Authors: Ondřej Florián, Gerardi Karolína
The big amendment to the Corporations Act introduces a number of changes concerning shareholders in limited liability companies, among other things. In this Part IV of our Guide to the Corporate World after the Amendment, we will focus on selected shareholder rights affected by the amendment.
The right of a shareholder to be accompanied to a general meeting has always been a topic of heated debate and there have also been attempts to address this issue in case law. The point is clear – to help shareholders to orient themselves in what are often complex legal or economic issues that have to be addressed at the general meeting. The amendment now expressly lays down the right of shareholders to take part in a general meeting accompanied by their guest, unless otherwise specified in the memorandum of association of the company concerned. The memorandum may exclude the presence of a person designated by a shareholder or modify it in some way.
For the sake of completeness, it should be added that pursuant to transitional provisions, this provision will apply to corporations established prior to the date of effect of the amendment (i.e. prior to 1 January 2021) as of 1 January 2023, unless the presence of persons other than shareholders at the general meeting is regulated in the company’s memorandum of association. A guest will have to prove they are subject to the confidentiality obligation at least to the same extent as the shareholder.
The shareholder will thus have to contractually bind the guest by a confidentiality agreement and the guest will have to submit the agreement to the company. That, however, does not apply to a guest who is an attorney-at-law, as they are by law bound to the confidentiality obligation.
Pursuant to the amendment, a protesting shareholder will no longer have to ask the general meeting to record the content of their protest in the minutes of the general meeting. A record of a protest is an essential part of the minutes of the general meeting.
This change closely relates to the fact that shareholders may seek the invalidity of a resolution of the general meeting only if they have filed a substantiated protest. A protest is viewed to have a preventive purpose; the right of the shareholder present at the general meeting is, nevertheless, somewhat restricted as the validity may only be challenged for reasons specified in the protest. In practice, unless the content of a protest is included in the minutes of the general meeting, it will be necessary to secure evidence/proof showing the protest has been filed.
To elaborate on a shareholder’s protest in more detail, it is necessary to state that pursuant to the amendment, protests must be substantiated. In other words, it will have to contain information on a defect of a specific resolution or the manner of convening or holding the general meeting as claimed by the shareholder. The amendment also regulates situations when a protest could not be filed for objective reasons. In that case, the requirement for a substantiated protest does not apply. Moreover, the need to file a protest due to the invalidity of a resolution of a general meeting may even be ruled out by the memorandum of association.
The amendment also expressly introduces a type of a share without a voting right. Furthermore, a share does not need to be associated with the right to profit or the right to the liquidation balance. The law still imposes a minimum requirement that one of the above rights must be associated with the share to the full extent.
Needless to say, there has to be at least one share associated with the voting right in the company. However, in some matters or in certain situations, shareholders holding shares without a voting right will also be entitled to vote (e.g. if all shareholders whose shares are associated with voting rights are forbidden to vote).
The company’s memorandum of association may further stipulate that a share is associated with the right to appoint and remove one or more executive directors. This is a special type of share associated specifically with this right.
The amendment significantly expands the possibility to suspend the voting rights of shareholders, i.e. to prohibit shareholders from exercising their voting rights. The memorandum of association may stipulate other important grounds in addition to the still valid reasons for the suspension. This change reflects the common situation of a shareholder who has a conflict of interest. According to the explanatory memorandum, a conflict of interest is undoubtedly an important reason for the suspension of voting rights.
The amendment also introduces a change concerning additional voting and removes the legal uncertainty hindering shareholders rights in situations when a resolution of the general meeting may subsequently fail to be adopted during additional voting under the existing legal regulation. As of 1 January, shareholders can only consent to a decision of the general meeting in cases when a consent of a shareholder is required by law; hence, it will not be possible to quash a validly adopted resolution.
The amendment introduces a new practical way of payment of a monetary contribution of up to CZK 20,000. It can be paid differently than by payment to a special bank account. When establishing a limited liability company, shareholders may pay their contribution of up to CZK 20,000 for instance to a notary as the administrator of the contribution.
The amendment also aims to increase the protection of shareholders by introducing a statutory pre-emption right of shareholders to the company’s own shares.
In view of the above, we recommend that shareholders in limited liability companies become familiar with the wording of the amendment and consider reviewing the foundation deed / memorandum of association to reflect the new regulation.
Our corporate team is always ready to assist you to be duly prepared for the envisaged changes, to represent shareholders at the general meeting and/or to help in the stage of founding a company and laying down the rules governing its future operation.
