How to transfer a share in a limited liability company – step by step and without mistakes

The transfer of a business share in a limited liability company (s.r.o.) is one of the most common transactions in business life. At first glance, it may seem like a routine matter, but it involves a number of formal obligations and potential pitfalls. In this article, we will explain the basic process of transferring a share – both between existing shareholders and to a third party – and highlight the key points that no entrepreneur should overlook. We will focus on the right of first refusal and its significance, the need for approval of the transfer by the general meeting, the requirement for a written agreement with certified signatures, the obligation to register the change of shareholder in the commercial register (including the procedure and fees), and the specifics of transfers between existing shareholders. This article is written specifically for you as an entrepreneur considering the sale or purchase of a share in a limited liability company. We will try to explain all important legal terms in a simple way, using practical examples and warning you about typical mistakes and risks.

Author of the article: ​ARROWS (JUDr. Kateřina Müllerová, office@arws.cz, +420 245 007 740)

Right of first refusal: Do you have to offer the share to your partners first?

Preemptive rights are a mechanism that gives certain persons (typically other company partners) the preferential right to purchase a share if the original owner decides to sell it. It is important to emphasize that preemptive rights to a share in a limited liability company do not automatically apply by law – they must be agreed upon in the articles of association or in an agreement between the partners. If a preemptive right is agreed in the articles of association of your limited liability company, this means that the selling shareholder is obliged to first offer their share for purchase to designated persons, usually the other shareholders. Only if these entitled persons do not exercise their preferential right may the share be sold to a third party.

How can the preemptive right affect the transfer? Imagine the following situation: You have three partners in your company and one of them (Mr. Novák) wants to sell his 20% share to an investor outside the company. If the articles of association contain a provision on the right of first refusal for the remaining partners, Mr. Novák must first offer this 20% to them under the same conditions as those negotiated with the investor. Only if the other partners do not express interest within the specified period (or reject the offer) can he sell his share to the investor. Failure to exercise the right of first refusal can have serious consequences – the entitled partners may seek to have the transfer declared invalid or claim damages for breach of the right of first refusal. In practice, this can significantly delay or even prevent the entire sale process. Final advice: Always read your company's articles of association carefully to see if they contain a right of first refusal and follow the exact procedure for offering shares to entitled persons. This will help you avoid disputes and unpleasant surprises.

Approval of the general meeting: When is it necessary and what are the risks of omitting it?

Another possible restriction on the transfer of a business share is the requirement for approval of the transfer by the general meeting of the company. Here, it depends on to whom the share is being transferred and what is stipulated by law or your articles of association.

• Transfer of a share to an existing partner: According to current legislation (Section 207 of the Business Corporations Act), each partner may transfer their share to another existing partner freely, without further conditions, unless the articles of association provide otherwise. This means that by law, it is not necessary to ask the general meeting for approval when partners transfer shares among themselves, unless your articles of association restrict this freedom.
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• Transfer of a share to a third party (outside the circle of shareholders): Here, the situation is reversed. The law (Section 208 of the Business Corporations Act) stipulates that the transfer of a share to a person who is not a shareholder is only possible with the consent of the general meeting, unless the articles of association provide otherwise. The default rule is therefore that the sale of a share to an external interested party must be approved by the general meeting (the highest body of a limited liability company, i.e., a meeting of all shareholders). However, the articles of association may mitigate or exclude this legal obligation, i.e., allow transfers to third parties even without the consent of the general meeting. Modern articles of association often give shareholders greater freedom, but if your agreement does not remove the consent requirement, you must obtain it.

What happens if you do not obtain the consent of the general meeting, even though it is required? In such a case, the transfer of the share is not effective – the transfer agreement may be signed, but it will not take effect until the general meeting gives its consent. In practical terms, this means that the new acquirer does not become a partner until approval is granted, and if consent is not granted at all, the entire transfer is canceled. The law even stipulates that if consent is not granted within six months of the conclusion of the agreement, the effects are the same as if the agreement had been withdrawn—i.e., the transfer is canceled as if it had never taken place. There is also a protective measure for the selling partner: if the company body (e.g., the general meeting) refuses to give its consent without reason or does not decide on it at all, the partner concerned has the right to withdraw from the company (leave the company) within one month of the termination of the contract. However, this is an extreme solution and not worth pursuing – it is better not to underestimate the importance of consent.

