Although the definition of the scope of business and activities of commercial corporations in their articles of incorporation, which are subsequently entered in the Commercial Register, does not seem problematic at first glance, there are still various variants of the entry of these facts in practice, which do not, however, comply with the requirements of the law as interpreted by the courts.
In its recent decision under Case No. 27 Cdo 3391/2023 (hereinafter as the “Decision”), the Supreme Court of the Czech Republic again dealt with aspects of the registration of the scope of business and activities in the Commercial Register, namely the requirements for a certain definition of the scope of business, in particular in relation to the frequently (and according to the Decision, often incorrectly) registered subject “production, trade, services not listed in Annexes 1 to 3 of the Trade Licensing Act”. The Supreme Court thus followed its earlier case law[1] and made it clear that the entry of the object of business and activities of a company in the Commercial Register must be as clear as possible and may not be made by reference to the Trade Register, the company’s founding documents or other legal regulations.
Generally on the subject of business and activities
The scope of the business or activity defines the purpose of the company (the purpose of the company does not have to be explicitly defined in the articles of incorporation, but it is an obligatory feature of any legal entity). The scope of business may be (i) activities defined by Act No. 455/1991 Coll., on the Trade Licensing Act, as amended (hereinafter as the “Trade Licensing Act”) or (ii) activities carried out independently, i.e. on own account and responsibility with the intention to do so consistently and for profit on the basis of authorisation under regulations other than the Trade Licensing Act[2]. The object of the company’s activity may be activities not fulfilling the characteristics of a business, such as typically the management of its own property. The limited liability company in whose circumstances the Decision was issued may be established simultaneously for both business and non-business purposes, and it is not excluded that it may have both a business line and an object of activity.
The scope of business or activity of a limited liability company is one of the statutory requirements of the articles of incorporation in accordance with Section 146(1)(b) of Act No. 90/2012 Coll., on Companies and Cooperatives, as amended. At the same time, the scope of business or activity is one of the facts required to be entered in the Commercial Register pursuant to Section 25(1)(b) of Act No. 304/2013 Coll., on Public Registers of Legal Entities and Natural Persons, as amended (hereinafter as the “PRA”), to which the so-called principle of material publicity applies. This guarantees protection to third parties acting in confidence in the truthfulness and timeliness of the data entered in the Commercial Register in such a way that the person to whom the entry relates has no right to object that the entry does not correspond to the reality. The basis for the registration of the object of activity or business in the Commercial Register is the memorandum of association (or the founding legal act) of the entity in question proving these (and other) facts to be registered[3].
Requirements for certainty of registration according to previous case law
Until the revolutionary resolution of the Supreme Court of 12 May 2021, Case No. 27 Cdo 3549/2020 (hereinafter referred to as the “Resolution”), the most used and also the most problematic definition of the scope of business was the entry “production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act”. However, the Resolution made it clear that the subject matter of business defined in this way does not meet the requirement of certainty of registration, as it does not make it clear what exactly is the subject matter of business of the registered entity, even by interpretation. Such a registration is contrary to Section 25(1)(b) of the PRA and should be remedied in accordance with Section 9(1) of the PRA. Failure to remedy the situation may, in the extreme case, result in the dissolution of the company with liquidation.
The Resolution shows that the scope of the company’s business or activities as a mandatory content of the company’s founding act defines what activities (only and exclusively) according to the determination of its founders the company is to perform, and these activities can only be changed by modifying (amending) the relevant provisions of the articles of association. Thus, only those activities that are specified in the articles of incorporation may be entered in the Commercial Register as the object of business or activities[4]. The shareholders or members of a business corporation may define the object of business differently than the individual activities defined in the Trade Licensing Act.
Circumstances of the Decision
The appellant also relied on the findings of the Resolution or its unconstitutionality. As a limited liability company, the company had as one of its objects of business listed in its articles of incorporation “production, trade, services not listed in Annexes 1 to 3 of the Trade Licensing Act within the scope of activities belonging to the free trade No. 1-81”. However, in the Commercial Register, the company had differently entered “production, trade, services not listed in Annexes 1-3 of the Trade Licensing Act within the scope of activities belonging to the free Trade Registered in the Trade Register” as one of its objects of business. Referring to the conclusions of the Resolution, the Registry Court found a contradiction between the registration of the scope of business in the Commercial Register and the content of the founding legal act. Moreover, it found the definition of the scope of the business to be vague or apparent. The appellant countered that the contradicted definition of the scope of business in the articles of incorporation as well as in the Commercial Register was specific, not giving rise to any doubts and not contradicting the law, stating that the registration in the Commercial Register expressly stated that the appellant’s scope of business was only those branches of free trade which were registered in the Trade Register. In the appeal, the Supreme Court subsequently re-examined the statutory requirements for specificity and clarity of the entry of the subject of business in the Commercial Register and the relationship to the definition of the scope of business in the articles of incorporation.
