Shareholder Disputes
Attorneys advise on how to resolve them
Disputes between shareholders have three outcomes: the court-ordered exclusion of a shareholder, the dissolution of the company due to irreconcilable differences, or a joint sale of the entire company. The Supreme Court confirmed this year that exclusion is a last resort and that a breach of the shareholders' agreement does not invalidate a resolution of the General Meeting. The ARROWS legal team summarizes the case law, the risks, and when an exit is more advantageous than a dispute.
Quick and Practical:
Where Disputes Between Partners Really Begin
Conflict in a company rarely erupts over legal matters. The trigger is usually the distribution of profits, the departure of one of the founders to their own project, the entry of an investor, the inheritance of a share, or a divorce. The law only comes into play when the parties realize they cannot move forward without a court or an agreement.
This is precisely the moment when the quality of the documentation becomes apparent. Articles of association written ten years ago from a template generally do not address what happens when two partners with 50/50 shares stop talking to each other. And according to the Supreme Court, a dysfunctional General Meeting is grounds for the dissolution of the entire company—that is, for the liquidation of the value that both parties have built.
ARROWS' attorneys represent both majority owners and minority partners in these disputes, while simultaneously addressing the tax and accounting impacts of the chosen solution. You can find an overview of related services in the corporate law, holdings, and structures section.
Expulsion of a Partner by Court: The Harshest Tool with the Strictest Conditions
According to Section 204 of the Business Corporations Act, a company may seek the court's expulsion of a partner who breaches their duties in a particularly serious manner, despite being called upon to fulfill them and being warned in writing of the possibility of expulsion.
In its resolution ref. no. 27 Cdo 1596/2025 of 18 February 2026, the Supreme Court reiterated that expulsion is a serious interference with the legal status of a partner and is considered ultima ratio—a last resort to be taken only when the reasons cannot be overcome otherwise.
Four Steps That Cannot Be Skipped
A specifically defined call for rectification. According to case law, a general call for the partner to "refrain from actions damaging the company's good name" is insufficient—the Supreme Court rejected this in its resolution ref. no. 27 Cdo 2161/2022 of 21 June 2023.
A written warning of the possibility of expulsion if the breach continues.
A resolution of the General Meeting to file the motion. The decision on who remains a partner cannot be made by an executive director. The motion can only be filed for the reasons decided upon by the General Meeting.
Court proceedings, in which it is only then examined whether a serious breach actually occurred.
A crucial practical detail: according to the Supreme Court, the General Meeting decides only on initiating the process. The fact that it did not assess whether the partner was actually guilty of anything during the vote does not invalidate its resolution. Challenging this resolution with a separate lawsuit is therefore usually a waste of time and money—the defense belongs in the expulsion proceedings.
A second detail on which entire cases fail: when voting on a motion for their own expulsion, the voting rights of the affected partner are suspended by law. Anyone who overlooks this and allows the affected partner to vote risks the invalidity of the entire resolution.
Furthermore, since 1 January 2021, an action for expulsion can be filed on behalf of the company by any partner in the form of a so-called shareholder (derivative) action—actio pro socio. This shift was confirmed by the Supreme Court in its judgment ref. no. 27 Cdo 3786/2023 of 20 November 2024. A minority partner is therefore not powerless if an executive director controlled by the majority fails to act.
Deadlock: A Blocked Company is Dissolved, Not Reallocated
This is the most unpleasant news from the entire body of case law for owners. If a company is unable to carry out its activities due to insurmountable disagreements between partners, this is grounds for its dissolution with liquidation under Section 93(c) of the Business Corporations Act.
In its resolution ref. no. 27 Cdo 2808/2025 of 27 May 2026, the Supreme Court confirmed the dissolution of a company with liquidation and rejected the argument that the court should have waited for the outcome of a parallel proceeding for the expulsion of the other partner. The logic is consistent: if the partners are unable to function together and cannot reach an agreement, the solution is an equal termination for all, not the termination of one partner's participation.
Case law does not require the company to cease functioning externally. The long-term dysfunction of the supreme body—the General Meeting, which either does not convene or does not approve anything—is sufficient. A functioning production line and paying customers will not protect you from liquidation.
