Transfer of a Share in an LLC and a Notarial Deed: Myths and Facts

Is the decision to divide a share and transfer it among the decisions of the general meeting that result in an amendment to the articles of association? Is it necessary to have this decision recorded in a notarial deed? The short answer is: It is not necessary to have the general meeting's consent to the transfer of a share in the company recorded in a notarial deed, as this does not constitute an amendment to the articles of association.

In our legal practice, we commonly encounter the consequences of ambiguously written laws. While some norms do not require lengthy consideration, others are formulated so generally that they open up space for countless interpretations and legal disputes. One of the perennial topics that often raises questions and uncertainties in practice is the transfer of a share in a limited liability company (LLC). Although it is one of the most common legal operations, a fundamental question about formal requirements still arises: when is it necessary and when is it not necessary to have a notarial deed of the general meeting's resolution?

The Legal Framework and its Ambiguities

Act No. 90/2012 Coll., on Business Corporations (hereinafter the "ZOK"), in § 171(1)(b) in conjunction with § 172(1), stipulates that a decision which results in an amendment to the articles of association must be certified by a public deed. However, unlike the previous legal regulation, the act does not specify which particular legal acts are considered decisions that amend the articles of association. The decision on the division and transfer of a share is precisely one of the decisions where practice has not been entirely uniform.

The transfer of a share to a person other than a shareholder is possible only if two conditions are cumulatively met. The basic prerequisite is the conclusion of a share transfer agreement between the transferor and the transferee, and the second condition is the consent of the general meeting to the division and transfer of the share. Although the legal regulation in § 208 of the ZOK clearly states that the transfer of a share to a person who is not a shareholder is possible only with the consent of the general meeting, it does not specify whether such a decision is considered an amendment to the articles of association or not, nor does it explicitly require that this decision be certified by a public deed.

Case Law Has the Key Word

Precisely because the transfer of a share is not possible unless both statutory conditions are met, many lawyers are inclined to believe that the decision of the supreme body on consent to the division of the share is not, in principle, the legal act on the basis of which the articles of association are amended. This view was also taken by the Supreme Court in its unifying opinion file no. Cpjn 204/2015.

"...the legal act as a result of which the articles of association are amended in the circle of shareholders is the share transfer agreement; the resolution of the general meeting is only an optional condition for its effectiveness."
– Opinion of the Supreme Court, file no. Cpjn 204/2015

The conclusion in the above-mentioned opinion of the Supreme Court, that unless the articles of association provide otherwise, it is not necessary to have the consent of the general meeting certified by a public deed, is at least practical. In many cases, this completely eliminates the need for a notarial deed, which significantly speeds up and reduces the cost of the entire process. A contract and an ordinary resolution of the general meeting are sufficient for a successful transfer.

Development of Legal Regulation and Erroneous Conclusions

The argument that the law no longer requires a notarial deed for consent to the transfer of a share is also supported by the overall development of the legal regulation. The now-repealed Commercial Code did require the form of a public deed, but explicitly stated that the decision on the division and transfer of a share does not constitute an amendment to the articles of association. The Business Corporations Act, upon its creation, did not adopt the requirement for a notarial deed, thus abandoning the obligation to make the decision in the form of a public deed. However, the provision that the articles of association are not amended by this act was also dropped.

This ambiguity led to the erroneous conclusion that the legislator intended, in addition to simplifying and speeding up the procedure, to change the overall character of this legal act. This issue was also addressed by the High Court in Olomouc in its decision file no. 8 Cmo 114/2015. Although the new regulation is silent on the condition of a notarial deed, according to the High Court, it cannot be freely inferred that the change in the legal regulation also changed the character of the decision in question.

Conclusion for Practice

The rules for transferring a share in a limited liability company may seem relatively complicated at first glance. However, based on the above, we in our law firm also lean towards the view that a notarial deed for the transfer of a share in a limited liability company is superfluous. In light of current case law, the conclusion is clear: The articles of association are amended as a result of the share transfer agreement, not as a result of the general meeting's resolution, and therefore it is not necessary to have this consent recorded in a notarial deed. This interpretation is also respected by the commercial register courts.