Do you own shares and are thinking of selling them? You can sell your shares on one of the stock exchanges that focus on share trading. But how to do it and what will you have to pay for it? We’ll tell you in this article.
Do you own shares and are thinking of selling them? You can sell your shares on one of the stock exchanges that focus on share trading. But how to do it and what will you have to pay for it? We’ll tell you in this article.
Shares are one of the most common investment instruments in the financial markets. The definition of a share is that it is a security that represents a share in the share capital of a company. The holder of the share, i.e. the shareholder, acquires certain rights, such as the right to a share of the profits (dividend) and participation in the company’s decision-making.
The legal framework for shares in the Czech Republic is governed primarily by the Business Corporations Act (ZOK) and the Civil Code. Shares play a crucial role not only in the Czech economy, as they enable companies to raise capital and investors to appreciate their funds.
There are several types of shares, which differ in their characteristics and legal regime:
Shares are traded on stock exchanges (e.g. BCPP – Prague Stock Exchange) or on the over-the-counter (OTC) market. Stock exchanges provide a transparent environment for trading shares, while OTC transactions take place directly between investors.
If you want to learn more about stocks themselves and how to invest in them, read our article that covers this topic in more detail. In this one, we will focus mainly on selling shares and the issues involved.
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The sale of shares is subject to the laws not only of the Czech Republic but also of the European Union. Particularly important in this case is the Civil Code, which regulates the general rules of the contractual relationship. However, it is also necessary to take into account the Corporations Act, which deals with the specifics of joint stock companies and the transfer of shares. Last but not least, the sale of shares is also affected by the Capital Market Undertakings Act, which regulates stock exchange trading and investor protection.
A shareholder has the right to transfer his shares freely, provided that they are not restricted by, for example, the pre-emptive rights of other shareholders. It is the seller’s obligation to ensure the correct transfer of ownership and to settle all financial obligations to the company.
The most common method of selling shares is trading on a stock exchange. Stock exchanges provide a transparent market where shares are bought and sold at market price. There are two main stock exchanges in the Czech Republic:
Trading on the exchange is conducted through licensed securities dealers, such as Fio banka or Patria Finance. The owner of the share, i.e. the investor, places an order to buy or sell through his broker. The securities dealers then link supply and demand on the market and the transaction is then executed according to the current market price.
The advantages of selling shares on the stock exchange are high liquidity (quick sale at market price), a transparent and regulated environment, and the ability to monitor share prices in real time. On the other hand, the disadvantage is that you will have to pay certain fees to trade shares. And also that market volatility (the rate of fluctuation in value) can cause unpredictable swings out.
Tip: Shares are one of the types of investment funds. If you are planning to start investing, read about the options available in the investment fund field.
If your shares are not traded on a stock exchange or if you as an investor do not want to rely on market movements, then you can also use direct sales of shares between investors. This method is mainly used for companies that do not have their shares on the stock exchange.
A direct sale takes place when the seller and the buyer jointly agree on the price and terms of the transaction. They then jointly conclude a share transfer agreement, which must comply with the requirements of the Companies Act.
If the shares are held in book-entry form with the Central Securities Depository (CSD), a change of ownership must be made in the register.
The advantage of a direct sale of shares is that you can individually agree on the price and terms and do not pay any stock exchange fees. On the other hand, the speed of sale in this case is lower than if you were to sell the shares on the stock exchange. At the same time, you run a higher risk of legal disputes and invalid transfers.
Another way to sell shares is to transfer them as part of a business transaction, for example in mergers and acquisitions. This type of share sale is not simple; it is a complex process that involves legal, accounting and strategic analysis of the company. In this case, the agreement and the share sale are usually more detailed than a regular share transfer agreement, as the seller’s warranties, the company’s liabilities and so on are also addressed. For large transactions, the antitrust authority may even step in and approve the sale. In this type of share sale, there are usually long negotiations, but the reward is then the possibility of obtaining a higher price for the shares.
Tip: Want to save on taxes? There are several ways to save tax. Read about them before you file your tax return.
Taxes play a crucial role in the sale of shares, as they usually determine the investor’s final return. In this case, the following taxes and rules apply:
Practical example:
An investor bought a total of 100 CEZ shares in 2021 for CZK 800 each and sold them after two years for CZK 1,200 each. The total profit is therefore CZK 40,000, which is subject to 15% tax = CZK 6,000 tax liability, which must be paid to the state. If he held them for more than 3 years, the tax would be CZK 0.
The sale of shares can be made through an exchange where trading is transparent at market price (e.g. BCPP, RM-SYSTEM) or by direct transfer between investors where the parties agree on the terms of the contract. Shares may be ordinary, preference, registered or bearer shares and their sale is subject to the law, in particular the Corporations Act and the Civil Code. Taxes on the sale of shares are based on the length of holding – if held for more than 3 years, the income is tax-free, otherwise a rate of 15% applies (23% for higher income). The transfer of shares can also take place in the context of business transactions such as mergers and acquisitions, where the process is more complex.
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