The practical consequence for an owner: from the moment the General Meeting gets stuck, time is running against the company's value. Liquidation means selling off assets, losing goodwill, the departure of key people, and generally a much worse outcome than any negotiated settlement. That is why ARROWS' lawyers push for structured negotiations in these situations before anyone files a motion with the court—see contracts and negotiations and commercial and court disputes.
The Best Way Out of a Deadlock: Sell the Company as a Whole
Most feuding partners are asking the wrong question. They ask "how to get the other person out of the company," even though neither is prepared to spend several years and several million on it. But there is a solution that warring partners can agree on surprisingly often: sell the entire company to a third party and split the money.
Economically, this is the best available outcome in most cases. Compare three scenarios:
Scenario | What Happens to the Value |
|---|---|
Liquidation after court dissolution | Assets are sold off individually; goodwill, customer base, and the team are lost. Owners receive a fraction of what the company was worth as a going concern. |
Buyout of a share by one of the partners | The buyer usually lacks free cash and pushes the price down; the seller has no alternative. The payout is dragged out in installments, and the dispute continues in a new form. |
Managed sale of the company to a third party | The price is determined by competition among bidders, not the negotiating power of the other partner. Both parties receive the market value in cash at closing. |
Selling a company in the midst of a dispute naturally has its specifics. During due diligence, the buyer will uncover the ongoing proceedings and the dysfunctional General Meeting and will factor this into the price or the structure of the transaction. It is therefore essential that both partners present themselves externally as a single seller: a joint mandate, a joint advisor, jointly agreed-upon representations and warranties, and a pre-agreed key for distributing the purchase price, including any holdback. Without this, the buyer will walk away or will deduct the lack of unity on the seller's side from the price.
For companies with real estate assets, it is also crucial whether the company is sold as a whole (share deal) or just the real estate (asset deal)—the difference in price and tax impact can be substantial, and the decision is made before the first potential buyer is approached. ARROWS' managing partner, JUDr. Jakub Dohnal, Ph.D., LL.M., addresses this issue in his book How to Sell a Company with Real Estate, which describes the entire transaction process from preparation to the settlement of the purchase price.
In these situations, the ARROWS law firm handles the corporate dispute and the sale preparation simultaneously: one part of the team maintains the procedural defense, while the other prepares the company for a saleable state. This is often the difference between liquidation and an exit for a decent amount of money.
Potential Problems | How ARROWS Helps (konzultace@arws.cz) |
|---|---|
Deadlocked General Meeting: 50/50 partners do not approve the financial statements or profit distribution, risking company dissolution with liquidation and the devaluation of the entire business. | Breaking the deadlock without court: We propose a decision-making mechanism (casting vote, alternating voting, put/call options) and negotiate its implementation into the articles of association before the dispute reaches court. |
Improperly conducted General Meeting: Incorrectly delivered invitation, missed deadline, voting by a person with suspended rights—the resolution can be challenged, and the process starts over. | Procedural management of the General Meeting: We prepare invitations, the agenda, the wording of resolutions, and the minutes to withstand judicial review, and we ensure an attorney's presence at the meeting. |
Missed protest: A partner fails to raise a reasoned protest at the General Meeting, and the court will later disregard their objections entirely. | Real-time defense: We formulate a protest directly at the General Meeting and file the subsequent motion for a declaration of invalidity within the statutory period with a correct specification of the grounds. |
Unsuccessful partner expulsion: The company files a motion without a proper call and warning, loses the dispute, and pays the opposing party's costs. | Upfront position assessment: We assess whether the conduct reaches the intensity of a "particularly serious breach," prepare the call and warning, and recommend when expulsion is realistic and when a buyout is cheaper. |
Conflict escalates to the criminal level: Accusations of breach of duty in the administration of third-party property or embezzlement alongside the corporate dispute. | Parallel defense: We link the corporate dispute with the defense in criminal proceedings so that the two lines of argumentation do not undermine each other. |
Dispute consumes the company's value: Years of litigation, blocked investments, and the departure of key people reduce the company's value before a judgment is rendered. | Exit instead of dispute: We evaluate whether it is more advantageous to see the dispute through or to sell the company together, and in the latter case, we manage the entire transaction—from the mandate of both partners to the settlement of the purchase price. |
Shareholder and Partnership Agreements: Binding, but They Won't Overturn a General Meeting
This is the most significant development in recent months and directly affects anyone who has a signed SHA (shareholders' agreement) or an agreement on the exercise of voting rights.
