Share transfer agreement and verification of signatures - absolute vs. relative nullity

Authors of the article: Mgr. Pavel Čech, ARROWS advokátní kancelář (office@arws.cz, +420 245 007 740)

Are you transferring a share in a limited company? Then watch out. In its new decision (27 Cdo 3120/2023 of 8 January 2025), the Supreme Court confirmed that formal errors in the verification of signatures do not have to mean automatic absolute invalidity of the contract. The key point of contention was whether the fact that the signatures on the contract were not verified by an impartial person led to the nullity of the contract. And if so, whether that fact leads to an absolute nullity of the contract or only a relative one.

Requirement for official verification of signatures - a formal condition of the share transfer agreement

Pursuant to Section 209(2) of the Corporations Act, a share transfer agreement in a limited liability company is effective upon delivery to the company with officially certified signatures.

The certification of the signature by an attorney may be regarded as equivalent to official certification of the signature pursuant to Section 25a of the Advocacy Act.

If the signatures on the contract are not properly authenticated, the contract may be invalid, but a distinction must be made between absolute and relative invalidity.

Absolute nullity of the contract and its consequences

Absolute nullity of a share transfer agreement means in particular that:

• The contract is considered void from the outset (ex tunc), i.e. as if it had never been formed.
• No one can invoke the validity of the contract because the legal act is contrary to law, public policy or circumvents the law (Section 588 of the Civil Code).
• The court shall take into account absolute nullity of its own motion, i.e. without a request from any party.
• The transfer of shares never took place and the company was therefore never obliged to recognise the new shareholder.

Conclusions of the lower courts in the case rubric:

Both the Municipal Court and the High Court in Prague concluded that if the verification of the signature was performed by an attorney who also represented the other party, he acted in a conflict of interest, which means that the verification was not valid and the signature was not officially certified.

In their view, the contract did not comply with the required form and was therefore absolutely null and void.

Relative nullity of the contract - possibility of curing the defect

Relative nullity of the contract of transfer means in particular that:

• The contract is valid unless the invalidity is invoked by the beneficiary.
• The invalidity must be actively contested, otherwise the contract is deemed valid.
• The court does not take into account relative nullity of its own motion, but only if one of the parties objects to it.
• The defect can be subsequently remedied - for example, by re-signing the contract and duly certifying the signatures.

Conclusion of the Supreme Court in the case under review:

The Supreme Court reversed the lower courts' conclusions because:

• A conflict of interest of the person who authenticates the signatures on a contract does not automatically mean that the contract is absolutely void.
• Certification of a signature by a lawyer is equivalent to official certification and there is no reason to automatically question it.
• Even if the contract does not have officially authenticated signatures, the absence of an official verification of the signature does not lead to the absolute nullity of the contract.
• The protection of the company and of third parties is already ensured by the fact that the transfer of shares is not effective until the contract with duly authenticated signatures is delivered to the company.

The Supreme Court therefore concludes that even if there were doubts as to the validity of the certification of the signatures by a lawyer, the contract could at most be relatively invalid.

However, relative invalidity must be invoked by the contracting party, which was not the case here.

Therefore, there is no reason to consider the share transfer agreement absolutely void.

Impact of the decision on legal practice

This decision has a major impact on the assessment of the invalidity of share transfer agreements in the future:

Increased legal certainty - Courts will not automatically declare contracts absolutely void whenever there is any doubt about the verification of the signature.

Possibility to correct the contract - If there is a formal error in the verification of signatures, it can be corrected without rendering the contract void ab initio.

Simplifying access to verification - Verification of a signature by a lawyer has the same effect as official verification, even if the lawyer represents one of the parties.

Summary

In this decision, the Supreme Court has ruled against the automatic absolute invalidity of share transfer agreements where there is an error in signature verification. At the same time, it confirmed that the verification of a signature by an attorney is valid if it meets the requirements of the Advocacy Act. If there are irregularities in the signature verification, the contract can at most be relatively invalid, which means that someone must actively enforce its validity.

This decision improves legal certainty and prevents excessive formalism that could jeopardise normal commercial transactions.

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