Definition of the company’s scope of business

As a result of recent Supreme Court Decision NS 27 Cdo 3549/2020, we recommend that companies recheck the correctness of the scope of their business, which is recorded in the commercial register and stated in the memorandum or articles of association. According to the above case law, business activity defined only as “manufacturing, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act” is considered as having no legal effect because of the lack of detail, and therefore shall be disregarded.

A company’s scope of business, through which the shareholders determine the main direction of the firm, is one of the essential elements of the articles or memorandum of association, and therefore should reflect the shareholders’ intention expressed in the company’s founding documents. Even in cases of unqualified trade, particular areas of activity that the company engages in or intends to engage in must be specified in sufficient detail and must be stated in the memorandum or articles of association. Otherwise, the founding documents will not fulfil legal requirements, and the court of registration may refuse to enter an unclearly specified scope of business in the commercial register. The court of registration could also call on the company to rectify inaccuracies in the existing entries or possibly impose a fine of up to CZK 100,000. In extreme cases, it could order the winding up of the firm.