In its resolution ref. no. 27 Cdo 2390/2025 of 30 April 2026, the Supreme Court dealt with a case of three partners who had orally agreed to distribute profits according to the performance of the centers that each partner managed—even though the articles of association stipulated distribution according to the size of their shares. When the majority voted for distribution according to the articles of association, the minority partner challenged the General Meeting's resolution as being contrary to good morals.
The Supreme Court dismissed his motion and formulated several fundamental conclusions:
A shareholder agreement is valid even if oral. It is an innominate (not regulated by law) contract with a high degree of contractual freedom. It is not an amendment to the articles of association—it stands alongside them.
The articles of association take precedence. If the content of the articles of association and the shareholder agreement conflict, the articles of association are given preference when assessing the validity of a General Meeting resolution.
A breach of the agreement does not automatically mean it is contrary to good morals. The opposite conclusion would lead to a situation where any resolution on the matter would be immoral because it would contradict either the articles of association or the agreement.
The correct tools are damages and a contractual penalty. The court explicitly stated that the aggrieved party suffered a loss of profit that should have belonged to them—and this is resolved by an action for damages under Section 2913 of the Civil Code, not by annulling the resolution.
The practical translation for an owner: an SHA is not superior to the articles of association. If a certain rule is truly important to you, it must be in the articles of association in the form of a public deed. An SHA is used for what does not belong in the founding document or should not be there—and it must be reinforced with a contractual penalty in an amount that will deter the other party.
Companies that signed an SHA before 2021 should have it reviewed. Many agreements were written under the belief that a vote in conflict with them could be overturned in court. That is no longer true today. The review of shareholder agreements is part of our practice in corporate law and holding structures.
Settlement Share: How Much the Departing Partner Takes
When a partner's participation ceases without a legal successor, a right to a settlement share arises under Section 36 of the Business Corporations Act. The law specifies a calculation based on equity according to the financial statements—and what is important for owners, if the real value of the assets differs substantially from the accounting valuation, the real value is used. For companies with real estate acquired twenty years ago, this can be a difference of tens of millions.
The key, however, is that the statutory regulation is only applied subsidiarily. In its judgment ref. no. 27 Cdo 2445/2025 of 24 June 2026, the Supreme Court decided a dispute between a law firm and a former partner, whose articles of association stipulated that the right to a settlement share is forfeited upon a breach of a non-compete clause. The appellate court declared such an arrangement invalid. The Supreme Court overturned its decision with the following reasoning:
A simple conflict with the law does not in itself establish absolute invalidity—according to Section 588 of the Civil Code, it must also be a manifest disturbance of public order.
If the articles of association can regulate a share to which the right to a settlement share is not attached at all (and according to previous case law, it can, including a zero amount with the consent of the affected partner), it can all the more so stipulate that this right is forfeited if a condition is met.
For owners, this means an exceptionally powerful tool. A good leaver / bad leaver mechanism can be legitimately built into the articles of association—a different settlement for someone who leaves on bad terms and takes clients, than for someone who leaves by agreement. However, it must be written with certainty and specificity: in the same case, the courts found an arrangement for an "adjustment (reduction) of the settlement share to an appropriate extent" to be too vague because it left the amount of the reduction entirely to the company's discretion.
Do not forget the tax side. A settlement share and the sale of a share have completely different tax regimes, and the difference is often substantial—which is why we handle these scenarios together with our colleagues from tax law.
Disputes After the Sale of a Share: Defects, Price Reductions, and Set-offs
The second major group of disputes arises not within the company, but after its sale. A share in a limited liability company is an intangible movable asset, and a contract for its transfer for consideration is a purchase agreement. Therefore, the rules on liability for defects apply—in practice, linked to the seller's representations & warranties.
The Supreme Court's judgment ref. no. 23 Cdo 713/2024 of 6 May 2025 brought two pieces of news that change the negotiating position of both parties to a transaction:
Expert arbitration in the contract is valid. An arrangement that, in case of disagreement over the amount of a purchase price reduction, the amount will be determined by a pre-appointed expert, is not invalid for being contrary to the law. The court retains the role of assessing whether a defect existed at all, whether the right was exercised in time, and whether the expert adhered to the agreed parameters—but the mechanism itself will stand.
