The most common mistakes made by companies in public registers

Public registers (especially the commercial register and related records in the Czech Republic) are official records of important company data. However, many companies underestimate the importance of keeping this data up to date and make mistakes that can lead to legal risks and penalties. You may think that register administration is just a formality. However, the opposite is true—correct entries are crucial for the smooth running of a business: they affect the validity of the company's actions, management responsibility, the company's credibility with business partners, and the avoidance of fines. In this article, we will look at the most common mistakes corporations make in public registers, explain the risks associated with these mistakes, and provide practical advice on how to avoid them.

Author of the article: ARROWS (JUDr. Kateřina Müllerová, office@arws.cz, +420 245 007 740)

Imagine this situation: Your company's managing director changes, the company moves to new premises, or another significant change occurs. In the usual hustle and bustle of business, it can be temptingly easy to postpone formal notification of these changes to the commercial register until later. Similarly, filing annual financial statements in the collection of documents may seem like an unnecessary burden that "no one reads anyway." However, this is where serious risks lurk – from the invalidity of certain legal acts, through the personal liability of members of statutory bodies, to significant fines or even the dissolution of the company. The following chapters describe specific mistakes made in practice, their possible consequences, and ways to remedy them.

1. Outdated information in the commercial register

One of the most common mistakes is failure to update data in the commercial register. Companies often forget to report important changes, such as a change of registered office, a change in the members of the statutory body (managing directors, members of the board of directors, etc.) or changes in the scope of business. These entries that do not correspond to reality can then cause considerable problems for the company. Czech legislation contains the so-called principle of material publicity, according to which data entered in a public register are considered binding and reliable for third parties. A company cannot therefore claim against third parties that an entry in the register did not correspond to reality. In other words, what is written in the register is what the world goes by.

In practice, this principle means that if someone deals with your company based on information from the register, your company is bound by that deal. For example, delivering documents to the official address of the registered office listed in the register has legal effects – if you have an old address in the register, important official letters may be considered delivered even if they did not actually reach you. Similarly, a situation may arise where a dismissed executive (who remains registered in the register) concludes a contract on behalf of the company – and this contract will be valid and binding for the company if the other party had no way of knowing that the person in question was no longer authorized to act on behalf of the company. Such a scenario is not just theoretical; in practice, more than one company has had to deal with the validity of a contract concluded by a "former" manager whom they forgot to remove from the register.

Typical omissions that companies fail to record in time:

• Change of company headquarters – The company moves, but the new headquarters are not registered. Authorities or business partners then deliver mail to the original address. This can lead to missed deadlines or actions and subsequent legal problems.

• Change of statutory bodies – The general meeting dismisses a member of the board of directors or a new executive is appointed, but the register is not updated. The old entry then confuses business partners and a situation may arise where the dismissed member still acts on behalf of the company.

• Change of partners or share capital – Changes in the ownership structure of the company (sale of shares, increase in capital) must be registered, otherwise there may be uncertainty regarding ownership and liability.

• Changes to the business name or scope of business – If the company is renamed or its scope of business is expanded or restricted, this should be reflected in the register. An outdated name or inaccurate field of activity can cause confusion and result in fines for unauthorized business activities outside the registered field.

Why is this a problem? Outdated information reduces the credibility of the company – business partners and investors routinely check registry records. If they encounter discrepancies (e.g., the executive they are dealing with does not officially "exist" in the register, or the company's registered office does not correspond to reality), this may undermine their trust and willingness to do business. In addition to the commercial implications, there are also legal risks: the registry court or another authority may initiate proceedings to remedy the discrepancy. Often, the court will first call on the company to remedy the situation, but if the company fails to respond, the court may impose a fine of up to CZK 100,000 or even initiate proceedings to dissolve the company with liquidation. In other words, long-term failure to update data can lead to the most extreme measure – the dissolution of the company by court order.

Final advice: Have an internal mechanism in place (e.g., with the help of a lawyer) to ensure that any important changes in the company are reported to the commercial register immediately. The deadlines for reporting changes are short (typically within 15 days of their occurrence, unless otherwise specified) and delays are not worthwhile. If in doubt about how to record a change, it is advisable to consult a legal advisor – prevention is cheaper than subsequent dispute resolution.

2. Failure to file documents in the collection (especially financial statements)

Another common offense is ignoring the obligation to file important documents in the collection of documents of the commercial register. Typically, these are annual financial statements, annual reports, or other financial documents that are intended to provide the public and state authorities with an overview of the company's financial management. Many companies (especially smaller limited liability companies) postpone or deliberately neglect this obligation, often out of concern that their financial data will be publicly available to competitors. However, it is important to note that the publication of financial statements is required by law for all entities registered in the commercial register. Concealing financial results is therefore not a legal way to protect a company's "privacy" – on the contrary, it can get a company into serious trouble.

Why is this important? Annual financial statements provide a picture of a company's financial health, and the Accounting Act clearly stipulates that they must be published (submitted to the collection of documents) within the specified deadlines. In addition to fulfilling its obligations to the state, the company also builds its image to the outside world – a transparent company inspires greater confidence in banks, suppliers, and customers. Conversely, failure to file financial statements may raise suspicions that the company is hiding something.

