Definition of the line of business

In the Autumn 2021 edition of BDO News, we reported that on 12 May 2021 the Supreme Court had issued, under file number 27 Cdo 3549/2020, a groundbreaking decision concerning the necessary determination of the line of business for registration in the Commercial Register.

Specifically, it was stated that the line of business "production, trade and services not specified
in Annexes 1 to 3 of the Trade Licensing Act" is not eligible for registration in the Commercial Register. This means that companies that still list this general line of business in their memorandum of association are advised to convene a general meeting and ensure that the articles of incorporation, articles of association or memorandum of association are amended to comply with the requirements of the Trade Licensing Act. The resolution must be drawn up by a notary public by law. Subsequently, it is necessary to apply for a change of registration in the Commercial Register in order to register the new line of business.

The point is not that the definition of the line of business or subject of activity in the founding act would have to literally coincide with the fields of free trade, a list of which is in Annex 4 of the Trade Licensing Act. However, the actual line of business should be sufficiently described. We recommend that the designation in the incorporation document should at least broadly correspond to the individual fields of activity, as this will subsequently make it much easier to register the correct trade.

According to the Supreme Court of the Czech Republic, the aim of the change is to make what the company is doing unambiguous and immediately apparent. However, the judgment does not concern the designation of the trade in the Commercial Register.

If the company fails to remedy this legal defect, it may be fined up to CZK 100,000 or, in extreme cases, dissolved.

We understand that this obligation can be burdensome for many companies. However, it is in their interest to act in accordance with the Supreme Court's decision.

If you require further information or assistance in making these changes, we will be happy to provide you with advice and support. It is important to us that you are compliant and protect your business.