Quick overview
- The decision of the sole shareholder replaces the decision of the general meeting in a company with only one owner.
- The sole shareholder may decide, for example, to amend the articles of incorporation, approve the financial statements, distribute profits, appoint an executive director, change the registered office or enter into liquidation.
- The decision should be in writing, and for significant changes it is often necessary to verify the signature, to have a notarial deed or to file the decision in the collection of documents of the commercial register.
- The biggest risk in practice arises when a shareholder accepts the decision but fails to comply with the formal requirements.
Do you need to prepare a sole shareholder’s resolution without the risk of it being rejected by the registry court or having formal defects? We can help you with drafting the resolution, checking the articles of incorporation and preparing the documents for the Commercial Register.
Who is the sole shareholder?
A sole shareholder (shareholder) is a natural or legal person who owns 100% of the shares in a capital company, most often 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 involved.
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.
In practice, it is often encountered that although the shareholder drafts the resolution, the document does not contain a precise identification of the company, clear wording of the resolution or reference to specific annexes. The problem then arises only when the change is to be entered in the Commercial Register and the registration court requests that the proposal be supplemented or corrected.
According to the Companies Act,decisions of the sole shareholder must be taken in writing, especially in cases where the decision is deposited in the Commercial Register. If the legislation or the instrument of incorporation stipulates the need for a certified signature, this requirement must be complied with.
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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 the analysis of 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.
Are you dealing with a change of managing director, registered office, articles of incorporation or transfer of shares in a company with a sole shareholder? We will prepare a resolution that complies with the law, the articles of incorporation and the requirements of the Commercial Register.
Sole shareholder’s decision on the distribution of profits
A sole shareholder’s decision to distribute 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 paid share.
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 accuracy and transparency of the process. If you need any legal advice in this regard, please do not hesitate to contact us.
A common mistake in profit distribution is to make a mechanical decision based on the accounting result without assessing whether the company can actually afford the payout. The managing director should always check not only the approved financial statements but also the current economic situation of the company. If the payment of profits jeopardises the company’s ability to meet its obligations, the managing director may be liable and obliged to return the funds paid.
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.
Not every decision is in the same strict form. Sometimes the law provides a clear requirement for notarial entry, other times it depends on what exactly is being changed, what the constituent instrument says and whether the decision will be documented to the registry court. If you are unsure, it is safer to check the form beforehand than to correct the decision later.
In some cases, the sole shareholder’s decision needs to benotarised afterwards. A notarial record will typically be needed if the sole shareholder is deciding on a matter where the law would require a notarial record even when deciding at a general meeting.
In practice, this will be the case in particular for amendments to the articles of incorporation, increases or decreases in the share capital, certain company conversions or other fundamental changes entered in the Commercial Register.
On the other hand, for more common decisions, such as the approval of financial statements or a decision on the distribution of profits, a written decision will often suffice, unless the articles of incorporation or a particular situation requires a stricter form. However, it is always necessary to assess the specific content of the decision, because it is often a formal error that causes the registration court to reject the proposal or to call on the company to supplement it.
Decisions that affect the public records of the company, such as a change of registered office or of the statutory bodies, must be filed 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.
Checklist
Before you sign the resolution, check the following points in particular:
- Whether the company actually has a sole shareholder,
- whether the decision falls within the competence of the general meeting,
- whether the decision is in accordance with the articles of association,
- whether a written form is sufficient or whether a notarial deed is required,
- whether a certified signature is required,
- whether the decision shall be filed in the collection of documents,
- whether it is linked to the necessary annexes, such as the financial statements,
- whether it will be necessary to file an application for registration of the change in the Commercial Register.
If the decision relates to a change of managing director, registered office, articles of incorporation, share capital or profit distribution, we recommend that the document is checked by a lawyer before signing. For these decisions, a formal error will often only become apparent when the decision is entered in the commercial register or in a later dispute.
Not sure whether your resolution just needs to be signed or needs to go to a notary? Send us your documents and we will prepare a specific procedure for you, including a draft decision and follow-up documents.
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 taken 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.
Frequently Asked Questions
Does the decision of the sole shareholder always have to be in writing?
Yes, the decision of the sole shareholder should be in writing, especially if it replaces the decision of the general meeting or is to be documented to the authorities, notary or registry court. The written form also protects the company in the event of a later inspection or dispute.
When does the decision of the sole shareholder have to be filed with a notary?
A notarial deed is usually required for fundamental changes, for example, when the articles of incorporation are amended, the share capital is increased or decreased, or in certain company conversions. It always depends on the specific type of decision.
Is the decision of the sole shareholder filed in the collection of documents?
Yes, if it is a decision that is required by law or the nature of the case to be entered in the collection of documents. Typically, this will be, for example, documents relating to changes entered in the commercial register or decisions linked to the financial statements.
Can a sole shareholder decide to pay himself the profit?
Yes, but only if the legal conditions are met. The financial statements must be approved and the company must not be driven into bankruptcy by the payment of profits. The responsibility for the correct assessment lies primarily with the managing director.
Can a sole shareholder be the managing director?
Yes, it is common in an LLC for the sole shareholder to be the managing director. However, it is important to distinguish when he acts as an owner exercising the powers of the general meeting and when he acts as the statutory body of the company.
What happens if the sole shareholder's decision is not in the right form?
Problems may arise when registering a change in the commercial register, when checking documents or when disputing the validity of a decision. The registry court may reject the petition or invite the company to correct or complete it.
