Even though Czech legislation is making progress towards smarter and easier ways to set up a company, it is still a rather complicated process compared to the practice in other European countries.
When starting a business, there are few questions which need to be addressed before you proceed with the formation of your company.
First of all, you need to choose the right form of company for your business with respect to your capital, scope of business, number of shareholders, entry barriers for possible future shareholders in the company and, most importantly, your liability.
On the basis of said criteria you can choose from the following primary forms or company:
- Limited Liability Company (společnost s ručením omezeným – s.r.o.);
- Stock Corporation/Public Limited Company (akciová společnost – a.s.);
- Limited Partnership Company (komanditní společnost – k.s.);
- Unlimited Liability Company (veřejná obchodní společnost – v.o.s.);
Please note that business activity in the Czech Republic can be legally conducted in other legal forms than mentioned above, however, the most common forms are limited liability company (společnost s ručením omezeným) and public limited company also known as stock corporation (akciová společnost). In the following Q&As we would like to help navigate you through the process of founding and registering both a limited liability company and a public limited company as well as describe the main differences between those companies, so you can pick the right legal form of the company for you.
For the purposes of this article, we will focus exclusively on the legal perspective of setting up a company. For this reason business issues such as strategies, PR, marketing or any other aspects of conducting business activity are not addressed.
INCORPORATION AND REGISTRATION OF A LIMITED LIABILITY COMPANY
What is a Limited Liability Company?
A limited liability company is one in which the company’s shareholders are jointly and severally liable for company debts in the extent to which they have not fulfilled their contribution obligations (as described further) according to the status registered in the Commercial Register at the time when they were called to fulfill such obligation – namely, to pay the debt. In the event that the shareholders have fulfilled their obligations to contribute, in general they are not liable for debts of the company.
What is the minimum number of participants to establish a Limited Liability Company?
A limited liability company can be set up by an individual, so there is no need to find a business partner if you’re a lone wolf.
What is the first step when setting up a Limited Liability Company?
First of all, you need to prepare and complete your Articles of Incorporation (společenská smlouva) with your shareholders as the founding document of your company. To be legally binding and enforceable, the Articles of Incorporation are subject to notary authentication. If you are setting up the company by yourself without any other participant, the founding document will simply be called a Letter of Incorporation (zakladatelská listina)
How much will I pay for the notary authentication?
Notary authentication alone costs 2.000,- CZK. However, the minimal total cost for setting up a company is approximately 4.000,- CZK
What do I need to present to a notary for successful authentication?
- You will need to present the Personal IDs of all founding shareholders and the IDs of any corporate agent(s) (executives);
- You will also need to present a Statement of Criminal Record proving that the future corporate agent(s) have not committed any willful crime related to his or her previous business activity.
What information must be included in the Articles of Incorporation/Letter of Incorporation?
All requirements are prescribed in § 146 of the Business Corporations Act. Founding documents shall mainly contain the following information:
- Company name (obchodní firma). The company name must comply with all legal requirements and the name must also include the designation of the company – „společnost s ručením omezeným“, „spol. s.r.o.“, or „s.r.o.“, which is either the translation or abbreviation of the term “limited liability company”;
- Scope of the business (předmět podnikání);
- Designation of the company’s registered office (označení sídla společnosti);
- Designation of the shareholders, if any (označení společníků);
- Determination regarding the type of the shares for each shareholder and the rights and obligations associated with them, if the founding document allows the creation of different types of shares;
- The amount of the shareholder(s’) contribution (s) attributable to the share(s);
- The amount of registered capital;
- The number and the designation of corporate agents and the way they act on behalf of the company.
Also, certain information is required to be implemented into the founding document solely for the process of incorporation e.g., valuation of non-monetary deposit (this information can be removed from the founding document after the establishment of the company).
Ok, I have the Articles of Incorporation authenticated, does it mean my company is ready to do business?
