Zneužití většiny v kapitálových společnostech

Limits of Shareholder Rights and the Prohibition of Abuse of Majority

In other words, a majority of votes does not automatically grant the right to outvote the minority if this would contradict the law, the articles of association, or good morals. This fundamental corrective preventing majority excesses is enshrined in the Business Corporations Act (BCA) and is also based on the general principle of the prohibition of abuse of rights in the Civil Code.

The law and court case law establish that a majority shareholder must not direct the exercise of their voting rights solely to their own benefit at the expense of other shareholders or the company as a whole. In practice, this means that majority decision-making must respect a certain loyalty to the company and other investors – the majority must not, through its decisions, harm the rights of minority shareholders or reduce the value of their shares.

For example, if the majority shareholder repeatedly pushed for the non-distribution of profits solely so that money in the form of various benefits or loans would effectively flow to them, while the minority receives nothing, this would be a textbook case of abuse of majority and a violation of the law.

Courts consider such conduct at the expense of minority shareholders to be a manifestation of unequal treatment and an impermissible abuse of majority votes. Ultimately, a similar resolution of the general meeting may be declared invalid, and the company or the majority may face litigation and liability for damages.

The Czech legal team at ARROWS encounters these disputes in practice and can assess whether an unlawful overriding of majority rights has occurred in your case – in such a case, ARROWS will propose appropriate legal steps to defend the minority, including the option to challenge the decision in court.

The Principle of Equal Treatment of Shareholders

One of the central principles of corporate law is the principle of equal treatment. This principle ensures that the company treats all shareholders in the same situations equally and does not unreasonably favor or discriminate against anyone. Equal treatment is explicitly confirmed in the BCA for joint-stock companies ("the company shall treat all shareholders equally under the same conditions") and generally applies to LLCs (s.r.o.) and other corporations as well, thanks to the rule that a corporation must not favor or disadvantage any member without reason.

For the majority shareholder, this implies an obligation not to apply double standards – for example, they cannot provide hidden benefits to themselves or related parties (such as through advantageous contracts with "friendly" companies) while simultaneously denying similar performance to other shareholders. Violation of equal treatment can have serious consequences: in addition to the invalidation of the steps taken, there is a risk of liability for damages and, in the case of publicly traded companies, sanctions from regulators.

Minority shareholders should be alert if they feel that the company or the majority is not treating them fairly. For example, if the company's management (controlled by the majority owner) refuses to provide information to minority investors or denies them dividends while the majority shareholder receives other benefits, it is appropriate to check whether the principle of equality is being violated.

The lawyers at ARROWS have extensive experience in assessing similar situations and can quickly analyze whether the majority's conduct shows signs of unjustified favoring or harassment of the minority. In practice, a sharp legal letter – a warning prepared by ARROWS attorneys that the majority's procedure is contrary to the law – often helps. Such an intervention can prompt the majority shareholder to remedy the situation before relations escalate to the detriment of all involved.

What Risks Do You Face and How Can ARROWS Help

Below is an overview of several risks that minority shareholders in Czech companies often address. The table summarizes what problems can arise from the abuse of a majority position, what sanctions or consequences may follow, and what specific legal services the ARROWS law firm offers in these cases. We thus highlight the real impacts of rule violations – from financial losses and litigation to regulatory interventions – while demonstrating that an experienced legal team can prevent or effectively resolve these risks.

Permissibility of Squeeze-outs (Squeezing Out of Shareholders) under Czech Law

The majority shareholder must own at least 90% of the registered capital and 90% of the voting rights of the company to initiate a squeeze-out at all. This threshold is achieved rather exceptionally by larger companies, but if met, the majority owner has the right to request the board of directors to convene a general meeting with an agenda for the transfer of all other shares to them. The general meeting then votes on a resolution deciding that all minority shares are transferred to the majority shareholder.

For a squeeze-out to be legal, minority shareholders must receive fair compensation for their shares. The law establishes the right to so-called adequate consideration in cash, which is determined by the general meeting based on an expert opinion.

The majority shareholder must therefore have an expert opinion prepared to value the shares and demonstrate that the offered price is fair to the minority. If minority shareholders have doubts that the proposed consideration corresponds to the actual value of their shares, they have another significant statutory defense tool – the right to additional payment (dorovnání). This means they can subsequently seek payment of the difference if it turns out that the amount originally paid was not adequate.

In a squeeze-out situation, ARROWS lawyers often advise clients to have the expert opinion independently reviewed and to exercise the right to additional payment if there is a suspicion that the offered price is undervalued. In such a case, ARROWS will prepare all the documents for exercising the right to additional payment and is ready to represent minority shareholders in court proceedings for the settlement.

