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

Increasing the registered capital of a limited liability company is not merely a formality, but a legal process, the failure to comply with which may have fundamental consequences for the functioning and ownership structure of the company. In its recent decision, the Supreme Court dealt with a complicated case involving a company, which provided important opinions on the issue of the assumption of contribution obligations by shareholders and the validity of a general meeting resolution (file no. 27 Cdo 635/2024 of 28 April 2025).

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

Case context

A limited liability company decided to increase its registered capital from the original CZK 100,000 to CZK 1.6 million. The original shareholders were to exercise their preemptive right to increase their capital contributions in proportion to their shares – one of them was to take over CZK 1,050,000 and the other CZK 450,000. However, the shareholder with the smaller share did not assume the contribution obligation within the given deadline. The other shareholder then assumed his contribution obligation with the consent of the general meeting (the minority shareholder voted against this at the general meeting). However, this step gave rise to disputes regarding the validity of such a resolution (consent) of the general meeting.

Courts of first and second instance: dispute over unanimity and deadlines

The Municipal Court in Prague, as the court of first instance, expressed the opinion that all shareholders must give their consent to the assumption of the contribution obligation – i.e., unanimity. Therefore, it found the resolution of the general meeting on the assumption of the obligation by another shareholder to be invalid.

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

Supreme Court: clear time limits and legal certainty for shareholders

The Supreme Court has provided fundamental clarification of the legal situation – a resolution of the general meeting on the assumption of a contribution obligation by a majority shareholder is contrary to the law. It emphasized that if a shareholder does not assume the contribution obligation within the specified period, the relevant resolution of the general meeting on the increase of the registered capital pursuant to Section 225 of the Business Corporations Act is automatically revoked. Once this resolution expires, the general meeting cannot subsequently approve the assumption of the contribution obligation by another person, as there is no longer any obligation to assume the contribution obligation.

In other words, the Supreme Court concluded that unless the articles of association provide otherwise and the general meeting does not grant consent pursuant to Section 222 of the Business Corporations Act (i.e., does not allow the obligation to be assumed by another person) before the deadline for assuming the contribution obligation by a shareholder and does not set an additional deadline for assuming the obligation, then if the shareholder does not assume the contribution obligation within this period, the resolution of the general meeting on the increase in the registered capital is cancelled by law. The general meeting can then no longer grant consent to the assumption of the contribution obligation by another person, as this obligation has ceased to formally exist.

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

However, for the sake of completeness, the Supreme Court further elaborated that: "If, however, the general meeting decides on consent pursuant to Section 222 of the Business Corporations Act subsequently (after it has already decided on an increase in the registered capital) and if its resolution also includes the determination of a deadline for the assumption of the contribution obligation (typically when the deadline for the procedure under Section 222 of the Commercial Code has not already been set by the resolution on the increase in the registered capital itself), this is (to the extent of the determination of this deadline) a resolution amending the content of the resolution on the increase in the registered capital (if it concerns the determination of the deadline for the assumption of the contribution obligation). To this extent, it is subject to the same regime as the resolution on the increase in the registered capital itself, including the necessary majorities (Section 171 of the Commercial Code) and the necessary notarial deed (Section 172 of the Commercial Code)."

Practical implications for business corporations

The Supreme Court's decision emphasizes strict compliance with statutory deadlines when increasing share capital. Shareholders and company management must pay the utmost attention to ensuring that the deadlines set by the general meeting resolution comply with legal requirements and that the contribution obligations are assumed in a timely manner. Failure to comply with these rules may lead to the annulment of the resolution and, consequently, to serious legal and business complications, such as the cancellation of a planned share split or other changes in the ownership structure.

In addition, the Supreme Court explained that, in principle, the unanimous consent of all shareholders is not required for the assumption of a contribution obligation by another shareholder. This gives companies greater flexibility, but at the same time, increased attention must be paid to compliance with statutory deadlines and formal requirements.

Conclusion

The Supreme Court's decision in this case sets an important precedent that significantly regulates the practice of increasing the registered capital of Czech companies. It emphasizes the need for careful management of the processes involved in the assumption of contribution obligations, the correct setting of deadlines, and respect for the rights of minority shareholders.

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