Shareholders’ Agreements for Czech s.r.o.
Key Clauses and Dispute Prevention
A shareholders’ agreement (SHA) supplements the company’s constitutional documents with rules for situations that often trigger disputes between owners. It can address exits, share transfers, deadlocks and minority protection while remaining private. This article explains what an SHA should cover, how to make the agreed rules enforceable and which issues are best resolved while the shareholders still agree.
Key takeaways
When you establish a company with multiple shareholders, there is usually trust and enthusiasm for the joint project. At that moment, it seems unnecessary to address what happens if you fall out with each other. However, this is precisely the moment when an SHA and a detailed setup of rules should be created – when you are all in a good mood and able to agree rationally.
The Articles of Association mandatorily govern only the basic aspects required by law – who the shareholders are, what shares they hold, how executive directors are elected, the business scope, and the basic rules for the general meeting.
What they usually do not address in depth, however, are situations where the shareholders cannot agree, when one shareholder wants to exit, or what happens if one of the shareholders leaves to join the competition. It is precisely for these situations, including the distribution of profits beyond the scope of the law, that an SHA exists.
An SHA is a private, non-public agreement between shareholders. Unlike the Articles of Association, in most cases you do not need to execute it in the form of a notarial deed, you do not file it in the Collection of Documents, and it remains confidential.
Our specialists will help you
Lawyers from the Prague-based ARROWS law firm work with these agreements daily and know what situations arise in practice and how to avoid them.
Profit Distribution and Reinvestment
One of the most common points of dispute between shareholders is the question: "What portion of the profit will we distribute and what portion will we keep in the business for development?" The Czech Act on Business Corporations entrusts the decision on profit distribution to the general meeting, but does not impose an obligation to distribute profit unless the Articles of Association state otherwise.
In the SHA, you can agree on a rule that the shareholders undertake to vote at the general meeting in such a way that a certain part of the net profit is paid out and the rest remains in the company. This provides predictability for all shareholders and prevents situations where the majority shareholder retains all profit and the minority shareholder cannot claim their share.
However, it is necessary to remember that the payment of a share in profits is subject to strict legal tests under Czech legislation, in particular the insolvency test and the equity test. Even an SHA cannot force an executive director to distribute profit in violation of the law. The Czech legal team at ARROWS law firm will ensure that your SHA complies with the law and that the set rules are legally enforceable.
Right of first refusal – who has the right to buy the share?
When one of the shareholders wants to sell their share to a third party, you often do not want that person to become your new partner. While the statutory regulation of share transferability in an s.r.o. has undergone changes, a contractual right of first refusal in an SHA offers more flexible protection.
In the SHA, you can agree on:
Who has the right of first refusal – all remaining shareholders proportionally according to their shares, or only certain persons.
How the right is exercised – for example, a period of 30 days from the notification of the intention to sell.
What happens if someone does not exercise the right – usually they lose the opportunity to buy the share later and it can be transferred to a third party.
Obligation of the transferring shareholder – to ensure that the new acquirer accedes to the SHA.
The right of first refusal is one of the tools that ARROWS lawyers commonly include in SHAs, as it is an effective protection against unwanted persons entering the company.
Veto Rights in Key Decisions
A minority shareholder often wants to be sure that on certain fundamental issues, the majority shareholder cannot act without their consent. In an SHA, you can agree on a veto right – i.e., a commitment that shareholders will not vote for certain decisions without the consent of the minority shareholder.
However, it needs to be set up sensitively to avoid paralyzing the company, as blocking every decision without a reason could be considered an abuse of right.
The Prague-based ARROWS law firm will help you set up a catalog of decisions subject to veto so that it protects your legitimate interests, but at the same time does not allow arbitrary blocking of the company's day-to-day operations.
Resolving Deadlocks (Deadlock Clauses)
A deadlock occurs when shareholders cannot agree on anything. The company becomes dysfunctional – the general meeting does not adopt decisions, the financial statements cannot be approved, and executive directors cannot be elected.
In the SHA, you can agree on mechanisms for resolution:
Russian Roulette – One shareholder delivers an offer with a price for the share to the other. The other shareholder has a choice: either buy or sell.
