Production, trade and services not listed in Appendices 1-3 to the Trade Licensing Act. Every one of us has seen an extract from the Commercial Register using this term. However, there is no way to find out from the Commercial Register what this line of business includes and what activity such company performs. Based on this practice, the Supreme Court of the Czech Republic issued Decision no. 27 Cdo 3549/2020, defining itself against it.
First, let us make a short digression. How and where is it actually decided what business activities will be recorded in the Commercial Register? The business activities recorded in the Commercial Register are simply those listed in the company’s Articles of Association, if the company has a trade licence to perform such activities. A company’s trade licences are listed in the Trade Register.
The common practice has been such that the Articles of Association include “everything”, or, strictly speaking, everything that falls under free trade. Business activities falling under free trade are listed in Appendix 4 to the Trade Licensing Act – therefore the term “Production, trade and services not listed in Appendices 1-3 to the Trade Licensing Act” is used. These include business activities for which no special qualification conditions have been defined. For some activities falling under free trade (such as wholesale, retail, trade and services mediation, or peat and mud extraction), the company shall secure a trade licence. The Commercial Register shall only state the business activities for which the company holds a trade license, or the entire free trade (i.e. “Production, trade and services not listed in Appendices 1-3 to the Trade Licensing Act”).
Decision of the Supreme Court and its impact
Let us go back to the Supreme Court. In Decision no. 27 Cdo 3549/2020, the Supreme Court explained that the term “Production, trade and services not listed in Appendices 1-3 to the Trade Licensing Act” in the Articles of Association is vague and therefore has no legal effect. Normally we would say that such company has no business activity defined in its Articles of Association, and therefore there is nothing to be recorded in the Commercial Register.
But what does this mean for the companies concerned? In its decision, the Supreme Court stated laconically that in such cases “the situation needs to be rectified pursuant to Section 9 (1) of the Public Registers Act”. Pursuant to Section 9 (1) of Act No. 304/2013 Coll., on Public Registers of Legal Entities and Individuals, “If the content of the record in a public register contradicts the provisions for law enforcement and if no other remedy is possible, the Register Court shall appeal to the registered entity for rectification. In the case of a legal entity not rectifying the situation within the defined deadline, the court may decide on its cancellation and liquidation even without a proposal, if such proceedings are for the benefit of third parties.”
This now means that, upon appeal of the Register Court, many companies will be forced to rectify the situation and redefine their business activities in the Instruments of Incorporation, so that these are concrete enough and correspond to the company’s line of business. To the contrary, the company incurs the risk of being liquidated, though no sooner than after expiration of the deadline provided for remedy by the court.
We recommend that founders of newly-established companies consider their lines of business in advance, so that no Instruments of Incorporation with uncertain business activity need to be changed in the future. That way they will avoid additional costs related to the change of such deeds. Given the number of companies concerned, it cannot be expected that Register Courts would appeal to all business entities for remedy under the threat of an immediate fine or liquidation within a short period of time. For existing companies, it will be sufficient to make this amendment to the Articles of Association together with other changes planned by the particular company in the nearest future.