From a legal perspective, an incomplete collection of documents may jeopardize the validity of certain company decisions and, in extreme cases, lead to sanctions. For example, if a company fails to file an important document in its collection of documents, someone could argue that such a change is invalid. In the case of financial statements, the problem is the opposite – the company continues to operate, but failure to publish them is an administrative offense.

In addition, many companies make mistakes in the formal requirements when establishing documents. A common mistake is submitting financial statements without the required signature of a statutory representative. An unsigned document is not a valid financial statement, and its submission (even if on time) is considered a failure to fulfill an obligation and may result in a fine. Another administrative error may be sending documents in the wrong format or incomplete (e.g., without attachments that supplement the financial statements). Any such seemingly minor detail may result in the registry court requesting a correction and considering the obligation unfulfilled until it is resolved.

What penalties can be imposed? The laws in this area have been tightened in recent years. It was already the case that late publication or complete absence of mandatory documents in the collection of documents could lead to a fine or even the dissolution of the company. The registry court usually first sends a request to supplement the missing documents. If the company ignores the request, it may be fined (a so-called "disciplinary fine") of up to CZK 100,000. In the event of repeated violations (e.g., if the company fails to file its financial statements for several years in a row) or if the failure to comply has serious consequences for third parties (e.g., creditors or employees who cannot exercise their rights due to missing information), the court may even initiate proceedings to dissolve the company with liquidation.

From January 1, 2025, there will be a further tightening of the rules: the registry court will now be required to initiate proceedings for a fine if the financial statements are not filed within three months of the deadline for their publication. In practical terms, this means that the inaction of the courts is coming to an end – after just a few months of delay, a company can expect penalty proceedings to be initiated automatically, without anyone having to file a complaint. In addition, the tax authorities will also look into non-compliance with this obligation – although they usually opt for an agreement or a warning first, they have the power to impose a fine of up to 3% of the company's assets (according to the Accounting Act, this is a misdemeanor).

In extreme circumstances, long-term disregard of these obligations may even lead to criminal liability. If failure to comply with accounting and registration obligations seriously jeopardizes the rights of others (e.g., creditors, business partners, or employees), it may be considered a criminal offense of misrepresentation of financial and asset information. Although this happens only in exceptional cases in practice, the law also provides for this possibility—natural persons (e.g., executives) face up to two years' imprisonment or a ban on activities, and companies face a financial penalty graded according to their financial circumstances. However, the mere threat of such severe penalties underscores how seriously the state takes compliance with registration obligations.

Practical example: For several years, ABC s.r.o. avoided publishing its financial statements – the company's management decided not to "post" its financial results publicly. The registry court repeatedly called on the company to remedy the situation, but to no avail. Finally, the company received a fine of CZK 50,000 and a warning that if it did not immediately supplement the financial statements, the court would consider dissolving it. The frightened management quickly filed the financial statements, but the damage to the company's reputation had already been done – information about the fine reached its business partners, who began to doubt the company's transparency and reliability. The lesson? It doesn't pay to take risks.

Final advice: Set up a system that reminds you of your obligation to file financial statements (typically after they have been approved by the general meeting). Assign a specific person to be responsible for this task. Don't be one of those who "don't bother" – you'll avoid unnecessary penalties. If you are unsure about the formal requirements (e.g., how to sign the financial statements electronically or in what format to send them), consult an accountant or law firm. Investing a few hours of time and a small amount of money for professional advice is negligible compared to the fines and stress of a possible company dissolution.

3. Failure to register beneficial owners

In recent years, companies have been given an additional obligation – registering beneficial owners. This is a legally required register of natural persons who effectively control or own a legal entity (company). This information is used to ensure the transparency of ownership structures, primarily in the fight against money laundering and corruption. Since 2018, every commercial corporation must have its beneficial owner registered in the register (now regulated by Act No. 37/2021 Coll.). The mistake that many companies make is either not registering their beneficial owner at all or not updating the information in the event of a change of ownership.

What are the consequences of non-compliance? Failure to comply with the obligation to register beneficial owners is classified as a misdemeanor. A fine of up to CZK 500,000 may be imposed. The penalties are not only financial – the law has also introduced private law sanctions: if a company does not have a registered beneficial owner, the beneficial owner will be prevented from exercising their voting rights at the general meeting and will be prevented from receiving their share of profits (dividends) until everything is brought into compliance. Simply put, a hidden owner who is not registered cannot vote or receive profits from the company until they are registered – if, for example, a share of the profits were paid to an unregistered owner, this would be considered unjust enrichment and a breach of the duty of care of a prudent manager.

