 2,000.
The Commercial Corporations Act does not expressly provide for the possibility of contractually negotiating a pre-emption right to a business share, but such a possibility is generally allowed. As a rule, it is a negotiation of the pre-emption right of the other shareholders to the share.
In the event that more than one shareholder exercises his/her right, it would be necessary to first divide the shareholding and then transfer its individual parts (the newly created shares) to the existing shareholders. The division of a share in a limited liability company may occur if the share is transferred or transferred to another person. Under the Business Corporations Act, a share may only be divided in these contexts unless the articles of association provide otherwise. The division of the share itself must be approved by the general meeting of the company, which means that this step requires the prior consent of the majority of the shareholders.
In the case before us, that possibility was irrelevant.
Furthermore, the transfer of shares can generally occur in situations where one of several partners leaves. How to terminate a shareholder’s participation in a limited liability company? Find out in the next article.
A share is deemed to be released if the shareholder’s participation in the company is terminated otherwise than by transfer of his share.
The Companies Act provides that the company should attempt to sell the released share at a reasonable price and without undue delay (for example, at auction), bearing in mind that the other shareholders have a statutory pre-emption right to the released share. If the released share is sold in this way, the settlement share is the proceeds of the sale after deduction of reasonable expenses and set-off against claims against the shareholder.
On the termination of a shareholder’s participation in the company during its existence without a legal successor, a right to a settlement (i.e. a settlement share) arises. The settlement share is thus typically the proceeds from the sale of the released share.
In the event of liquidation of an LLC, the shareholder is entitled to a share of the liquidation balance. The liquidation balance is first distributed among the shareholders to the extent that they have fulfilled their deposit obligation. If the liquidation balance is not sufficient for this distribution, the partners shall share in the liquidation balance in proportion to the amount of their paid-up or paid-in deposits.
Are you considering setting up a company and don’t know what form to choose? Apart from the financial and administrative complexity, the liability of individual shareholders or the company in general can be an important aspect of the decision. Read on to find out how an LLC and its partners are liable for debts.
Another situation where the owner of a business share changes is when the original owner dies. The share then passes to the heir or successor in title. The articles of association may also prohibit or restrict the transfer of the share (unless it is a sole proprietorship).
However, if nothing is prohibited by the contract, the heir of the deceased becomes the holder of the rights and obligations attached to the share. In the case of multiple heirs, they must agree among themselves which of them will exercise the rights of the shareholding or appoint a joint trustee.
Recently, the conditions for pledging a business share have changed so that de facto the same procedure applies as for the transfer of a share. However, each company has the additional possibility to modify the pledge of the business share by limiting it to a greater extent than the transfer of the share or even prohibiting it altogether.
If one of the shareholders is indebted for a long time, then creditors can be satisfied from various parts of his property, including, but not limited to, the business share he owns. The executor must rely exclusively on the articles of association, which describe how the share can be disposed of and, in particular, whether it is transferable or non-transferable.
If the share is non-transferable, he must first try to auction it. In the case of a non-transferable share, the procedure is to go through the so-called settlement share, which will then be sent back to the bailiff’s account.
The method of calculating the value of the settlement share may be contained in the memorandum of association at the time of incorporation of the limited liability company. If this is not the case, then the settlement share is determined by the ratio of the shareholder’s equity or net assets to those of the other shareholders. The amount of the settlement share shall be calculated on the equity of the company as determined from the interim, ordinary or extraordinary accounts drawn up at the date of the termination of the shareholder’s participation in the company. However, the memorandum of association may provide that the settlement share shall be determined from the net assets of the business as ascertained by an expert’s report.
We have outlined how to protect yourself from foreclosure and how to defend yourself if foreclosure has occurred in our article.
A shareholding in a limited liability company expresses the participation of a shareholder through a set of rights and obligations. A shareholder may own more than one share, the size of the shareholding determines its status, but the value varies according to the economic situation of the company, not just the amount of the contribution. The value is influenced, for example, by the company’s assets, stability or debts.
A written contract with certified signatures is required for the transfer, sale or gift of shares, and in the case of multiple shareholders, the approval of the general meeting is also required. The share is part of the community property of the spouses, so the consent of the spouse is also required. If the functions of the managing director are also transferred, the new managing director must submit an affidavit and report the change to the Commercial Register.
The business shares can be divided upon transfer if the general meeting approves it. The released share (extinguished otherwise than by transfer) should be sold by the company, the other shareholders have a pre-emptive right. The proceeds constitute a settlement share to which the shareholder is entitled even if he leaves the company without a successor. In the event of liquidation of the company, the shareholder receives a share of the liquidation balance.
On the death of a shareholder, the share passes to the heirs, unless the articles of association restrict this. The share may also be pledged or subject to execution. The settlement share in the event of execution is determined according to the terms of the articles of association or the company’s equity.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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