Markets
Czech Republic: the pre-emptive right that cannot be signed away
The Czech Republic permits the instrument but makes the one thing a single-investor facility depends on hard to obtain. Section 487 of the Business Corporations Act says the přednostní právo cannot be limited or excluded in the articles at all. Only a general meeting can lift it, only where an important interest of the company requires it, and only on terms applying equally to every shareholder.
Key takeaways
- The constitutional route is closed. Section 487 forbids limiting or excluding the pre-emptive right in the articles. There is no Czech equivalent of a standing statutory disapplication carried in the company's own constitution.
- The test is substantive, and it has a second limb. Section 488 permits a general meeting to restrict or exclude the right only where it is in an important interest of the company and only equally as to all shareholders.
- The right is tradable, which raises the stakes. Section 486 makes the pre-emptive right separately transferable from the day the general meeting resolves the increase, so removing it removes something with market value.
- Half, and five years. Section 511 caps an authorisation to the board at one half of the existing registered capital; section 512 limits it to five years, renewable.
Why section 487 matters more than any pricing rule
A drawdown facility anywhere in Europe needs two things from company law: authority to issue repeatedly without a meeting, and the shareholders' subscription right out of the way. Czech law gives the first and withholds the second in the form facilities usually want it.
Section 484 gives every shareholder a right to subscribe new shares in proportion to the nominal value of their holding against the registered capital, and section 485 requires the board to announce that right with an exercise period of at least two weeks. Section 486 then makes the right separately transferable from the day of the resolution. The right is not a formality: it is an announced, timed, tradable entitlement, and section 487 says the articles cannot take it away.
The four words that decide the deal
Section 488 is the only door, and its second condition is the one that catches this structure. The general meeting may restrict or exclude the pre-emptive right only where it is v důležitém zájmu společnosti, in an important interest of the company, and only on terms that apply equally to all shareholders.
A facility whose economics depend on issuing discounted shares repeatedly to one outside subscriber is not obviously an arrangement applying equally to all shareholders, and the important-interest standard is challengeable rather than a box to tick. That does not make it impossible. It makes it a question the board has to answer on the record, for each resolution, with a reason that would survive a shareholder who disagrees.
| What the structure needs | What ZOK provides |
|---|---|
| Pre-emption disapplied once, in the articles | Prohibited outright by section 487 |
| Pre-emption lifted for a single subscriber | Section 488, on an important interest and only equally as to all shareholders |
| Authority to issue without a meeting | Section 511, up to one half of registered capital, for up to five years |
| Shares created on conversion | The conditional-increase route in section 505, serving vyměnitelné dluhopisy |
| A pricing floor the investor must respect | Only the prohibition on issuing below nominal value or accountable par |
| Summary only. The majority required under section 488 is not stated here because we could not read it in the statute; Czech counsel must confirm it. | |
Half the headroom of Poland, and a longer clock
Where the Czech and Polish regimes look superficially alike, the numbers diverge. A Czech authorisation to the board runs to one half of the existing registered capital for up to five years. The Polish kapitał docelowy runs to three quarters but expires after three. An issuer choosing where to list, or a group deciding which subsidiary raises, is choosing between more room and more time. See Poland for the other side of that trade, and equity facilities for how the mandate shapes the instrument.
General information, not legal advice. We could not verify the majority required to restrict or exclude the pre-emptive right under section 488, and it is deliberately not stated on this page. Nor could we confirm whether ZOK caps the size of a conditional capital increase. The Czech National Bank is both central bank and securities regulator, and its positions were not reviewed. Take advice from qualified Czech counsel.
The constraint nobody writes into a rulebook
Even where the law can be satisfied, the Prague Stock Exchange has a small number of listed issuers, and the START market for smaller companies is thin. A market-referenced facility is a liquidity product: the investor's recovery depends on being able to sell converted shares into an order book that can absorb them. Where the free float and average daily traded value are not there, the structure does not fail legally, it fails commercially, and it fails on the issuer's share price on the way.
An honest Czech answer is therefore usually a smaller, bounded instrument with a defined number of tranches, rather than an open facility. Convertible notes for listed issuers and private placements by a public company describe the shapes that fit.
Resale, and what actually gates it
There is no statutory lock-up on privately subscribed Czech shares. Shares from a conditional increase come into existence on the exercise of the exchange or subscription right; the gate is admission to trading, which requires a prospectus approved by the Czech National Bank or an exemption under the EU Prospectus Regulation before the new shares can trade on the exchange. Issuers with a US register should read Rule 144 and restricted securities separately. Send the registered capital, the standing authorisation and the free float and we will tell you whether the commercial question or the legal one is the binding constraint for you.
Primary sources
- Act No 90/2012 Coll. on Business Corporations — sections 484 to 488 and 505 to 512
- Act No 90/2012 Coll. — consolidated Czech text
- Czech National Bank — central bank and securities regulator
- Directive (EU) 2017/1132 — Articles 47 and 72
Financing Czech listed issuers: frequently asked questions
Can a Czech company disapply the pre-emptive right in its articles?
No. Section 487 of the Business Corporations Act states that the pre-emptive right cannot be limited or excluded in the articles of association. That closes off the standing constitutional disapplication that most European facilities are built on, and it means every displacement of the right is a general meeting decision taken on its own facts.
What is the important-interest test?
Section 488 allows the general meeting to restrict or exclude the pre-emptive right only where it is in an important interest of the company, and only on terms that apply equally to all shareholders. It is a substantive standard rather than a formality, and repeated discounted issuance to one outside investor is precisely the pattern that standard exists to examine.
How much can a Czech board issue under a standing authorisation?
Section 511 lets the general meeting authorise the board to increase registered capital by no more than one half of the existing registered capital, and section 512 limits that authorisation to five years, renewable. The headroom is therefore materially smaller than the three quarters available in Poland, although the clock runs longer.
Is there a lock-up on privately subscribed Czech shares?
No statutory holding period applies. Shares arising from a conditional increase come into existence on exercise of the exchange or subscription right, and what stands between the investor and the market is admission to trading, which needs a prospectus approved by the Czech National Bank or an exemption. In practice the binding constraint on exit is order-book liquidity rather than law.
If this is about a live situation
A Prague-listed issuer has to carry an important-interest justification every time pre-emption is displaced, so the useful question is which structure needs the fewest of them. The instrument comparison starts there.