Business partners can also punish the company indirectly. In public procurement, the contracting authority is obliged to check the supplier in the register of beneficial owners – if it is not possible to determine who owns the company, such a supplier may be excluded from the competition. Imagine that your company is bidding for a lucrative public contract but is automatically excluded from the tender process because the beneficial owner is not registered – a needless business loss caused by an administrative oversight. Similarly, banks and other financial institutions subject to anti-money laundering (AML) laws are required to investigate the beneficial owners of their clients. Missing or false information in the register can lead to suspicion – the bank may postpone a transaction, refuse to conclude a contract, or even terminate the relationship with the client or report them to the relevant authorities. Your company account may be unexpectedly blocked or your loan rejected until you put your records in order.

Real-life example: TechSoft, a medium-sized IT company, had not paid attention to its beneficial ownership records for several years – its ownership structure was complicated (a chain of companies) and management passed the responsibility of "reporting it somewhere" like a hot potato. When TechSoft applied for a public tender for a government institution, it discovered that it had been disqualified for failing to comply with a legal obligation – the contracting authority was unable to trace the ultimate owner. TechSoft thus lost a significant opportunity and, in addition, had to quickly register its beneficial owners to avoid a fine. This unpleasant experience led the company to hire a law firm to oversee the ongoing updating of the register.

Final advice: Don't delay registering your beneficial owners. Immediately after establishing a company (or upon any change in the ownership structure), ensure that the details of the beneficial owners are registered or updated in the register. There is not much information required – typically name, address, date of birth, and share of voting rights – and the registration is carried out by a notary or court. Don't rely on the excuse that "there's no time, it can wait." If you are unsure who exactly is considered the beneficial owner of your structure under the law (e.g., in the case of a complex chain of companies or trust funds), consult a lawyer. This will save you a lot of trouble in the future and your company will have open doors to both public contracts and banking services without unnecessary complications.

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4. Ignoring requests and formal deficiencies in registration

The last category of errors is more of a general approach, but one that can exacerbate all of the above-mentioned problems: ignoring official requests, failing to meet deadlines, and underestimating the formal requirements of communication with the registry authorities. Unfortunately, some companies respond to correspondence from the registry court late, incompletely, or not at all. A typical example is when the court sends a notice of irregularities (e.g., a missing document in the collection of documents or a discrepancy in the data) and sets a deadline for correction. If the company does not respond to such a request, it exposes itself to further sanctions. As mentioned above, non-cooperation can result in a fine of up to CZK 100,000 or even the dissolution of the company by the court. Ignoring official requests is therefore definitely not a solution – the problem will not go away on its own, but will only get worse.

Another formal error is the insufficient quality or completeness of submissions to the registry. For example, a company submits an application for registration of a change but forgets to attach one of the mandatory attachments (such as the updated version of the articles of association, a notarial record of the general meeting, etc.) or fills in the form incorrectly. The registry court then requests additional information and the entire process is delayed. In the meantime, the change is formally not valid, which can cause complications—imagine, for example, that you want to operate under a new company name, but the change is still not in the register because the submission had formal defects. Every mistake in communication with the register costs time and energy, and in business, time can mean money or lost opportunities.

How can this be avoided? The key is proactivity and diligence. When you receive any request or notification from the registry court, respond immediately. Even if you do not have all the necessary documents at hand, communicate – ask for an extension or clarification of what needs to be provided. Authorities usually appreciate efforts to cooperate. Furthermore, if you are preparing the submission yourself, use the available instructions and checklists (e.g., on the Justice.cz portal or with the help of lawyers) and check everything thoroughly before sending it – especially attachments, signatures, correct company names and file numbers, etc. In today's digital age, it is also wise to monitor the company's data box, where all official communication is sent – set up notifications so that you don't miss anything.

Conclusion: Credibility and peace of mind thanks to order in the registers

At first glance, public registers often do not seem like a priority in a company's day-to-day business. However, as we have shown, neglecting registry obligations can have far-reaching consequences – legal, financial, and reputational. On the contrary, carefully maintained and up-to-date records about the company act as a shield: they protect the company from challenges to the validity of its legal acts, from fines from authorities, and provide a solid foundation for the trust of business partners. Correct entries ensure that the company's actions are valid and indisputable, members of the statutory body are not exposed to personal liability for neglect of their duties, and the company avoids penalties and unpleasant disputes over the correction of errors.

It is important for corporations operating in the Czech Republic to bear in mind that the legal framework (the Public Registers Act, the Business Corporations Act, the Accounting Act, etc.) clearly defines obligations and enforces them more and more consistently. If you are unsure whether your company has any "outstanding issues" in the registers, or if you are dealing with more complex changes, do not hesitate to seek professional legal assistance. An experienced lawyer will help you conduct an audit of your register entries, point out any shortcomings, and ensure quick remediation.

Do not underestimate the importance of public registers. Take a quick inventory: is all the information about your company up to date and correct? Do you have all the required documents? Is your actual owner registered, and are you aware of all your obligations? If you have any doubts, contact our law firm – we will help you get everything in order and keep your company in full compliance with the law. This will not only protect you and your management from the risk of sanctions, but above all strengthen your company's credibility in the market. Trust and legal certainty are values that are priceless in the business world. And accurate data in public registers is the cornerstone of this trust. Let us be your guide in this area – we will be happy to ensure that registry errors are no longer an obstacle to your business, but rather give you peace of mind for further development.