It is good to know that Czech minority shareholders also have a so-called sell-out right, i.e., the right to be "bought out" of the company. This mirror right was introduced into the law precisely to balance the strong position of the majority during a squeeze-out. Thus, if the majority shareholder owns 90% or more of the shares, minority shareholders can also trigger the process of compulsory buyout of their shares by the majority at any time. Practically speaking, you do not have to wait for the majority to offer you a buyout – you have a statutory right to request that they buy out your share at a fair price, thereby exiting the company with dignity.

The attorneys at ARROWS will help you exercise this right if remaining in the company alongside a dominant owner has ceased to be advantageous for you. We will prepare an official buyout request to the majority shareholder, calculate a fair price based on objective criteria, and negotiate the best possible exit terms for you. As a last resort, we will ensure the legal enforcement of this right through court proceedings.

Defense of Minority Shareholders: How to Protect Your Rights

Even a minority shareholder in a joint-stock company has significant rights and tools to defend against potential harassment by the majority. The first step is always to know your rights – unfortunately, many minority investors have no idea that, for example, with just 5% of shares (in smaller companies) or 3% (in large joint-stock companies), they can actively intervene in the company's operations as a so-called qualified minority.

Key rights of a qualified minority include, in particular, the right to request the convening of a general meeting or the right to propose certain matters for decision at the general meeting. All shareholders then have the right, subject to certain conditions, to challenge the validity of general meeting resolutions.

This last-mentioned right is very important – if you believe that a general meeting controlled by the majority shareholder has decided in violation of the law or the articles of association (for example, by violating the principle of equal treatment, bypassing the law, or acting to the detriment of the minority), you have the option to file a lawsuit in court for the invalidity of the general meeting resolution. The court will then assess whether the decision is contrary to good morals or the statutory duties of the majority and may declare it invalid.

The ARROWS law firm regularly represents clients in such disputes – our lawyers will prepare a qualified lawsuit, obtain evidence of the violation of your rights, and defend your interests in court to help you seek a remedy.

In a limited liability company, shareholders (including minority ones) can, as a last resort, petition the court to expel a shareholder who grossly violates their duties or seriously harms the company.

Although this provision is not used frequently, in extreme situations – for example, when the majority owner repeatedly and intentionally brings the company into trouble at the expense of others through their actions – the minority can request court intervention and the removal of the problematic member from the company.

Another option, especially in the case of long-term dysfunctional relationships between shareholders, is to file a petition for the dissolution of the company by a court on the grounds that it cannot be reasonably required for the company to continue to exist (which can happen when cooperation turns into a permanent conflict). However, these steps are a last resort, and all impacts must always be considered – here, too, it is essential to consult with lawyers specializing in corporate law.

However, the best defense for a minority is prevention. If you are entering a company as a minority investor, it pays to have well-drafted contractual documents – for example, a shareholder agreement or customized articles of association that contain safeguards for fair treatment.

The ARROWS law firm will help you set the rules of the game in advance: we will prepare or review contracts to protect your minority rights (e.g., we will determine which key decisions cannot be made without the consent of the minority, how the dividend policy will be determined, etc.). In this way, many disputes can be prevented – a well-drafted agreement minimizes the scope for future abuse of the majority.

At the same time, ARROWS provides long-term legal support to companies and their shareholders: we provide training for management and boards of directors in the areas of shareholder rights, compliance, and corporate governance to prevent violations of the law out of ignorance. After completing the training, the company's management will gain a clear overview of the limits of their powers towards the minority and will receive a certificate of training.

Entrust Your Protection to the Experts at ARROWS

The issue of abuse of majority and the protection of minority shareholders is a complex area where legal detail clashes with real human and business interests. For a minority shareholder, these can be existential questions – on the one hand, the risk of losing an investment or having a voice without a say, on the other hand, the opportunity to defend oneself and achieve justice.

At ARROWS, we know well how tense and emotionally demanding these disputes can be, which is why we approach each client with maximum empathy and professionalism. Our Prague-based legal team has been active in corporate law for many years and regularly represents both minority shareholders and companies that wish to act in accordance with the law.

If you suspect that unequal treatment or the suppression of your rights is occurring in your company, do not hesitate to contact us. We will provide you with a non-binding legal consultation, assess your case, and propose an effective solution – whether it involves preparing the necessary documentation, negotiating a remedy, or legal representation before courts or authorities.

The ARROWS law firm is ready to stand by your side and ensure that your rights as a minority shareholder are respected and defended. Contact us today for professional assistance and leverage our expertise to protect your investment and business rights.