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Types of share in limited liability companies

Czech Republic: The various types of shares in Czech limited liability companies, and the limitation of rights and obligations associated with them

Adoption of the Corporations Act brought about a certain liberalization in terms of the rules governing limited liability companies. Among the new freedoms is the option to create different kinds of share in a company with different rights and obligations vested in them, even beyond the statutory framework. This could make the limited liability company an attractive instrument for various investments. By contrast to a shareholders' agreement, tying specific rights and obligations directly to a share in the company ensures for the event of a future divestment of shares that the buyer as a new shareholder will have the same legal position as a previous shareholder.

Shares in limited liability companies may therefore be endowed with rights and obligations beyond what is enshrined in the law (whereas different types of share may come with different sets of rights and obligations). Examples include a higher profit share, a more extensive right to information, or the obligation to participate in the company's business operations. The possibility to attach a different number of votes to different shares may be particularly interesting for investors, as it allows them e.g. to ensure that the founders retain control of the company in the future.

However, the freedom of shareholders to endow shares with rights and responsibilities is not without limits. Where to draw the dividing line between acceptable and unacceptable regulation is currently the subject matter of debate.

Presumably the biggest bone of contention in current discussions is whether certain rights vested in shares which the law recognizes by default may be excluded by shareholders. Frequently mentioned in such discussions is the admissibility of ruling out voting rights or the right to a profit share. Our view is that, with the exception of borderline cases, such a step should be perfectly acceptable; however, legal commentaries have taken conflicting positions on the issue, and there exists as of yet no relevant case law.

Source:Corporations Act (Act No. 90/2012 Coll., on business corporations, as amended) Civil Code (Act No. 89/2012 Coll., as amended)