Corporate Interest and Spousal Community Property
Who becomes a partner following the death of a spouse?
A shareholding that a spouse acquired during the marriage forms part of the spouses' joint property in terms of its value, but only that spouse is the shareholder. After the shareholder's death the share passes to the heirs; the surviving spouse becomes a shareholder only as an heir, while the settlement of the joint property deals only with the value of the share. The lawyers of ARROWS advokátní kancelář set up the contracts so that the company knows who will take control.
Key takeaways
- A share acquired by a spouse during the marriage forms part of the community property; however, such acquisition does not establish the other spouse’s participation in the company.
- A share acquired by inheritance or gift generally belongs only to the individual spouse and does not fall into the community property.
- Upon the dissolution of a marriage by death, the community property is settled based on the value of the share at the time of settlement; if settlement is not reached within three years, statutory presumptions apply.
- Upon the death of a shareholder, the share generally passes to the heirs, as determined by probate proceedings; the settlement of community property distributes only the value, not the status of the shareholder.
- Heirs may become co-owners of a share, in which case they are represented in their dealings with the company solely by an administrator of the common property.
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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 means that the consent of the other spouse is not required for the exercise of shareholder rights, including voting at the general meeting.
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 generally do not appear in the company; the exception is a transfer or pledge of the share, which, as an act beyond ordinary matters, requires the consent of the other spouse, otherwise they may invoke its invalidity (Section 714 of the Civil Code). 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. 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.
After the death of a spouse, the community property is settled directly within the inheritance proceedings. The property obligations and rights of the former spouses are assessed within the inheritance proceedings (Section 764 of the Civil Code). The court approves an agreement on the settlement between the surviving spouse and the heirs and, if no such agreement is reached, itself determines by resolution what part of the community property belongs to the estate and what to the surviving spouse. 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 settlement therefore cannot be postponed indefinitely, because it is part of the inheritance proceedings.
If the heirs and the surviving spouse do not agree on what belongs to the community property, the disputed property is disregarded (Section 162 of the Act on Special Court Proceedings). The three-year period with statutory presumptions for unsettled community property applies to dissolution during lifetime, typically divorce. In neither regime does the settlement establish the status of a shareholder; 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. The estate is administered by the heirs, unless the deceased appointed an estate administrator or an executor of the will, or the court, for a serious reason, orders another measure, such as appointing an administrator (Section 1677 of the Civil Code). It is therefore advisable to prepare already in the articles of association for who will vote on behalf of the share during that time.
For the valuation of the share after the death of a spouse, the state as of the date of death is decisive. In the inheritance proceedings, the court determines the usual price of the property in the community property as of the date of the deceased's death (Section 162(1) of the Act on Special Court Proceedings). The situation is different in a settlement after divorce, where the court generally determines the price as of the time of its decision (judgment of the Supreme Court, case file no. 22 Cdo 3089/2022). The appraisal for the inheritance proceedings must therefore be based on the value of the share as of the date of death, not on the subsequent development of the company.
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.
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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 36 and 212 to 215). In a joint-stock company, the law does not allow the prohibition or restriction of the transfer of shares.
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 underestimating the settlement in the inheritance proceedings. The family expects the matter to resolve itself, does not prepare documentation on the value of the share or an agreement with the heirs, and the court then decides on the division regardless of 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
Where the structure fails | How ARROWS sets it up
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The surviving spouse assumes they will take over the company. However, the share falls to other heirs or its transfer is prohibited by the agreement. | We will assess how and when the share was acquired and propose a solution. We will prepare a will and a succession agreement. |
The articles of association prohibit the transfer of the share. The heirs do not become shareholders and only have the right to a settlement share. | We will set up the settlement share and the conditions of its payment. We will align the agreement with the will. |
The family has not prepared documentation for the settlement in the inheritance proceedings. Without an agreement with the heirs, the court decides and disregards the disputed property. | We will prepare a settlement agreement between the surviving spouse and the heirs. We will ensure a valuation of the share as of the date of death. |
The share is inherited by multiple persons. Only the common property administrator acts for the co-owners, and a dispute arises. | We will propose a mechanism for the exercise of rights and division of the share. We will represent the company or heirs in negotiations. |
The spouses do not have a matrimonial property regime agreement. Both the company and the family do not know what belongs to whom. | We will prepare a matrimonial property agreement and align it with the articles of association. We will verify the impacts on the company. |
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.