A Company Share Can Be Transferred Even Before the Company Exists, the Supreme Court Rules

Can you sell something that does not yet exist? And what if it is a share in a company still awaiting registration in the Commercial Register? The Supreme Court had to resolve exactly this question in a case that may fundamentally influence how entrepreneurs structure their transactions from the very outset of forming a company.

The case revolved around BE-VET Distribution s.r.o. Its sole founder, E. F., decided — even before the company came into existence — to transfer half of her future share to a third party, the applicant B. S. The share-transfer agreement was drawn up on 21 February 2023, the day the company was founded by notarial deed. The company itself, however, came into existence only on 1 March 2023 upon registration in the Commercial Register. The transferee then sought to be registered as a shareholder with a 50% share, but met with fundamental resistance.

Both the Regional Court in Brno and the High Court in Olomouc dismissed the application with a crushing rationale: the agreement was absolutely void for initial impossibility of performance. Their logic was straightforward — the share, as a thing in the legal sense, did not exist when the agreement was concluded; the founder was not yet a shareholder and so could not transfer something she did not own. The courts argued that a share transfer can be carried out only after the company comes into existence, when the share actually exists.

The Supreme Court turned the existing approach on its head

The Supreme Court, however, fundamentally disagreed and quashed both lower decisions. The key argument was a generally recognised principle of Czech private law: a contract of sale may also concern things that are yet to come into existence. This principle applies to real estate under construction and to goods yet to be manufactured, and there is no reason why it should not apply to a share in a business corporation.

The court referred to settled case-law and scholarship, which do not doubt that the mere non-existence of a thing when the contract is concluded does not render that contract void. There is neither legal nor factual impossibility of performance. The share does come into existence as a thing only upon the company's registration, but that does not mean its future transfer cannot be validly agreed in advance.

In practical terms: the transferee becomes the owner of the share at the moment the company is registered in the Commercial Register, not earlier. As against the company, the effects of the transfer arise when the effective agreement with certified signatures is delivered to it. Where the transferor is at the same time a managing director (as here), effectiveness vis-à-vis the company arises directly on the day the company comes into existence.

What this means for practice

This decision opens up interesting possibilities for structuring transactions already at the company-formation stage. Investors can enter projects even before a company is formally established. Founders can settle the ownership structure in advance without the need for complex changes to the founding act by notarial deed.

Several important rules must, however, be kept in mind:

• The share-transfer agreement must be in writing with officially certified signatures
• The transferee becomes the owner only when the company comes into existence
• The transferee becomes a shareholder only when the agreement is delivered to the company
• A share-transfer agreement is not the same as a change to the founding act — the latter requires the form of a notarial deed

The Supreme Court also clearly distinguished a share transfer from a change to the founding act. If a founder wishes to bring in another founder and thus change the founding deed, this must be done by notarial deed. A share-transfer agreement is something different — it concerns only ownership rights to the share, not the formation or amendment of the corporation itself.

For entrepreneurs and their legal advisers, this decision signals that Czech law is more flexible than it might have seemed. Transactions involving shares can be planned and contractually secured well in advance, without the risk of invalidity for supposed impossibility of performance. The key is to set the timing effects of the agreement correctly and to observe the statutory formal requirements.

Source: Supreme Court, 27 Cdo 3437/2024