Dear Clients and Partners,
We would hereby like to inform you about a recently published decision of the Supreme Court of the Czech Republic (27 Cdo 3549/2020 from 12 May 2021), which has a significant impact on the specification of principal business in companies’ Memorandums of Association and on the registration of principal business in the Commercial Register.
The Supreme Court has ruled that if a company’s Memorandum of Association defines the principal business of the company merely as „Production, trade and services not listed in Annexes 1 to 3 to the Trade Licensing Act“, i.e., as free trade without any further specification of the exact free trade type/s carried out by the company, the respective provisions of the Memorandum of Association are not compliant with applicable legislation and should be deemed void or non-existent.
Formally, this may result in a situation in which the company’s registering court may forcibly dissolve and liquidate the company. However, before any steps towards liquidation are taken, the company must be notified and provided with time to remedy the situation.
The fact that the principal business of the company is not sufficiently defined in the company’s Memorandum of Association may complicate or stall the company’s plans to apply for a loan, sell a share in the company (as it may be identified as an irregularity during due diligence) or bid for a public contract.
We therefore recommend that you should amend your company’s Memorandum of Association in such a way that the principal business provisions exactly specify the individual types of free trade carried out by the company to ensure full compliance with applicable legislation.
We will be happy to help you with this matter. Please, contact us should you need our assistance.
Your LTA team