Corporate Interest and Spousal Community Property

Three situations in which a share in a company is found

The answer to the question of who becomes a shareholder starts with how and when the deceased spouse acquired the share. Spousal property law distinguishes between a share acquired during the marriage, a share acquired by inheritance or gift, and a share that the spouse already owned before the wedding. Each of these situations leads to different consequences after death.

The first situation is the most common: the spouse founded the company or purchased the share during the marriage. A spouse's share in a business corporation is also part of the community property if the spouse became a shareholder during the marriage (Section 709(3) of the Civil Code). Thus, the community property includes the financial value of the share, not the status of a shareholder. Therefore, during settlement, the value of the share is taken into account, not the value of the company as a whole, and the other spouse is entitled to it, even if they have never voted in the company.

The second situation occurs when the spouse inherited the share or received it as a gift. What was acquired by gift, inheritance, or legacy by only one of the spouses does not fall into the community property, unless the donor or testator expressed a different intention (Section 709(1)(b)), and the law explicitly applies this to a share in a business corporation as well. Such a share is the sole property of one spouse and, after their death, is inherited by their heirs. The surviving spouse has no claim to it by virtue of community property.

The third situation is a share acquired before the wedding. This also remains the sole property of the spouse, but the profit from it is part of the community property (Section 709(2)). It follows that the share of profit distributed by the company during the marriage belongs to both spouses, even if the share itself belongs to only one. However, profit that remains undistributed in the company is the property of the company, not the spouses. The company must therefore not assume that the other spouse has nothing to do with the share.

Everything that is addressed after the death of a company owner, i.e., inheritance, company management, and the fate of the share, is summarized in the text on what happens to a company after the owner's death. This article focuses solely on how community property of spouses affects the fate of the share and what this implies for the company, the surviving spouse, and other heirs.

A share in community property: why the other spouse is not a shareholder

The law explicitly states that the acquisition of a share does not establish the participation of the other spouse in the company or cooperative, with the exception of housing cooperatives (Section 709(3)). Therefore, only the spouse who acquired the share is a shareholder and exercises all rights towards the company: they vote, receive information, and collect a share of the profit. The other spouse does not have the status of a shareholder, even though the community property includes the value of the share.

The Supreme Court, in its ruling case file no. 22 Cdo 3302/2023, emphasized that a strict distinction must be made between the exercise of shareholder rights and the scope of community property. The community property includes the value of the share, but shareholder rights are exercised only by the shareholder-spouse, without the consent of the other spouse, even if their decision reduces the value of the share. For the company, this provides certainty that a resolution of the general meeting will not be challenged by a spouse who is not a shareholder.

The difference between financial value and participation in the company is key. The other spouse has a financial claim to the settlement of the share's value, but by virtue of community property, they do not acquire voting or information rights of a shareholder. The company therefore does not invite them to the general meeting, and the managing director does not have to provide them with information about the company. After the death of the shareholder-spouse, the share generally passes to their heirs; who they specifically are and to what extent they acquire the share will be determined by the inheritance proceedings.

The practical impact for the company is that the other spouse only enters the picture after the death. Until then, they are invisible to the company. After the death, they may appear as a surviving spouse, an heir, or both at the same time, and the company must determine what role they play and what rights they have to the share. Their financial claim from community property is governed by the Civil Code; whether they become a shareholder is decided by inheritance law and the articles of association.

A survivor looking for a general overview of inheritance proceedings and the steps to take after the death of a loved one can find it in the text on practical advice for survivors in inheritance disputes. This article focuses only on what happens to a share in a company and who becomes a shareholder, which are questions that the company's management must address after a death.

An example illustrates the practice. Mr. Novák founded a company during his marriage and is its sole shareholder. The value of the share belongs to the community property, but only he is the shareholder, and his wife does not vote at the general meeting. After his death, the share passes to the heirs, and whether it goes to the wife, children, or both will be determined by the inheritance proceedings. In the meantime, the share does not remain unmanaged: if the heirs do not agree on the exercise of rights and no administrator of the estate is appointed, the court will appoint one upon the proposal of the company or an heir (Section 42(2) of the Business Corporations Act under Czech legislation).

