When is it possible not to distribute profits among the partners of a limited liability company?


With the season of regular general meetings in progress, the issue of (non-)distribution of profits is most topical. General meetings of business corporations generally resolve upon the non-distribution of (a part of) profit and its transfer to the account of unappropriated retained earnings of previous years. The company thus obtains funds that it can further use for its operations, development, investments, or other purposes. But what if one of the partners does not agree with the decision above and demands the distribution of 100% of the profit?

It follows from the established case law of the Supreme Court of the Czech Republic that the general meeting can, for serious reasons, decide that the profit will not be distributed among the partners in full. If the executive head proposes not to distribute 100% of the profit among the partners, he/she should justify in detail what important reasons lead him/her to the proposal to keep part of the profit in the company, and these reasons should also be stated in the minutes of the general meeting.

Our colleagues from KODAP legal recently succeeded in the proceedings on the lawfulness of the decision of our client’s general meeting, whereby the client’s general meeting approved the distribution of the company’s profit “only” in the amount of 85% of the profit. The junior partner (minority interest holder) of the client subsequently challenged the lawfulness of this decision on court and insisted on the distribution of 100% of the profit. The case went all the way to the High Court in Prague, which decided that the non-distribution of 15% of the profit among the partners does not constitute such a fundamental limitation to the partner’s rights to legitimate any intervention by the judiciary, and therefore dismissed the lawsuit.

In the issue of (non-)distribution of profits, this is a fundamental decision that could have important practical implications. An appeal is currently being filed in the case, so we are impatiently waiting to see how the Supreme Court of the Czech Republic will assess this consideration of the High Court in Prague.