Texas Shootout – Both shareholders submit sealed bids to buy out the other shareholder's share to an independent third party. The higher bid wins.
Mediation – The shareholders undertake to attempt to find a solution with the help of a professional mediator before escalating the dispute.
Lawyers from the Prague-based ARROWS law firm will ensure that the deadlock clause is correctly drafted and genuinely enforceable in the event of a conflict.
Good Leaver and Bad Leaver – Conditions of a Shareholder's Departure
When a shareholder leaves the company, their settlement must be resolved. The price for the share may vary depending on the reason for departure.
Good Leaver – The shareholder leaves for reasons beyond their control (retirement, death) or reasons that are acceptable. They have the right to sell their share at market price.
Bad Leaver – The shareholder leaves under circumstances that damage the company (criminal offense, breach of non-compete clause). They are obliged to sell their share at a penalty price.
Defining the categories of departure is critical. ARROWS law firm works with these clauses regularly and knows how to minimize interpretation risks and subsequent disputes.
Drag-Along and Tag-Along – Rights in the Sale of Shares
Drag-Along (right of forced sale) – If a majority shareholder finds a buyer for 100% of the company, they have the right to force the minority shareholders to sell their shares as well under the same conditions.
Tag-Along (right to join the sale) – If a majority shareholder sells their share, minority shareholders have the right to join the sale and sell their shares under the same conditions and price.
Lawyers from the Prague-based ARROWS law firm will advise you on how to correctly link these rights to the Articles of Association and ensure their enforceability, for example through a power of attorney.
Option Rights – Call and Put Options
Call Option – Gives the entitled shareholder the right to buy the other's share at a pre-agreed price within a certain time window.
Put Option – Gives the entitled shareholder the right to sell their share to the other, who is obliged to buy it. Typically serves as an insurance policy for a minority shareholder for an exit.
Structuring call and put options requires precise legal work. It is necessary to define:
Triggering event – when the option can be exercised (e.g., after 3 years, upon failure to achieve KPIs).
Price – a fixed amount, a formula (EBITDA multiple), or a valuation mechanism by an expert.
Sanctions – what happens if the obliged party refuses to transfer/purchase the share.
Protection of the Minority Shareholder
A minority shareholder has limited statutory options to influence the running of an s.r.o. under Czech legislation. An SHA can guarantee them above-standard rights:
Right to information – an extended right to inspect documents and receive regular reporting beyond the statutory minimum under Section 155 of the Czech Act on Business Corporations.
Right to nominate members of bodies – the right to propose one executive director or member of the supervisory board.
Veto right – as mentioned above.
Anti-dilution – protection of the percentage of the shareholding when increasing the registered capital.
Anti-dilution – Protection Against Share Dilution
If the company needs new capital and issues new shares, the share of an existing shareholder may decrease in percentage. Although the law gives shareholders a pre-emptive right to participate in the increase of the registered capital (Section 220 of the Czech Act on Business Corporations), the SHA can contain more specific mechanisms.
Non-Compete and Protection of Trade Secrets
The Czech Act on Business Corporations contains a basic non-compete clause for executive directors (Section 199 of the Czech Act on Business Corporations). However, shareholders do not automatically have a statutory non-compete obligation. An SHA is the ideal place where shareholders can mutually promise not to conduct business in the same field.
Duration – for the duration of the participation in the company and often for a certain period after departure.
Scope – material and territorial scope of the prohibition.
Contractual penalty – a key element for enforceability.
How to Properly Structure an SHA – Practical Guidelines
Who must sign the SHA?
An SHA is concluded between shareholders. It can be concluded by 100% of the shareholders (which is ideal), or only by some of them. The company itself, as a legal entity, is also often a party to the agreement to ensure the cooperation of the executive directors in fulfilling certain points.
What form should an SHA take?
An SHA for an s.r.o. does not need to take the form of a notarial deed unless it contains provisions that would require this form by law. It must be in writing. However, due to legal certainty and complexity, professional legal assistance is strongly recommended.
How to ensure that the SHA will be enforceable?
A breach of an SHA does not usually cause the invalidity of a general meeting resolution towards third parties. Therefore, it is necessary to ensure enforceability in other ways:
Contractual penalties – must be high enough to deter breach.
