Sole shareholder decision: what if a single person rules the LLC?

Who is the only companion?

A sole shareholder is a natural or legal person who owns 100% of the shares in a capital company, usually a limited liability company (s.r.o.) or a joint stock company (a.s.). Exclusive share ownership allows a sole shareholder to take decisions without the need to convene a general meeting.

Legal framework for the sole shareholder’s decision

The decision of the sole shareholder is regulated in Czech law mainly by the Business Corporations Act. This Act sets out what decisions a sole shareholder may make and what obligations are associated with them.

The Commercial Corporations Act specifies that the sole shareholder exercises the powers of the general meeting. This means that it has the right to take decisions on all matters that would otherwise be the responsibility of the general meeting. His duties include ensuring that all decisions are made in accordance with the law and the company’s articles of incorporation. In addition, the sole shareholder must ensure that all formalities are complied with and, where appropriate, deposited in the collection of documents of the Companies Registry.

The decisions of the sole shareholder must, according to the Business Corporations Act, be taken in writing, especially in cases where the decision is deposited in the Commercial Register. If the legislation or the articles of incorporation stipulate the need for a certified signature, this requirement must be complied with.

In what areas is a sole shareholder allowed to make decisions?

The sole shareholder has all-round decision-making powers concerning key issues of the company’s operation. The main areas of decision-making include:

1. Changes in the company

• Amendment of the articles of incorporation: the sole shareholder can decide to amend the articles of incorporation, for example, to change the objects of the business, the business name or the amount of share capital.
• Change of registered office: the decision to change the company’s registered office is one of the ordinary powers of the sole shareholder. The new registered office must be duly registered in the commercial register.

2. Financial decisions

• Approval of financial statements: the sole shareholder has the right to approve the company’s annual financial statements and to decide on the budget for the following period. This process includes not only an analysis of the financial results but also strategic decisions on future investments.
• Increasing or decreasing share capital: This process requires formalities and often the approval of a notary. A capital increase can be carried out by a cash contribution, a contribution in kind or by capitalisation of a debt.
• Distribution of profits: the decision to distribute profits is another important area. The sole shareholder can determine whether the profits will be paid out as dividends or reinvested back into the company. Reinvestment may include new product development, expansion into new markets or upgrading technology. We look at this area in more detail below.

3. Personnel decisions

• Appointment and removal of managing directors: the sole shareholder has full control over the composition of the company’s statutory bodies. He can choose the managing director, who plays a key role in the day-to-day management of the company. Likewise, he can remove him himself if the managing director loses his confidence, fails to perform his duties or if the sole shareholder decides to change the company’s strategy.
• Determining the remuneration of the statutory bodies: the shareholder determines the remuneration of the managing directors and other members of the bodies. These remunerations may be either fixed or variable based on the results achieved.

4. Other decisions

• Approval of a merger or division of the company: The sole shareholder can also decide independently whether the company is merged with another company as part of a merger or, alternatively, whether it can be divided into several smaller units.
• Entering into liquidation: the sole shareholder may decide to close the company and enter into liquidation. The liquidation process involves settling liabilities, distributing assets to creditors and ensuring that the company is removed from the commercial register.

5. Approval of internal regulations

The shareholder may approve internal regulations governing the rules and procedures of the company, such as the rules of procedure, security guidelines or internal audit rules.

6. Signature right

One of the common decisions is to regulate the rules for signature rights, i.e. to determine who is authorised to sign on behalf of the company and under what conditions.

7. Conclusion of contracts

The shareholder may approve significant contracts such as lease agreements, supplier agreements or loan agreements.

8. Non-disclosure agreements

The sole shareholder may decide to establish non-disclosure agreements (NDAs) for employees or business partners. However, they must leave room for the statutory body.

9. Transfer of shares

The decision to transfer a shareholding to another person, if the company’s articles of incorporation allow it, is also within the sole shareholder’s competence.

10. Changes in the organs of the company

The sole shareholder decides on the composition of the supervisory board, if one is established in the company, or on other changes in the company’s bodies.

Decisions of the sole shareholder on the distribution of profits

The decision of the sole shareholder on the distribution of profits in a limited liability company requires compliance with certain procedures and legal provisions. This process is specified in the Companies Act. The decision of the sole shareholder on the distribution of profits can be made under the following conditions:

Conditions for profit distribution:

• Approval of financial statements: before the sole shareholder can decide on the distribution of profits, the ordinary or extraordinary financial statements must be approved. Without such approval, the shareholder has no power to distribute the profit.
• Decision of the sole shareholder: In the case of a company with a sole shareholder, the decision of the sole shareholder supersedes the powers of the general meeting. This shareholder therefore expresses himself in writing, without the need for a general meeting.
• Limitations and conditions: profits may be distributed only in accordance with the law and the articles of association. It is important that the decision to distribute profits does not lead to the company’s bankruptcy. If the distribution is made in violation of the law, such a decision would have no legal effect and the shareholders would have to return the share paid out.

Decision-making procedure:

• Preparation of the proposal: The managing director of the company submits the proposal for the distribution of profits together with the financial statements to the sole shareholder for approval.
• Written decision: the shareholder adopts the decision in the form of a written record, which need not be notarised unless required by law.
• Payment of the profit share: Once approved, the profit share may be paid out, the maturity date usually being set at three months after the decision, unless the articles of association provide otherwise.

When a sole shareholder decides on the distribution of profits, it is essential to follow all legal standards and procedures to avoid potential legal problems and to ensure the correctness and transparency of the process. If you need any legal advice in this regard, please do not hesitate to contact us.

A sole shareholder is a flexible form of ownership as he can make decisions at any time. He does not have to follow the procedural rules that apply to collective bodies – quorum or prior notice of meetings do not apply to him.

The decision of the sole shareholder must be in writing

The Companies Act provides that the decision of the sole shareholder must be in writing. This rule applies in particular to decisions that must be deposited in the collection of documents in the commercial register, such as the amendment of the articles of incorporation or the appointment of an executive director.

Every decision of the sole shareholder should contain:

• Identification of the company: the company name, identification number and registered office.
• Description of the decision. For example, the sole shareholder’s decision to pay out profits should clearly articulate what portion of the profits will be paid out and what portion will be reinvested.
• Date and place of the decision: To make it clear when and where the decision was taken.
• Signature of the sole shareholder: If required by law, the signature must be certified.

In some cases, the decision of the sole shareholder must be subsequentlynotarised. This applies, for example, in the case of an amendment to the articles of incorporation or an increase in the share capital.

Decisions that affect the public records of the company, such as a change of the registered office or the statutory bodies, must be deposited in the collection of documents of the commercial register.

The decision-making of the sole shareholder is essential for the successful operation of the company. Properly formulated and executed decisions help to minimise legal risks and ensure the efficient operation of the company. If you are unsure of the correct course of action, we recommend that you contact an attorney. We can help you prepare decisions, review documents and properly register changes in the Commercial Register.

Summary

A sole shareholder resolution provides the opportunity to effectively manage a company without the need for a general meeting, but with clearly defined legal and formal requirements. The sole shareholder, who owns 100% of the shares, exercises the powers of the general meeting, which includes deciding on key issues such as amendments to the articles of incorporation, distribution of profits, appointment of a managing director or entering into liquidation. All decisions must be made in writing, some of which require notarisation and filing in the collection of documents in the commercial register. Compliance with the legal procedures is essential for their validity and the legal certainty of the company.