Profit Distribution in a Limited Liability Company: The Supreme Court Confirms a Flexible Regime but Sets Its Limits

A shareholder's right to participate in profits is one of their fundamental rights. In practice, however, this may collide with the decision-making autonomy of the General Meeting, particularly in situations where a majority shareholder obstructs profit distribution. The Supreme Court has recently addressed this issue on several occasions and has established relatively clear rules for profit distribution in a limited liability company (s.r.o.).

No "Important Reasons" Required for Not Distributing Profit

In its resolution ref. no. 27 Cdo 1306/2023, dated November 29, 2023, the Supreme Court rejected tendencies to automatically apply conclusions regarding joint-stock companies (a.s.) to limited liability companies (s.r.o.).

While it is established that the General Meeting of a joint-stock company may decide not to distribute profit only for "important reasons," no such limitation applies to a limited liability company. The Supreme Court explicitly emphasized that the General Meeting of an s.r.o. may decide that profit will not be distributed among shareholders (or that it will be distributed only in part) without the need for an important reason to justify such a decision. This conclusion reflects the mixed nature of an s.r.o., which, unlike a joint-stock company, contains elements of a personal association. The status of a shareholder here is not purely of a proprietary nature. The law does not protect their right to a share of the profit to the same extent as it protects the right of a shareholder in a joint-stock company, whose position is characteristically that of an investor.

Key Limit: Protection of Creditors and "Current" Financial Statements

In the aforementioned resolution, the Court also dealt with the limits on decision-making regarding profit distribution in an s.r.o. arising from statutory rules for the protection of creditors. The Supreme Court concluded that a General Meeting resolution on profit distribution adopted in violation of statutory rules protecting creditors—specifically, without a proper basis in current financial statements pursuant to Section 34(1) of the Business Corporations Act—has no legal effect.

In the case at hand, the General Meeting decided in 2021 on the distribution of profit based on financial statements from 2019. Such financial statements were no longer a competent basis for assessing compliance with the "balance sheet test," which serves to protect creditors. The consequence is fundamental: such a resolution is not merely invalid; it has no legal effect whatsoever, and it is viewed as if it had never been adopted.

Autonomy of the General Meeting and the Position of a Minority Shareholder

The Supreme Court followed these conclusions in its resolution ref. no. 27 Cdo 625/2025, dated August 27, 2025, which involved a dispute between two shareholders. A minority shareholder with a 49% stake challenged a decision on the (non-)distribution of profit enforced at the General Meeting by a majority shareholder with a 51% stake. The Court confirmed that the General Meeting is not obligated to distribute profit and that the mere fact that a shareholder lacks sufficient votes to enforce their opinion is not in itself legally relevant, as it is merely a consequence of the internal balance of power that the shareholders themselves chose in the Articles of Association. In a situation where shareholders have not negotiated a different arrangement (e.g., a fixed share of profit or special voting majorities), it is a logical consequence that in such a distribution of power, a minority shareholder can influence only those decisions for which the law requires a qualified majority, not routine decisions adopted by a simple majority.

This places a strong emphasis on the autonomy of the shareholders' will. If the Articles of Association do not provide for different rules, a minority shareholder must bear the consequences of this arrangement, even in cases where a majority shareholder holds more than half of the votes and can therefore, de facto, adopt decisions on the distribution (or non-distribution) of profit with consequences for the minority shareholder.

The Prohibition on Abuse of Voting Rights Remains a Limit

At the same time, the Supreme Court emphasized in the same resolution that the position of a minority shareholder in this situation is not without protection. The more flexible regime for deciding on profit distribution remains limited by the prohibition on the abuse of voting rights within the meaning of Section 212(2) of the Civil Code.

The Supreme Court clarified what can (and cannot) be considered an abuse. The mere fact that a majority shareholder enforces their decision, or that they hold a different opinion than the minority, does not constitute an abuse. Likewise, it cannot be inferred solely from the fact that the majority shareholder simultaneously holds the position of a managing director (jednatel). Conversely, a typical example of abuse would be the "starving out" of a minority shareholder, i.e., the systematic denial of a share of profit without a legitimate reason. However, such circumstances were not proven in the case at hand.

Key Takeaways for Practice

The Supreme Court's case law establishes a clear framework:

• The General Meeting of an s.r.o. has broad discretion when deciding on the (non-)distribution of profit;
• A minority shareholder in an s.r.o. does not have an automatic right to profit distribution;
• Protection against majority decisions is limited primarily to the prohibition on the abuse of voting rights;
• A fundamental limit is the protection of creditors, which is reflected, among other things, in the requirement that decisions be based on current financial statements; failure to respect this requirement may lead to the conclusion that the General Meeting resolution has had no legal effect from the outset.

In summary, both decisions precisely define the boundary where the scope for private law autonomy of a company ends and where statutory limits begin. Disputes between shareholders over whether profit should be distributed remain primarily a matter of their mutual arrangement and the setup of decision-making rules within the company. The court intervenes in these matters only exceptionally, typically upon proof of the abuse of voting rights. A different situation arises, however, in the case of a breach of rules protecting the company's creditors. It is here that the Supreme Court's case law emphasizes formal statutory requirements. Failure to comply with these may result in the adopted resolution being incapable of producing the intended legal effects.

This text was translated by AI.