Cancellation of the general meeting resolution on increasing the share capital in the event of non-assumption of the contribution obligation in light of the current decision of the Supreme Court

Mgr. Pavel Čech
Mgr. Pavel Čech
26.5.2025 | ARROWS law firm

An increase of the registered capital of a limited liability company is not a mere formality, but a legal process under Czech law, and failure to comply may have fundamental consequences for the company’s operation and ownership structure in the Czech Republic. In its recent decision, the Supreme Court of the Czech Republic addressed a complex company case and provided important guidance on the assumption of contribution obligations by shareholders and the validity of a general meeting resolution (file no. 27 Cdo 635/2024 dated 28 April 2025).

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Case background

A limited liability company (s.r.o.) decided to increase its registered capital from the original CZK 100,000 to CZK 1.6 million. The existing shareholders were to exercise their pre-emptive right to assume the contribution obligation in proportion to their ownership interests—one of them was to assume CZK 1,050,000 and the other CZK 450,000. However, the shareholder with the smaller interest did not assume the contribution obligation within the specified time limit. The other shareholder then, with the consent of the general meeting, assumed his contribution obligation (the minority shareholder voted against at that general meeting). This step, however, triggered disputes regarding the validity of such a resolution (consent) of the general meeting under Czech law.

Courts of first and second instance: dispute over unanimity and time limits

The Municipal Court in Prague, as the court of first instance, expressed the view that all shareholders must consent to the assumption of the contribution obligation—i.e., unanimity is required. It therefore found the general meeting resolution on the assumption of the obligation by another shareholder to be invalid.

The High Court in Prague, as the appellate court, however, pointed out that the assumption of a contribution obligation is not a substantive amendment to the articles of association that would require the consent of all shareholders. A two-thirds majority of votes is sufficient, and it therefore considered the general meeting resolution on the assumption of the contribution obligation by the majority shareholder to be valid.

Supreme Court: clear time-limit boundaries and legal certainty for shareholders

The Supreme Court of the Czech Republic provided a fundamental clarification of the legal situation—the general meeting resolution allowing the majority shareholder to assume the contribution obligation is contrary to law. It emphasised that if a shareholder does not assume the contribution obligation within the specified time limit, the relevant general meeting resolution on the increase of registered capital is automatically cancelled pursuant to Section 225 of the Czech Act on Business Corporations. Once this resolution ceases to exist, the general meeting cannot subsequently authorise the assumption of the contribution obligation by another person—because no obligation to assume the contribution obligation exists anymore.

In other words, the Supreme Court concluded that unless the articles of association provide otherwise, and unless the general meeting—before the expiry of the time limit for assuming the contribution obligation—grants consent under Section 222 of the Czech Act on Business Corporations (i.e., permits another person to assume this obligation) and at the same time sets an additional time limit for its assumption, then if the shareholder does not assume the contribution obligation within that time limit, the general meeting resolution on the increase of registered capital is cancelled by operation of law. The general meeting then can no longer grant consent later for another person to assume the contribution obligation, because that obligation has formally ceased to exist.

At the same time, the Supreme Court confirmed that the general meeting’s consent under Section 222 of the Czech Act on Business Corporations is not a decision amending the articles of association within the meaning of Section 171 of the Czech Act on Business Corporations, and therefore, as a rule, does not require the unanimous consent of all shareholders.

Furthermore, for completeness, the Supreme Court explained in more detail that: “However, if the general meeting decides on consent under Section 222 of the Act on Business Corporations additionally (after it has already decided on the increase of registered capital) and its resolution also includes the determination of a time limit for assuming the contribution obligation (typically where the time limit for the procedure under Section 222 of the Act on Business Corporations is not already determined by the resolution on the increase of registered capital itself), then (to the extent of determining this time limit) it is a resolution that changes the content of the resolution on the increase of registered capital (insofar as it determines the time limit for assuming the contribution obligation). To that extent, it is subject to the same regime as the resolution on the increase of registered capital itself, including the required majorities (Section 171 of the Act on Business Corporations) and the required notarial deed (Section 172 of the Act on Business Corporations).”

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Practical implications for business corporations

The Supreme Court’s decision emphasises strict compliance with statutory time limits when increasing registered capital under Czech legislation. Shareholders and company management must pay maximum attention to ensuring that the time limits set by the general meeting resolution meet statutory requirements and that contribution obligations are assumed in due time. Failure to comply with these rules may lead to the cancellation of the resolution and, consequently, to serious legal and business complications, for example the cancellation of the planned dilution of ownership interests or other changes in the ownership structure.

In addition, the Supreme Court explained that, as a rule, unanimous consent of all shareholders is not required to approve the assumption of a contribution obligation by another shareholder. This gives companies greater flexibility; however, increased attention must still be paid to compliance with statutory time limits and formal requirements under Czech law.

Conclusion

The Supreme Court’s decision in this case represents an important precedent that significantly guides the practice of increasing registered capital in Czech companies. It highlights the need for careful management of processes related to assuming contribution obligations, the correct setting of time limits, and respect for the rights of minority shareholders.

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Notice: The information contained in this article is of a general informational nature only and is intended to provide basic guidance on the topic. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailored solution, so please do not hesitate to contact us.

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