Practical example: Partner Mr. Novák (who owns 50% of Alfa s.r.o.) decides to sell his share to his friend Mr. Křížek, who is not yet a member of the company. The articles of association of Alfa s.r.o. state that a transfer to a third party is only possible with the consent of the general meeting. However, Mr. Novák rushes the transaction and concludes a purchase agreement without any approval by the general meeting. In such a situation, the agreement is up in the air – it is not effective against the company. If the general meeting (i.e., Mr. Novák and the remaining shareholders) does not subsequently give its consent, the transfer falls through and Mr. Křížek does not become a shareholder. In addition, there will be unnecessary delays and complications with the return of the purchase price, etc. Lesson: Before signing a transfer agreement, always check whether you need the approval of the general meeting (or another body, such as the supervisory board, if required by the articles of association). If so, ideally obtain it in advance or include a condition precedent in the contract stating that the transfer will only take effect after approval by the general meeting. Approval is usually in the form of a resolution of the general meeting (recorded in the minutes, sometimes with a notarial deed if required by law).

Agreement with officially certified signatures: A formal requirement that cannot be overlooked

A contract for the transfer of a business share is a special type of purchase contract whereby the seller (transferor) transfers their share to the buyer (transferee). The law requires that this contract be concluded in writing and that the signatures of both parties be officially certified. Official certification of signatures means that the signatures of both the seller and the buyer must be certified, for example, by a notary, at a CzechPOINT, or by a municipal authority—a simple signature is not sufficient. This ensures the authenticity of the signatures and prevents fraud. Without certified signatures, the contract is invalid and the transfer would not be effective.

In addition to the form, it is also important to remember the effects of the agreement on the company. The transfer of a share is effective vis-à-vis the company only upon delivery of one copy of the agreement to the company (to the managing director). In other words, even if you have a signed agreement, the company is not “aware” of the new partner until it receives official notification. It is therefore recommended that the company's managing director confirm receipt of the agreement in writing on one copy of the agreement (the signature does not need to be officially certified). This provides you with proof that the company has been informed and must respect the new partner as a member of the company from that moment on.

What should such an agreement contain? The basic requirements are the identification of the seller, the buyer, and the company, the specification of the transferred share, the amount of the contribution and the business share (%), and the transfer agreement (whether for consideration or free of charge). It is recommended to include a statement by the seller that they are the sole owner of the share and that the share is not encumbered in any way (e.g., by a lien or the aforementioned right of first refusal). These statements protect the buyer from purchasing a “problematic” share. Also pay attention to the signatures of spouses: if you are transferring a share that is part of the joint property of spouses (e.g., acquired during marriage), the consent of the spouse to the transfer is also required – this is often forgotten and can invalidate the transfer.

Summary: Always draw up a share transfer agreement in writing and have the signatures verified. After signing, give one copy to the company (the managing director) and have them confirm receipt. Without these formalities, the transfer will not be effective and you could find yourself in a legal vacuum where one party thinks they are no longer a partner, the other thinks they are, but the company is unaware of this – which is a recipe for conflict.

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Registering a change of partner in the commercial register: How to do it and how much it costs

Your obligations do not end with the conclusion of the agreement and its approval by the general meeting. Any change in the person of a partner in a limited liability company must be entered in the commercial register in order to be publicly visible and official. The company (statutory body) is primarily responsible for making this change, but it can also be initiated by the acquirer of the share. Failing to make the entry in the register would be a mistake – the register would show an outdated owner, which could cause complications when dealing with banks or business partners (who check the information in the register).