Requirements for specificity of registration of the scope of business in the Commercial Register according to the Decision
In the Decision, the Supreme Court not only confirmed the conclusions adopted in the Resolution on the inadmissibility of the registration of the scope of business in the Commercial Register with the strict wording “production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act” but also specified and further defined the rules of registration in a different wording.
The actual state of affairs with which the entry of the company’s scope of business in the Commercial Register must comply[5] is the content of the founding legal act. The content of these particulars must already be apparent from the Commercial Register itself, and this also applies to the scope of the business. A person consulting the public register must be able to acquaint himself with the scope of the company’s business or activity without having to search for it in other sources via a “link” in the public register. The scope of business cannot therefore be recorded, for example, by reference to other documents, registers or the text of the law, even if they are publicly searchable sources, as was the case with the appellant.
Although, according to the Supreme Court, it is possible to define the scope of the business in the articles of incorporation with sufficient specificity, for example, by reference to the wording of the Trade Licensing Act, the particulars of the individual business activities so defined must be entered in the Commercial Register, i.e., in the case dealt with in the Decision, the individual branches of the free trade, i.e., the particulars which can be ascertained by interpreting the provisions contained in the articles of incorporation.
According to the articles of incorporation, the appellant’s scope of business was (among other activities) all the activities defined in Annex 4 to the Trade Licensing Act under points 1 to 81, as in force on the date of incorporation of the appellant (when this arrangement was inserted in the articles of incorporation). However, the entry in the Commercial Register narrowed this down by reference to the fields of activity entered in the Trade Register. Notwithstanding the inadmissibility of such an entry, its content did not correspond to the information in the articles of incorporation.
In the circumstances of the Decision, in view of the foregoing, an entry which copied verbatim the wording of the appellant’s articles of incorporation would also contravene the requirements of the PRA, since anyone consulting the Commercial Register would not be able to ascertain the nature of the appellant’s business. In order to find out that information, he would have to find out on what date the agreement on the scope of the business was incorporated into the appellant’s articles of incorporation and then to find out the wording of Schedule 4 to the Trade Licensing Act in force on that date.
Recordings contrary to the PRA according to the Supreme Court
The Decision made it clear what other commonly used forms of recording the scope of business in the Commercial Register are contrary to the statutory requirements. In addition to the entry “production, trade, services not listed in Annexes 1 to 3 of the Trade Licensing Act” as a general reference to the Trade Licensing Act, according to which it is not clear what exactly is the company’s actual subject of business, the Supreme Court also found the reference to the Trade Register of the company in question, i.e. the entry “within the scope of trades registered in the Trade Register”, inadmissible. This forces third parties to further trace the actual scope of business through references to other legal regulations or registers, which is contrary to the function of the Commercial Register as the primary source of statutory data on registered persons and the principle of material publicity.
Furthermore, according to the Supreme Court, references to numerical lists of fields of activity (i.e. the entry “within the scope of fields of activity No. 1-81”) are also inadmissible, as third parties would have to search for the contents of the annex to the Trade Licensing Act in force on the date of the adoption of the founding act.
Last but not least, the Supreme Court reiterated that the scope of business entered in the Commercial Register are the activities determined by the founders of the company in the founding act, not a selection of some of them chosen by the members of the company’s statutory body and subsequently notified to the Trade Licensing Authority. Therefore, the list of activities listed in the Commercial Register must correspond exactly to the list in the company’s founding act.
In view of the clear wording of the Decision on what forms of registration of the scope of business in the Commercial Register are, according to the Supreme Court, contrary to the law, the following may be recommended:
- Verify whether the scope of the company’s business as specified in the articles of incorporation (or articles of association) corresponds to the nature of the business or activity actually carried out.
- Check whether the registration of the scope of business does not contradict the conclusions of the Decision.
- In the event of a discrepancy between the registration and the conclusions of the Decision or a discrepancy between the definition of the scope of business in the articles of incorporation (or the articles of association) and the entry in the Commercial Register, rectify this as soon as possible.
Conclusion
In the Decision, the Supreme Court confirmed and further specified the legal requirements for the specificity of the registration of the scope of business in the Commercial Register, especially in relation to the commonly registered scope of business within the scope of free trade, i.e. reference to production, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act. It also clarified what forms of registration are unacceptable in terms of the basic rules for entries in public registers, such as clarity, accuracy, truthfulness and comprehensibility, and may thus be grounds for follow-up action by the registration courts.
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[1] Resolution of the Supreme Court of 5 December 2019, Case No. 27 Cdo 5749/2017, Resolution of the Supreme Court of 12 May 2021, Case No. 27 Cdo 3549/2020 and others.
[2] For example, the so-called liberal professions, such as the practice of advocacy, tax consulting and other activities fulfilling the conditions under Section 420(1) of Act No. 89/2012 Coll., the Civil Code, as amended.
[3] See Section 19 of the PRA.
[4] Sub. 4.
[5] See Section 78(1), second sentence, of the PRA.
Mgr. Martin Heinzel, Senior Attorney – heinzel@plegal.cz
Ráchel Kouklíková, Legal Assistant – kouklikova@plegal.cz
27. 3. 2025