Obligations of business corporations: do not underestimate their regular updating

Do not underestimate regular reviews of your obligations as a company

In the Czech business environment, there are many obligations that every business corporation must comply with. Especially for foreign entities, it can be somewhat challenging to navigate the ever-changing legislation and comply with all newly set rules. Let us briefly summarise the obligations:

Registrations and entries are the basis

In addition to bookkeeping, tax registration and other possible registrations (with the Czech Social Security Administration, health insurance companies, etc.), the basic obligations include the obligation to update entries in the Commercial Register and to file documents in the Collection of Documents. In practice, this means that in the event of any change in the facts entered in the Commercial Register, the governing body of the business corporation must file an application for registration of these changes without undue delay. One of the latest innovations, which came into force in 2021, is the change of entry if the company has registered a non-specific subject of business. The subject of business defined as “Manufacture, trade and services not listed in Annexes 1-3 to the Trade Licensing Act” no longer meets the requirement of specificity and companies must specify their fields of business. However, many still have not done so.

As part of their registration obligations, business corporations should not forget to register their business premises together with the relevant subjects of business with the Trade Licensing Office and to mark their registered office and business premises with at least the business name and company identification number (company ID No.) at the place of the company’s registered office. Other duties include:

• Regularly checking the data box,
• Setting up a website for a joint-stock company,
• Filling in statistical reports of the Czech Statistical Office (CZSO),
• Notification of changes to the authorities,
• Other tax, EORI registrations,
• Obtaining the LEI number and arrangement of other registrations related to the field of business in question.

Filing in the Collection of Documents

Business corporations are obliged to file in the Collection of Documents the documents specified in the Public Registers Act, in particular the current versions of the founding documents, the decision on the election of the governing body, financial statements, annual reports, reports on relations, etc. Failure to comply with these obligations may result in a fine being imposed by the Tax Office, of up to 3 % of the value of the assets disclosed in the financial statements. According to the Public Registers Act, the Registry Court may impose a fine of up to CZK 100,000. In the extreme case, the court may initiate proceedings to dissolve the registered entity with liquidation, or initiate criminal prosecution of the business corporation and the members of its governing body.

Register of Beneficial Owners

A relatively new obligation is the registration of the beneficial owner in the register kept by the competent registry courts. According to Czech legislation, the registration obligation applies to legal entities with their registered office in the Czech Republic under the Act on the Registration of Beneficial Owners. Failure to register the beneficial owner may lead to problems in the normal operation of the company (e.g., in the processing of various applications, refusal to provide a service – typically opening a bank account, termination of a contractual relationship, etc.). The ultimate consequence may be a court imposing a fine of up to CZK 500,000 or even a ban on the payment of shares in profit.

General Meeting

The governing body of a business corporation is also obliged to convene the General Meeting at least once a year; the General Meeting must be held no later than six months after the last day of the previous fiscal year, i.e., usually by 30 June, because the General Meeting must review the company’s financial statements by that date.

Finally, we would like to mention that many business corporations have not yet complied with the Business Corporations Act 2014. This may cause interpretative problems in corporate governance as such companies will be subject to a dual legal regime. We recommend that companies adapt their memoranda of association (articles of association) to the Business Corporations Act and have this change entered in the Commercial Register.

Are you not sure that you are meeting all these obligations in full? Do you want to make sure you have everything in order and do not miss any legislative news? We present our new service, Regular Administrative Services (Company Secretarial). Through regular reports (twice a year), we are able to catch any irregularities in the individual registers in a timely manner and promptly prepare a proposal for a solution. This service is intended for our long-term foreign clients as well as for clients starting their business in the Czech Republic, in short, for anyone who wants to be sure that their company is in compliance with the applicable Czech regulations.