A price reduction is generally eligible for set-off against the outstanding payment. The appellate court argued that a claim for a price reduction is "uncertain and indeterminate" under Section 1987(2) of the Civil Code and therefore cannot be set off. The Supreme Court rejected this: if both claims arise from the same contractual relationship—the outstanding purchase price and a reduction of that same purchase price—it corresponds to a fair arrangement of their relations for them to be mutually set off.
For the seller, this serves as a warning: a holdback and a deferred payment are not safe money. The buyer can set them off before a court rules on the existence of a defect. For the buyer, on the other hand, it is a confirmation that a well-written clause on defects and price reductions has real enforceability.
Setting up these mechanisms on the seller's side is the core of our work in company sales and transaction advisory—and it is precisely this part of the contract that decides whether the seller will see the final installment of the price.
Potential Problems | How ARROWS Helps (konzultace@arws.cz) |
|---|---|
The holdback is never paid out: The buyer sets off a claimed price reduction against the final installment, and the seller spends years in court trying to recover their money. | Protecting the seller's price: We set up claim limitations, preclusive periods for claiming defects, de minimis and basket thresholds, third-party escrow, and a prohibition on unilateral set-off. |
Representations and warranties written without connection to due diligence: The buyer claims a defect where the information was available in the data room. | Linking DD and the contract: We prepare a disclosure letter and link the representations to the content of the due diligence so that disclosed facts do not constitute a defect. |
Vague agreement on price reduction: The contract provides for a reduction, but the calculation method is left to the discretion of one party, and a court declares it invalid. | Enforceable price mechanics: We prepare a specific formula, parameters for the expert, and a procedure for disagreement that will withstand judicial review. |
Dispute with a cross-border element: Foreign buyer, foreign governing law, assets in multiple jurisdictions. | Coordination through ARROWS International: We manage the dispute from one place and involve local lawyers in other countries—see international law. |
What Can Be Done Before a Dispute Arises
The vast majority of disputes between partners have a common denominator: the articles of association address nothing more than the legal minimum. Practical steps that pay off in our practice:
Deadlock mechanism. A casting vote on specified points, a mediation clause, Russian roulette, or a Texas shootout for a 50/50 ratio.
Exit mechanisms. Put and call options, pre-emptive rights, drag-along and tag-along rights—and with them, a clear valuation of the share.
Graduated settlement share. Different settlements depending on the reason for departure, formulated with certainty and without room for the company's discretion.
Resolved share inheritance. Exclusion of the transfer of the share to heirs, or, conversely, clear rules for their entry—otherwise, a person no one could have anticipated may enter the company.
Aligned SHA and articles of association. Key rules belong in the founding document; the rest in an agreement reinforced by a contractual penalty.
The ARROWS law firm guarantees its clients' security with professional liability insurance with a limit of CZK 400,000,000. You can find more about how we work in the Why ARROWS section.
Final Summary
The Supreme Court's case law from 2025 and 2026 has sent a clear signal to company owners. The expulsion of a partner is an extreme tool with strict formal conditions. A deadlocked General Meeting does not lead to the departure of a problematic partner, but to the dissolution of the entire company with liquidation. A shareholder agreement does not overturn a vote—it leads to a claim for damages. And partners can set the settlement share almost arbitrarily, as long as they write it down with certainty.
In all four cases, the quality of the documentation drafted at a time when everyone was still in agreement is decisive. A dispute between partners not only destroys relationships—it blocks financing, hinders transactions, creates uncertainty for employees and banks, and ultimately reduces the price for which the company can be sold.
That is why it is worth asking the question that feuding partners usually ask too late: isn't it better to sell the company together while it still has something to offer? A managed sale to a third party pays out both sides in cash at a price determined by the market and ends the dispute with a single signature. The course of such a transaction is described in the book How to Sell a Company with Real Estate; ARROWS then manages it from preparation to the settlement of the price.
If you are dealing with a conflict in your ownership structure, preparing for the entry or exit of a partner, or just want to check whether your articles of association will hold up, contact the ARROWS law firm at konzultace@arws.cz. The first consultation is non-binding and includes a clear proposal for the next steps.