Supreme Court Puts the Articles of Association Under Threat

Do your company’s articles of association include a general specification of its object of business “Manufacture, trade and services not specified in Annexes 1 to 3 to the Trade Licensing Act”? Do they lack a precise specification of the activities? In this case, an amendment to the articles of association is highly recommended. The reason for this is that the Supreme Court of the Czech Republic has issued yet another revolutionary decision. This time the decision is related to the companies’ object of business stipulated in the articles of association.

Usually, companies active in businesses, which do not require a special qualification under the Trade Licensing Act, prefer a general description of their business. The articles of association usually just state “Manufacture, trade and services not specified in Annexes 1 to 3 to the Trade Licensing Act”. The company may choose from 81 specific branches of activities and 1 residual branch of activities. As commonly recommended by advisors, the articles of association do not contain a precise specification of the company’s activities. Therefore, any further change or expansion did not lead to a necessary amendment of the articles of association. Such approach could save money and time for the shareholders. However, the Supreme Court of the Czech Republic has expressed its disagreement with this approach and considers such stipulation in the articles of association indeterminate, and therefore putative (invalid).

The implementation of this new interpretation of law will result in additional administration and costs. As such amendment requires the form of a notarial deed. Should your company’s articles of association not comply with the Supreme Court’s decision, this may lead to a fine up to CZK 100,000 or even to the involuntary dissolution of the company.

Mgr. Ing. Jan Valíček