A groundbreaking court decision regarding unqualified trades

Published:
3. June 2021
Author:
  • Veronika Odrobinová
  • Tomáš Brůha

It is a common practice of all companies to specify the scope of business by reference to unqualified trades listed in the Trade Licensing Act or in a similar way. If the companies conduct business in the area of so-called unqualified trades, they usually state in articles of association memorandum of association or deed of foundation (collectively „the founding documents“), and in the Commercial Register as the scope of business „Manufacture, trade and services not specified in Annexes 1 to 3 to the Trade Licensing Act“.

All these companies will be painfully affected by the recent decision of the Supreme Court of the Czech Republic file no. 27 Cdo 3549/2020. In this decision, the Supreme Court concluded that this mass-used formulation is vague, as it is not possible to clearly determine what really is the scope of the company's business. The clause on the scope of business with this content is thus deemed putative, i.e. as if it was not stated in the founding documents. Therefore, one of the essentials of the founding documents may be missing, as well as the basis for issuing a trade license.

What does this mean in practice? Any company that has such formulation of the scope of business in the founding documents must remedy this shortcoming and also harmonize the entry in the Commercial Register. In the case of limited liability companies and joint stock companies, this means, in particular, the convening of a general meeting and a change in the founding documents. Such decision requires the form of a notarial deed.

What should the new scope of business include? It is necessary to describe the business activity performed with sufficient certainty. According to the Supreme Court, it is not necessary to use a uniform description or stick to the names of trades listed in the Trade Licensing Act. However, such approach can be in practice challenging for the trade licensing authorities, so for practical reasons we recommend sticking to trade names listed in the Trade Licensing Act.

If a company does not eliminate this lack of its founding documents on its own, the court will notify the company to do so. If the company fails to comply, the company can be winded up  and subsequently liquidated.

So how to proceed? A large number of companies currently has this problem. Therefore, the courts will hardly immediately send out the summons and order the liquidations of the companies. Therefore, no immediate action is required. However, we recommend to include this topic on the agenda of the next general meeting or the planned decision of the sole shareholder. It is also necessary to carefully monitor the data box and immediately address any notification that comes from the registering court in this matter.

If you would like to consult your specific situation, do not hesitate to contact us. We will be happy to assist you.

Author: Veronika Odrobinová, Tomáš Brůha