How is the entry made? It is necessary to submit a proposal for the entry of changes in the Commercial Register to the locally competent registry court (typically the regional court according to the company's registered office). Today, this is done on a standardized form, which can be found online on the website of the Ministry of Justice (e-justice, or.justice.cz). The form can be completed and submitted electronically (which is the fastest option) or in paper form. The application must be accompanied by attachments – in particular, the share transfer agreement (with certified signatures) and, if applicable, proof of approval by the general meeting or a statement by the new partner agreeing to the entry in the Commercial Register, etc. All attachments must be submitted to the court in the original or as a certified copy. When submitting electronically, it is therefore necessary to either sign the documents electronically or have them converted from paper to electronic form by an authorized converter (which can be done at CzechPOINT).

How much does it cost to register a change of partner in the Commercial Register? The administrative fee is CZK 2,000. This amount is paid to the registry court – either in the form of a stamp duty (stamps can be purchased at the post office) when submitting a paper application, or by transfer to the court's account when submitting an electronic application. Please note: If the change is submitted directly by a notary, the fee is CZK 1,000, as notaries have the option of making the entry directly in the register. However, you would have to pay the notary's fee for the notarial deed, so it is up to you to decide which option is more advantageous.

Tip: After submitting the application, the court will usually register the change within a few working days. Then check on justice.cz (in the public register) that the new partner is registered and everything is in order. This completes the entire transfer process.

Transfer of shares between existing partners: Specifics and risks of change in influence

If you are transferring a share between existing partners of a company, the entire process is administratively simpler (you do not usually need a general meeting unless required by the contract). However, be aware of one specific feature: shares held by one partner are added together, which can significantly change the balance of power in the company. If one partner buys out the other's share, they gain greater voting power and influence. A minority co-owner can become a majority or even the sole partner.

Example: There are three partners in a company – Mr. A (50% share), Mr. B (30%) and Mr. C (20%). Mr. B decides to leave and sells his 30% to Mr. A. Mr. A thus increases his share from 50% to 80%. A company where no individual previously had complete control suddenly becomes a company controlled by a single partner (Mr. A has 80% of the votes and can easily push through most decisions). For Mr. C, this means that his influence (20%) is now negligible compared to Mr. A's new 80%. If such a change was not desirable, the partners had the option of addressing it in advance in the partnership agreement—for example, by limiting the maximum voting rights of one partner or establishing an obligation to offer the share to the third partner first, etc. However, if the agreement does not provide for this, the buyer acquires the full scope of rights associated with the newly acquired shares, which are simply added to their existing rights.

In summary: When transferring shares between existing shareholders, be sure to consider how the transaction will affect your percentages and voting rights. The shares in the hands of the acquirer are added together and their weight in the company increases in proportion to the acquired share. To avoid unwanted surprises, think through these consequences in advance and, if necessary, consult a lawyer on how to deal with them in the contract.

Conclusion: Don't underestimate the importance of preparation and seek professional help

Transferring a share in a limited liability company may seem like a purely formal matter at first glance, but as we have shown, there are many details that can determine the success or invalidity of the entire transfer. The key is thorough preparation: studying the articles of association (for preemptive rights or the need for approval by authorities), a correctly drafted contract with certified signatures, timely approval by the general meeting if necessary, and subsequent completion of administrative formalities such as registration in the commercial register. Don't forget other related issues, such as the tax implications of selling a share or the need for consent from a spouse. Typical mistakes include rushing and underestimating formalities: forgetting to have a signature verified or omitting the consent of the general meeting can delay or invalidate the entire process.

The good news is that you don't have to do it alone. If you are unsure or want to make sure everything is legally in order, turn to the professionals. The law firm ARROWS has extensive experience with business share transfers and regularly helps entrepreneurs successfully complete the entire transfer process. Our experienced lawyers will have your back – they will prepare or review the contract, monitor all legal obligations and deadlines, and advise you on the optimal transfer arrangement to meet your business goals. Don't hesitate to contact us – together we will ensure that the transfer of your share proceeds quickly, smoothly, and safely for all parties involved.