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Shareholders and their position in a joint stock company

Considering investing in stocks but not sure what it all entails? Do you know if being a shareholder comes with an obligation to attend general meetings and vote? And what if your chosen company doesn’t prosper? What about the ability to sell the shares and not have to guarantee the company’s liabilities in some way? We have found answers to all these questions in our article.

továrna, akciová společnost, vlastnictví akcionářů
8 minutes of reading

Chapters of the article

Who is a shareholder?

If you hold a number of shares in a company, i.e. you own part of its share capital, you become a shareholder of the company. A share therefore represents your participation in the company and the rights and obligations arising from it.

A shareholder can be either an individual or a legal entity, including the state itself. Even foreign entities, whether individuals or companies, can become one of the founders of a Czech company or join an existing Czech company as a shareholder.

A joint stock company may have only one or, on the contrary, many shareholders without limitation of their maximum number. In the case of a single shareholder, his identity is registered in the Commercial Register. This includes, in the case of a natural person, information such as name, date of birth, birth number and permanent address or current address, if different, and in the case of a legal person, information such as name, registered office, identification or registration number, if it is a foreign company. If there are several shareholders, their names are not recorded in the register.

How to become a shareholder?

To become a shareholder, you must first choose which company you want to invest in. You can choose shares in a listed company (publicly traded company) or shares in a company that is not publicly traded.

If you want to buy shares of a publicly traded company, you need the services of a broker (stockbroker). There are many brokerage firms to choose from in the Czech Republic. Just open a trading account with one of them. The process is not complicated, usually involving filling out a form and verifying your identity. After opening an account , you can start buying stocks. You instruct the broker to buy and he will execute the stock purchase for you.

For non-publicly traded companies, you need to contact the company directly. If the owner is willing to sell you some of the shares, you will need to enter into a stock transfer agreement. This is where it is definitely worth consulting with an attorney to ensure that the agreement is drafted properly.

When analysing individual companies (and the possibility of becoming a shareholder), a value-oriented investor should take into account the long-term development of the company in question. This means analyzing its accounting data going back at least ten years. On the basis of such a long timeline, we are already able to discern whether a company really has sustainable long-term value.

Tip: Investing in stocks can be a great way to appreciate your capital. But where to start? If you don’t already have experience investing in shares, read our guide first, which will explain the basic concepts and explain what and how. Caution is in order.

Are you looking for an answer to a specific legal question related to shares and investing in them?

Contact us. Our team includes specialists in all areas of law, so we can guarantee really high quality legal advice. What’s more, we can give it to you online and within two working days.

List of shareholders

Under the Companies Act, every public limited company issuing registered shares is obliged to create and maintain a list of its shareholders. The Board of Directors is responsible for this activity. The main reason for maintaining this list is so that companies can keep up-to-date with who their shareholders are and also communicate with them based on this information.

This list records important information about the shares, such as their type, nominal value and numerical identification, as well as personal details of the shareholder, including their bank account number for dividend payments. As soon as a new shareholder appears, the joint stock company must add him or her to this list as soon as possible.

What rights does a shareholder have?

The share contains the individual rights of the shareholder. These may vary individually depending on the type of share. In general, however, we speak of the following rights:

  • Theright to a return (profit share): the shareholder has the right to a share of the company’s profits in the form of a dividend if it is decided to pay it.
  • Rights to the management of the corporation (right to participate in the general meeting): the shareholder has the right to attend, vote and speak at the general meeting, which is the main body of the joint stock company.
  • Right to information: a shareholder has the right to be informed about the company’s activities and management and to have access to certain documents, such as annual accounts.
  • Right to a share in liquidation: in the event of the winding up of the company and its liquidation, the shareholder is entitled to a share of the liquidation balance after all liabilities have been met.
  • Right to tender in the event of a capital increase: When a company issues new shares, existing shareholders usually have a pre-emptive right to buy them (to maintain their shareholding in the company).
  • Right to protest against decisions: in some cases, shareholders can protest against decisions made at the general meeting. This is subject to the possibility of calling for the resolution to become valid.

Some of these rights may be further limited or specified in the articles of association of the public limited company, contracts between shareholders or other internal documents of the company. If you want to get a better understanding of how to exercise your rights as a shareholder, it is worth consulting a corporate law specialist to get a clear understanding of your rights.

Tip: Are you considering setting up a company and don’t know what form to choose? Important factors for the decision are the financial and administrative complexity, the forms of liability of individual partners or the company in general, the method of taxation and the form of accounting. We will briefly look at these factors to see how setting up a joint stock company is worthwhile compared to other types of companies and what the disadvantages are. We have discussed everything in a separate article.

When there is only one shareholder in the company

As a company limited by shares, a company limited by shares may also have a single founder. It can therefore have just one shareholder, but at the same time it must have at least one shareholder. Hypothetically, if a situation arises where a public limited company has no shareholders, the court will dissolve it. On the other hand, there is no maximum limit on the number of shareholders set by law.

Liability of shareholders

Normally, a shareholder is not liable for the debts of a public limited company for as long as the company exists. However, if the company goes into liquidation, the shareholder may be liable up to the extent of his share of the remaining assets of the company after all liabilities have been paid. There is, however, a situation where a shareholder may still be liable for the debts of the company if he influences or controls the activities of the company.

Displacement of minority shareholders

This process is also called “squeeze out” and refers to the ability of a majority shareholder to “get rid” of minority shareholders in an official and legal way.

After the expiry of the Commercial Code, this area is governed by the Law on Business Corporations and Cooperatives. In order to exercise the squeeze-out option, several criteria must be met. A shareholder may request that the management of the company, either the board of directors or the management board, convene a general meeting to discuss a proposal to transfer all remaining shares to that shareholder. However, this can only be exercised if the shareholder owns shares that:

(a) have an aggregate nominal value of at least 90% of the total share capital of the company for which those voting shares were issued; and

(b) which gives him or her at least 90% of the total voting rights in the company (a so-called “controlling shareholder”).

Of course, it also applies that a shareholder with a smaller shareholding cannot be removed without adequate compensation. Shareholders are entitled to financial compensation, the amount of which is determined by the general meeting. The majority shareholder has to prove the fairness of this compensation either by expert opinion or by supporting it in accordance with the relevant article of the German Stock Corporation Act. This report must not be more than three months old at the time of the application.

However, this is not the case for ordinary investors who choose to invest in giant, prosperous companies such as Tesla, Apple, Ralph Lauren or American Express. Here, the capital is distributed among a large number of shareholders, so there is no need to worry about such practices.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

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.

  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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