Decision of the general meeting of a limited liability company on the distribution of profits

|Attorney|Czech Bar Association Reg. No. 14551

Published:3/1/2024

The Supreme Court dealt primarily with the transferability of the provisions on the decision of the general meeting of a joint stock company (hereinafter referred to as "a.s.") on the distribution of profits to the relations of a limited liability company (hereinafter referred to as "s.r.o."). This further defines the difference in their nature.

Key takeaways

Protection of shareholders' rights: the SC decision confirms that the general meeting of an LLC has more power and flexibility to decide on the distribution of profits than the general meeting of an Inc. This can be advantageous for you as the decision allows for greater consideration of the individual needs of the shareholders and the specifics of the business in question.

Use of proper accounts: it is important to ensure that the decision to distribute profits is supported by proper accounts. This means that the company must have up-to-date and valid accounting records that are presented to the general meeting for review and approval.

Protection of creditors' rights: the SC decision emphasises the importance of respecting the rights of the company's creditors when deciding on the distribution of profits. For the company, this means that the potential impact on creditors must be taken into account when deciding on the distribution of profits and ensuring that their rights are not compromised.

Legal certainty: Companies and shareholders can use this decision as a legal precedent for future profit distribution decisions in their companies. In this way, they can ensure compliance with the law and minimise the risk of potential litigation or invalidity of the general meeting decision.

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Among other things, the SC in its order refers to the Collection of Judicial Decisions and Opinions No. 9/2020, in which it dealt with the regular financial statements as the only eligible basis for the distribution of a company's profits.

Conclusion

In practice, this means that the general meeting of an LLC can decide on only a partial distribution of profits among the shareholders without having an important reason for doing so, so it is much less restricted by law than an LLC. It is also important to add that the NS of a limited company admits "the prohibition of misuse of votes to the detriment of the whole".

It is also important to keep an eye on the timeliness of the accounts, because if the accounts are not up to date, the resolution of the AGM will not be legally effective and will be viewed as not having been passed.

Should you have any questions on this or any other topic, please do not hesitate to contact us. We will be happy to help you!

About the author

JUDr. Jakub Dohnal, Ph.D., LL.M.

Associate, managing partner

LinkedIn|Czech Bar Association Reg. No. 14551

Jakub Dohnal is a founding member of our law firm and our entire consulting group. He is primarily involved in real estate development and advising on the complex setup of commercial projects.

dohnal@arws.cz 245 007 742

Disclaimer:

The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2024. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (consultation@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.