In terms of corporate case law, 2025 begins with a decision (file no. 27 Cdo 3120/2023) that deals with the effectiveness of an agreement to transfer a share in a Czech limited liability company (s.r.o.). Although the present decision is more relevant from the perspective of an attorney-at-law, it is no less important in practical terms.
In the case at hand, legal entities entered into a share transfer agreement. On behalf of the transferor on the one part, an attorney-at-law acting as the governing representative of the company executed the transfer agreement. The attorney-at-law provided the transferee with a declaration of authenticity of the attorney’s signature in lieu of an authenticated signature. This happened even though authenticated signatures must be affixed to a share transfer agreement in order for that agreement to be effective.
Later, the transferee sought annulment of a resolution of the company’s general meeting. To the transferee’s surprise, both the courts of first and second instance dismissed its claim because in their view, the transferee had not become a shareholder of the company at all. The courts construed the requirement for an authenticated signature as being intended to achieve greater legal certainty. In their view, in order to fulfil that intention, the person authenticating the signatures must be inherently unbiased without having any interest in the authentication (transaction).
The Supreme Court disagreed with this conclusion. It said that the requirement that the person authenticating the signature (declaring the authenticity of the signature) must be unbiased cannot be derived from statutory law. On the contrary, as one of the options, the Legal Profession Act provides that the attorney may declare the authenticity of the signature on a deed that he or she has drawn up. In addition, the Supreme Court disagreed with the lower courts’ opinion that a possible violation of the Legal Profession Act or professional regulations by an attorney-at-law should automatically lead to the courts concluding that the share transfer agreement was invalid due to the failure to meet the form requirement. This would be a disproportionate interference with the legal certainty of all third parties who cannot easily find out whether the regulations of the legal profession have been adhered to by the attorney-at-law.
The lower courts also disregarded the established case law under which the meaning and purpose of the requirement for official authentication of the signature on the share transfer agreement must be taken into account when concluding that the agreement in question is to be invalidated or, in this case even nullified (as neither party sought invalidation). Although the rules protecting legal certainty generally protect public order, the Supreme Court has concluded that we cannot overlook that the company and the shareholders are already secondarily protected by the fact that the transferee does not become a shareholder before the signed agreement is delivered to the company.
Thus, in the Supreme Court’s view, there is no reason for the absence of official authentication of a signature affixed to an agreement to be sanctioned as a violation of public order by nullity of the agreement. In the present case, the Supreme Court corrected the lower courts’ relatively formalistic approach to the case and provided a better definition of the boundaries of the grounds for invalidity or nullity of the share transfer agreements.
