EXTINCTION OF A SHAREHOLDER'S PARTICIPATION IN A LIMITED LIABILITY COMPANY BY E XCLUSION BY THE COURT

#109Extinction of a shareholder's participation in a limited liability company by exclusion by the court

The termination of a shareholder's participation in a company may occur in the following ways:

1. based on the will and disposition of the shareholder, namely the transfer of the business share;
2. by expulsion of the shareholder on the basis of a decision of the General Meeting due to failure to fulfil the deposit obligation;
3. by a decision of the court on the cancellation of the shareholder's participation or by a decision on the exclusion of the shareholder;
4. by agreement of the shareholders;
5. on the basis of another legal fact, such as the death of a shareholder, dissolution of the company, declaration of bankruptcy of the shareholder's property.

However, in order for a shareholder to be expelled from a limited liability company by a court, the following conditions must be met:

1. the shareholder is in serious breach of his/her obligations set out in the Memorandum of Incorporation or the Memorandum of Association;
2. the shareholder has been warned of the breach of his/her obligations and at the same time called upon to fulfil his/her obligations;
3. the proposal to expel the shareholder from the company must be agreed to by the shareholders whose contributions represent at least one half of the share capital;
4. the company must file a Motion to expel the shareholder from the company with the court.

In order for a shareholder's actions to be considered a serious breach of his or her duties, it must be a breach that is repeated or persistent. Furthermore, the shareholder must be notified of the serious breach of his obligations by the other shareholders and called upon to fulfil his obligations, in writing. Only if the shareholder fails to start fulfilling his obligations can he be expelled from the company.

This must be a breach of the obligations imposed on the shareholder by the Memorandum of Association or the Memorandum of Association. This may be, for example, failure to observe the principle of loyalty, failure to pay the deposit within a specified period of time, obligation to contribute to the payment of the company's losses. However, a breach of duty may arise not only from the Memorandum of Association or the Memorandum of Association, but also, for example, from the basic principles contained in Act No. 513/1991 Coll., the Commercial Code.

Furthermore, the proposal must be approved by the shareholders whose contributions represent at least one half of the share capital, without taking into account the vote of the shareholder whose exclusion is being voted on. In the event that a shareholder has not commenced to fulfil his/her obligations even after having been previously notified and requested to do so, the company may proceed to file a motion for expulsion of the shareholder from the company with the court.

If the company has only 2 shareholders and one of them is a shareholder whose exclusion from the company is voted on, this shareholder must not be the majority shareholder.

The district court of the permanent residence of the shareholder to be expelled shall be competent for filing the Petition for expulsion of the shareholder from the company by the court and the Petition for expulsion of the shareholder from the company by the court shall be filed on behalf of the company by the managing director of the company.

On the basis of the Application for expulsion of a shareholder from the company, the court shall decide on the expulsion of the shareholder from the company. The participation of the excluded shareholder in the company is terminated at the moment the Court's decision on the exclusion of the shareholder from the company becomes final. The excluded shareholder shall be entitled to a compensatory share.