Options as a sanction – in the event of a breach of contract, the other party may acquire the right to buy out the offender's share at a low price.
Linking with the Articles of Association – some provisions can be reflected directly in the Articles of Association filed in the Commercial Register.
The Prague-based ARROWS law firm has above-standard professional indemnity insurance coverage, so you can be sure that your SHA will be prepared professionally and with an emphasis on minimizing risks.
Table of Practical Risks and How to Solve Them
Risks and Sanctions | How ARROWS Helps (consultation@arws.cz) |
Inability to resolve conflict (deadlock): The company is paralyzed, shareholders are not speaking to each other. There is a risk of judicial dissolution of the company. | We set up effective procedures (mediation, Russian Roulette, Texas Shootout) that force the parties to resolve the situation quickly and out of court. |
Entry of an unwanted third party: A shareholder sells their share to a competitor or an untrustworthy person. | We ensure strict rules for the transfer of shares and the obligation of the acquirer to accede to the SHA. |
Withholding profits: The majority refuses to pay dividends with the aim of "starving out" the minority. | We negotiate a mechanism that obliges shareholders to vote for the distribution of a certain part of the profit. |
Damaging shareholder (Bad Leaver): A shareholder damages the company's reputation or leaves to join a competitor, but still holds a share. | We prepare clauses that allow such a shareholder to be forced to be bought out at a reduced price. |
Death of a shareholder: Heirs who have no interest or ability in the business enter the company. | We set rules for settlement with heirs, or the obligation of heirs to sell the share to the remaining shareholders. |
Practical Steps for Preparing or Reviewing an SHA
If you want to prepare or review an SHA, we recommend the following procedure:
Identify sensitive areas – Where is there a risk of disagreement? (Profit, strategy, exit, inheritance).
Open communication – Discuss the topics with the shareholders while relations are good.
Professional preparation – Have the SHA drafted by a specialized attorney.
Consistency with the Articles of Association – Ensure that the SHA and the Articles of Association do not contradict each other.
Signatures – Secure the signatures of all parties, ideally with verification of signature authenticity.
Lawyers from the Prague-based ARROWS law firm can handle this entire process on a turnkey basis – from the initial consultation to the finalization of the documentation.
A Case from Practice: How an SHA Prevented a Disaster
To illustrate, let us present a fictional but realistic example. Two founders (A and B) established a software company. Founder A (CEO) held 60%, founder B (CTO) held 40%. They did not have an SHA.
After five years, they disagreed on the direction of the company. A wanted to sell the company to an investor, B wanted to continue building it. A began to use his 60% majority to steamroll B at general meetings, which led to lawsuits and deterred the investor.
If they had had an SHA, they could have resolved the situation immediately:
Tag-Along Right: B would have had the certainty that if A sold, he could also sell under the same conditions.
Deadlock Clause: If they disagreed on strategy, they would activate the "Texas Shootout" and one would buy out the other for the highest bid price.
Non-Compete: The bought-out shareholder would not be able to establish a competing company and take clients away.
Due to the absence of an SHA, the dispute lasted for years and cost millions of CZK in lost profits and legal services.
Recommendations for Your Situation
If you are a shareholder in an s.r.o. with multiple owners and do not have an SHA, you should prepare one – ideally now, while there is consensus. If you already have an SHA, we recommend reviewing it to see if it corresponds to the current wording of the Czech Act on Business Corporations and your current needs.
The Czech legal team at ARROWS law firm specializes in corporate law and shareholder relations. Write to us at consultation@arws.cz and briefly describe your situation.
Conclusion
A Shareholders' Agreement (SHA) is a critically important document for the stability of an s.r.o. While the Articles of Association form the legal basis, the SHA is the "manual" for resolving crisis and business situations.
A properly set up SHA with specific sanctions and clear procedures is an investment in the future of your company, protecting its value from destruction due to personal disputes.
If you are not sure whether your company is protected, get in touch with us. We will be happy to help you set up the rules of the game to suit your needs. Contact us at consultation@arws.cz.
FAQ – Most Common Legal Questions Regarding Shareholders' Agreements in an s.r.o.
About the author
Disclaimer:
The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. 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 350,000,000. 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.