What happens after death: settlement of community property and inheritance proceedings

Upon the death of a spouse, the community property is dissolved, and the liquidation of hitherto joint rights and obligations is carried out through their settlement (Section 736 of the Civil Code). Until the settlement is carried out, the provisions on community property apply mutatis mutandis to the dissolved community property. Thus, the financial value of the share, not the membership in the company, is divided between the surviving spouse and the estate of the deceased.

The settlement can take place by agreement or by court decision. If the parties involved do not agree on the settlement, each of them may propose that the court decide, according to the state when the effects of the dissolution of community property occurred (Section 740). In the event of a spouse's death, the settlement can be conducted within the inheritance proceedings. The settlement determines what value falls to the surviving spouse and what enters the estate; who acquires the share as an heir will only be decided by the inheritance proceedings.

The law also anticipates that no one addresses the settlement.

If no settlement by agreement or court proposal occurs within three years from the dissolution of community property, it is deemed that other property rights, receivables, and debts belong jointly to both parties and their shares are equal (Section 741 of the Civil Code). In the case of a share in a company, this presumption concerns its financial value. It does not establish the status of a shareholder for the surviving spouse, because after death, the transfer of the share is governed by inheritance law and the articles of association.

For the company, this means that the fate of the share can be decided for years. During this time, however, it needs someone to manage the share and exercise the rights arising from it, typically an estate administrator agreed upon by the heirs or appointed by the court. This issue is addressed in detail in the text on who manages the company during inheritance proceedings.

For the valuation of the share, the price at the time of settlement is decisive, not as of the date of death. The state at the time of the dissolution of community property determines what is being settled, i.e., the scope of the property. However, the court generally determines the price as the usual price at the time of its decision, because until the settlement, both parties bear the appreciation and depreciation; deviations are allowed only in special cases (judgment of the Supreme Court, case file no. 22 Cdo 3089/2022). Valuation as of the date of death is therefore only an indicative basis, and an appraisal older than roughly two years needs to be updated.

Settlement also concerns debts. If the community property includes liabilities, such as a loan to finance the share or a guarantee for the company, the settlement of debts has effects only between the spouses (Section 737(2) of the Civil Code). The creditor is therefore not bound by the settlement and may demand performance under the original obligation. For both the family and the company, this is a reason why debts should not be postponed and should be addressed alongside the share.

Who becomes a shareholder: the surviving spouse, heirs, or no one

Upon the death of a shareholder, their share passes to the heir or legal successor, unless the articles of association prohibit or restrict the transfer (Section 42 of the Business Corporations Act). Thus, the heir to whom the share falls according to the outcome of the inheritance proceedings becomes the shareholder. The settlement of community property itself does not make anyone a shareholder; it only determines what part of the value belongs to the surviving spouse. The heir can be the surviving spouse, children, or a combination of all.

The surviving spouse can have two roles at the same time. As a spouse, they are entitled to the settlement of community property; as an heir, they can inherit part of the estate, including the share. However, they become a shareholder only in the role of an heir; the settlement secures the value for them, not participation in the company. Both roles manifest in the inheritance proceedings, and the company must find out how the court decided before it begins dealing with the new shareholder.

If the share is inherited by multiple persons, they may own it jointly. If the share is in co-ownership, the co-owners are a joint shareholder, and the share is managed towards the company only by the common property administrator (Section 32(3) of the Business Corporations Act). A shareholder's share in an s.r.o. (limited liability company) can be divided upon transfer, unless the articles of association provide otherwise, and the consent of the supreme body is required for division (Section 43(2) and (3)).

The articles of association therefore play a crucial role. In an s.r.o., the transfer of a share can be prohibited or restricted; in the event of a prohibition, the heir does not become a shareholder, and the share becomes a vacant share, for which the heirs are entitled to a settlement share according to the rules of the Business Corporations Act (Sections 212 to 214). In a joint-stock company, the law does not allow the prohibition or restriction of the transfer of shares. The contractual arrangement is discussed in the text on inheriting a business share.

If the surviving spouse is the sole heir, they can take over the entire share, unless the articles of association prohibit or restrict the transfer. If there are children or other heirs, the share is divided according to the outcome of the inheritance proceedings. The company should therefore not rely on assumptions, but find out from the court decision to whom the share fell, and only then register the new shareholder and adjust relations in the management.

