This time we shall take a closer look at an interesting decision on a purely corporate matter, the handling of a company share. The judgment, case no. 27 Cdo 2853/2023, was issued by the Czech Supreme Court at the beginning of July.
In the case at hand, the Supreme Court considered a situation of two heirs who, after inheritance proceedings, became co-owners of a 50% joint share in a company. The heirs had entered into a settlement agreement in respect of the share but started to disagree over the content of the agreement. That is why they applied for a consent judgment, with its operative part to rule that the agreement is invalid and that the share is jointly co-owned by the two heirs.
The lower courts refused to issue the requested consent judgment, inter alia, on the grounds that the original share settlement agreement had been approved by the company’s general meeting, in which case the invalidity cannot be sought via consent judgment but may only be invoked in separate proceedings to invalidate the general meeting’s resolution.
On this basis, the Supreme Court made several important conclusions. First, the Court held that the regulation of the division of shares in a Czech limited liability company is non-mandatory. The memorandum of association may therefore prohibit the division of shares, or provide that, contrary to statutory law, a share may be divided otherwise than in connection with its transfer, or stipulate different or more stringent rules for or eliminate the need for the supreme corporate body’s consent to the division of a share.
Second, the Supreme Court stated that co-owners of a share in a limited liability company may also dissolve and settle their co-ownership by applying for a consent judgment. Like the transferability of a share, the division of a share is not a “status” issue, i.e. an issue pertaining to the legal status of an individual or a legal entity that is mandatorily governed by statutory law (and may not be regulated otherwise). This means that the legal entity does not have to be a party to such proceedings to settle the co-ownership of a share in that entity.
Last but not least, the general provisions of the Civil Code on the settlement of co-ownership apply to the dissolution of co-ownership of a share in a limited liability company while the Companies Act does not at all (the latter regulates the division of a share in connection with its transfer). This also means that the general meeting’s consent was not required for the heirs to settle their joint share. Therefore, the heirs even did not have to seek the invalidity of the general meeting’s resolution because it was not within the powers of the general meeting to issue such a resolution; hence, the resolution is legally non-existent.
In a limited liability company, the shareholders are free to decide whether and how they regulate the division of a share – also in cases unrelated to transfer of a share – in the memorandum of association, or whether they allow the division at all and if they do, they may stipulate the conditions for such division.