No, not yet. With the authentication of the Articles of Incorporation, the company is founded, however, it still does not formally exist. More precisely, it still is not endowed with a legal personality as it has not been registered yet.
Side note: All founders of the company shall not be considered as company shareholders until the moment of successful registration of the company. Therefore, solely the company’s founders and not the company itself are bound by all legal actions taken, negotiations led, and agreements concluded prior to the moment of the company’s registration. However, the company may adopt all such actions and enter into the legal relationships of its founders within 3 months from the moment of the registration.
What’s the next step?
You need to open a bank account where the required and agreed upon registered capital shall be deposited. However, if the registered capital is to be 20.000,- CZK or less, as of 1st January 2021 it is not necessary for shareholders to deposit funds into the bank account. In this case, funds may be paid in any other appropriate form e.g. in person in cash.
What is the minimum registered capital required by the law for a Limited Liability Company?
The minimum registered capital is just 1,- CZK, so there is basically no financial barrier to starting a Limited Liability Company. Please note, however, that to some extent the amount representing the registered capital reflects the credibility of your company.
Are the shareholders obliged to pay the amount of the contribution (deposit) corresponding to their shares in the registered capital only in cash?
No, the contribution of the shareholder (the deposit) can be either monetary or non-monetary. You should also know that at least 30 % of all monetary deposits from the shareholders must be deposited into the bank account before the registration of the company. On the contrary, all non-monetary contributions must be evaluated by the official court’s expert and deposited in full before the registration of the company.
What else do I need to start my business?
After authentication of the Articles of Incorporation, you need to obtain a trade license according to the nature of your business. Accordingly, the process of obtaining a trade license differs based on the intended purpose of the business as some branches of business are more regulated. The application can be filed electronically or via mail. The administrative fee for filing a trade license application is 1.000,- CZK.
I have had the Articles of Incorporation authenticated, I have opened a bank account and shareholders’ contributions to the registered capital have been deposited as required, What’s next?
Now you can proceed with the registration of your company. The registration must be made within 90 days of the date the company was founded i.e. the Articles of Incorporation were authenticated. You can file for registration either directly at the relevant Commercial court, or you can file for registration with a notary. When filing at the Commercial court which maintains the Commercial register, you will be charged an administrative fee of 6.000,- CZK. Filing via notary is quicker and less expensive at just 2.700,- CZK. You will also need to annex most of the documents and certificates previously obtained during the process of establishing your company.
How do I find out when my company is registered and ready to do business?
The relevant Commercial court charged with Commercial registration will deliver its ruling and notify you about the successful registration. However, the easiest and the quickest way to find out is to regularly check the official webpages of the Commercial Register at www.justice.cz.
Is there something I should do after the registration?
You have done it! The company is established. Now you need to ensure your company’s compliance with the relevant legislation, especially tax legislation. Based on the scope and nature of your business you will need to file for the following registrations:
- Income Tax (daň z příjmu) registration;
- Circulation Tax (silniční daň) registration, if your company owns and uses a car(s) for its business activities;
- Registration of your employees to the relevant public authorities;
- VAT – value added tax (DPH – daň z přidané hodnoty) registration.
Furthermore, you need to register your company with the Central Registry of the Identity of Beneficial Owners. A beneficial owner is a person who has the ability to directly or indirectly exercise decisive influence over the company. Only a natural (not legal) person is allowed to act as a beneficial owner.
The application is filed electronically and an administrative fee of 1.000,- CZK will be charged.
Finally, please be informed that a data box will be automatically set up for your company. You are obliged to activate the data box within 15 days from the moment you receive the login and activation guidelines. Your data box will then be used mainly for official communication from public authorities as well as submissions of official applications etc.
Do you have more questions?
Don’t worry, we don’t charge anything for answering your legal question. In case of a more complex issue, we will give you our time estimation and price in advance. The estimation is free of charge. Then, it is up to you whether you want to use our legal services or not.