Market standard: how established companies prepare for this

Companies whose shareholders are married address this issue in several steps. The articles of association determine whether the share may pass to the surviving spouse or children, and under what conditions. The shareholders' agreement regulates voting and pre-emptive rights. And the spouses themselves can adjust their matrimonial property regime, as community property is subject to the statutory regime, a contract-based regime, or a regime established by a court decision (Section 708(2)).

The most reliable is the combination of three documents: the articles of association, a will, and a matrimonial property agreement. Each document addresses a different part of the issue, and their combination provides a clear answer. A will alone will not change the rules of the articles of association, and the articles of association alone do not address the relationship between the spouses. Only their mutual alignment ensures that no dispute arises after death.

Documents must be continuously updated. If the composition of shareholders, the matrimonial property regime of the spouses, or the size of the shares changes, the original will and agreement may no longer correspond to reality. It is wise to review them during any major change, such as when an investor enters, a child is born, or a part of the company is sold, rather than waiting for a discrepancy to appear after death.

A warning sign is a company where spouses do business together and no one has a will or an agreement on what happens after the death of one of them. Each of them has a part of the share, but there is no plan. Such a company then addresses both the settlement and the inheritance proceedings after a death, at a time when no one can agree. The earlier the issue is addressed, the less it costs.

Another sign is relying on the assumption that the surviving spouse will "simply take over the company". The law knows no such automatism. The surviving spouse may not acquire the share at all if there is a prohibition of transfer in the agreement or if the share falls to someone else according to the will or the agreement of the heirs. Therefore, it is recommended to anticipate various scenarios and not rely on verbal agreements.

The transfer of a share to a wife and children during one's lifetime is discussed in the text on transferring a share in an s.r.o. to a wife and children. This is one of the ways to address succession in advance, but it requires consent under the articles of association and has tax and property implications.

Typical mistakes and their cost

The most common mistake is relying on the assumption that a share in community property means shareholder status for both spouses. The other spouse then does not attend the general meeting, does not know the company's affairs, and after the death is surprised that they do not have shareholder rights by virtue of community property. The cost is a loss of time and often also value, as they must quickly familiarize themselves with the company.

The second mistake is neglecting the settlement. The family expects the matter to resolve itself, and after three years, statutory presumptions kick in, which may not correspond to the deceased's intention. The value of the share is then divided according to rules that no one chose, and the relationship between the survivor and the children can deteriorate precisely at the moment when the company needs a unified approach.

The third mistake is failing to link the documents. The articles of association prohibit the transfer of the share, but the will anticipates that the wife will inherit the share. The result is a dispute in which one party claims the will is valid, while the other claims the agreement is valid. It is wise to prepare the documents together and check that they do not contradict each other.

The fourth mistake is failing to communicate with the deceased's family from the very beginning. The company needs to know who the survivor is, who the heirs are, and what their intentions are, so that it can adjust the order in the general meeting and management in time. Silence replaces assumptions, and assumptions lead to disputes that well-conducted negotiations on the procedure would prevent.

Our Czech legal team at ARROWS law firm assesses for each family how and when the share was acquired, what the articles of association say, who the likely heirs are, and whether there is a matrimonial agreement, because the answer to the question of who becomes a shareholder depends on all four factors simultaneously and none of them can be assessed in isolation.

Risks of a share in the community property of spouses

Final Summary

A share in a company acquired by a spouse during marriage belongs financially to the community property, but only they are the shareholder. The article showed that after their death, the share passes to the heirs, that the settlement of community property only divides the value of the share, and that the articles of association of an s.r.o. can prohibit or restrict the transfer.

For the company owner and their family, this implies a clear task: to find out how the share was acquired and to align the articles of association, the will, and the matrimonial property regime of the spouses. Postponing these steps means that the fate of the company will be decided by the general rules of law rather than the founder's intention.

The Prague-based legal team at ARROWS law firm prepares articles of association, wills, and matrimonial property agreements, handles the settlement of community property, and represents companies and heirs in negotiations regarding shares. Write to us at consultation@arws.cz or explore our service for commercial and court disputes.