16th June 2021

A change for most companies: incorrectly defined line of business

In a May ruling, the Supreme Court of the Czech Republic reached the ground-breaking conclusion that bylaws or articles of association stating "Manufacture, trade and services not specified in Annexes 1 to 3 of the Trade Licensing Act" as the company's line of business do not meet the requirements of definiteness, since they do not specify what the company's business is, which renders these provisions null and omittable. 

The subsequent submission in the Commercial Register is then contrary to the law and the Commercial Court should notify the company to remedy the situation. If the company fails to do so within the time allotted, the court may order its dissolution. In addition, a fine of up to CZK 100,000 can be imposed on the company (even repeatedly). 

We recommend that companies amend their bylaws or articles of association and register the change in the Commercial Register. The proper procedure outlined by the Supreme Court should be to (i) select the specific lines of business, (ii) list them in the bylaws or articles of association, and (iii) register them in the Commercial Register. In reality, some Commercial Courts have refused this procedure up until now. 

Based on the significant amendment to the Business Corporations Act effective from 1 January 2021 (which we wrote about here https://deltalegal.cz/en/summary-of-the-amendment-to-the-corporate-law-and-specific-recommendations/), companies must bring their articles of association or bylaws in line with the amendment by 31 December 2021. We therefore recommend combining both steps to reduce costs associated with convening a general meeting, drafting a notarial deed and registration fees. We will gladly help you with this.  

DELTA legal specialist in these matters is Jiří Absolon, who is ready to provide you with everything you need to resolve this situation. Please do not hesitate to contact him or your contact person in our firm.  

Members of the American Chamber of Commerce in the Czech Republic