Decision on advances on profit of a joint stock company

9. 6. 2022
Decision on advances on profit of a joint stock company

In March 2022, the Supreme Court issued a judgement, in which it confirmed the opinions of the professional public regarding, amongst other things, the payment of advances on profit share.

Under the statutory regulation, a decision on the distribution of profit falls within the competence of the general meeting. The statutory body of the joint stock company (board of directors/management board) then makes the decision on the payment of advances on profit share. However, this is not the business management of the company, so it is possible for the general meeting to give its instructions.

Nevertheless, the Supreme Court accepted that a company’s Articles of Association may also entrust the general meeting with the decision regarding payment of an advance on profit share although it indicated that it did not consider this solution to be practical.

If, however, the general meeting decides to pay an advance on profit share despite the bylaws not entrusting it with this power, several factors will always need to be assessed regarding this decision – namely whether:

  • the general meeting’s decision (which is regarded as not having been made) is a hidden instruction from the general meeting to the board to decide on the payment of advances; or
  • it is a one-time breakthrough of the bylaws, i.e. whether it involves the shareholders’ will to entrust this power for a single case without the will to amend the actual bylaws permanently (but, in this case, the decision must be adopted by the majority necessary for an amendment to the bylaws and in the form of a notarial deed).

Nonetheless, a decision by the sole shareholder (in this case made on the proposal of the board) must also be considered an individual assumption of the competence , and therefore the sole shareholder may also make such a decision.

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