Entrepreneurs looking to open a company in the Czech Republic can select from various legal entities, depending on their business plans. Each type of company in the Czech Republic has rules and regulations for the investors and the business activities to be carried out by the company. The legislation of Czech Republic enables the incorporation of the simplest form of business, which is depicted by the sole proprietorship, likewise advanced business forms, proposed for medium to large companies.
Czech Republic offers several types of legal forms
Under the Czech Commercial Code the subsequent structures are considered to be legal entities:
- Limited Liability Company
- General Commercial Partnership
- Limited Partnership
- Joint Stock Company
- Co-operative
- Branch office
- European Joint Stock Company
- European Economic Interest Grouping
- European Cooperative Society.
All these companies begin to exist immediately after they are registered in the Czech Commercial Registry.
Limited liability company
A limited liability company (LLC) is the most used corporate structure in the Czech Republic. A Czech Limited liability company (LLC) is established by a Memorandum of Association if there is more than a single founder, or a Foundation Deed if there is a single founder. No minimum registered capital is mandated by law for an LLC. The law only expects the minimum contribution of each shareholder in the amount of CZK 1. But, it is advisable to count on an adequate starting amount for the registered capital for financing the launch of the business and therefore avoid the application of the bankruptcy test from the very beginning. Monetary or non-monetary contributions are allowed i.e. real or personal property.
Normally, before applying for incorporating a company, the premium and at least 30% of each monetary contribution must be paid up. The outstanding amount must be settled upon agreement between the shareholders within five years at the latest, and contributions in-kind must be fully settled before the company is incorporated.
The Czech company is owned by one or more individuals and each shareholder holds an “ownership interest” which approximates a percentage of the total registered capital.
The company is entirely responsible for any breach of its obligations with all its assets. The liability of a shareholder for the company’s obligations is restricted to the unpaid amount of the shareholder’s contribution
Therefore, shareholders in a Czech limited liability company are not responsible for the company’s debts given they have paid up their contributions in full. The qualified shareholders may become liable for a company’s debts by application of the rules on company groups, namely in bankruptcy, e.g., if they, through their control or influence, considerably affect the conduct of the company to the disadvantage of the company.
General commercial partnership
The general commercial partnership is a business structure in which all partners are liable with all their equity. The management has to be formed by a minimum of two persons. The advantage of a general partnership is that you do not need the preliminary investment.
Although a General Commercial Partnership is a legal entity, its existence depends on that of its partners.
A company account doesn’t need to be audited unless at least two out of three of the following conditions are met: (I) its turnover exceeds CZK 80 mil., (ii) its assets exceed CZK 40 mil., and (iii) its number of employees surpasses 50.
Limited liability partnership
A limited liability partnership is a less used corporate form. It must be established by at least two individuals, one of which must donate to the registered capital set by the foundation document. Limited partners are accountable for the company’s debts up to the unpaid amount of their contribution. However, if the name of a limited partner appears in the name of the company, the limited partner’s liability for the company’s debts is limitless.
On the other hand, the other partners are not imposed to contribute to the registered capital. Still, their personal liability for all the company’s undertakings is limitless.
Joint-stock company
A joint-stock company (JSC) is established by utilizing By-laws. The minimum registered capital is CZK 2,000,000 and there are no requirements for a minimum shareholder contribution. The company is owned by one or more individuals.
Both monetary and non-monetary contributions are approved of, i.e. real or personal property. The worth of in-kind contributions is subject to an official valuation. Before a new JSC is incorporated, the premium and at least 30% of the nominal value of shares must be settled. The outstanding sum must be paid up in line with the By-laws within a year from the incorporation of the company at the latest.
The company is entirely responsible for any breach of its obligations with all its assets. Shareholders in a joint-stock company are not accountable for the company’s debts. But Certain “qualified” shareholders may particularly become liable for a company’s debts by applying the rules related to company groups, namely in bankruptcy.
Every JSC must have a website giving information about the company’s name, registered seat, business identification number, and incorporation data with the commercial register comprising the section and file and publish several documents such as invitations to general conferences.
Cooperative
This legal structure isn’t fit for commercial undertakings. It is a traditional legal form often used for the possession of private residential property.
Branch office
A branch office is not a legal entity in the Czech Republic, but a commercial representation of its foreign parent. It is entirely dependent on its head office, but it has independent management and its own accounts. Its establishment and admission into the Czech Commercial Register are regulated by Czech laws.
The name of the branch office must be the same as that of the foreign company with the suffix, Organisational Unit. Assigning a director is important and it also has to list planned activities. The branch office doesn’t need to pay up any central capital.
European Joint Stock Company
The Czech Republic has enforced the Council Regulation (EC) No. 2157/2001 legislating a new type of legal entity – European Joint Stock Company, also called Societas Europeas (SE) by Act no. 627/2004 Coll. The SE is a European Public Limited, Liability Company. An SE may be established upon registration in any of the Member States of the European Economic Area (EEA). Article 10 of the Regulation employs Member States to regard an SE as if it is a public limited company established in accordance with the law of the Member State in which it has its registered office. According to the EU, the objective of the Statute for a European company is to create a European company with its own legislative structure which will enable companies incorporated in different Member States to unify or form a holding company or joint subsidiary, while staying away from the legal and practical constraints arising from the existence of fifteen varied legal systems. To arrange for the involvement of employees in the European company and recognize their place and position in the company. One of the primary characteristics of the Societas Europaea is that it decreases the costs of administrative and legal procedures. There is also an immense draw in terms of a global company showing its European intent and the strength of this determination.
European Economic Interest Grouping
European Economic Interest Grouping (EEIG) is an association formed on the purpose of the contract of formation with an objective to facilitate the economic activity of its members. The objective of an EEIG is not to make profit. An EEIG’s actions must relate to the economic activity of its members, the grouping may only support it. An EEIG is not a legal person.
An EEIG cannot exercise management control over its member’s own activities or those of any other undertaking, it cannot hold shares in any of its members, it cannot employ more than 500 people, and it cannot be used to obtain loans.
Members of an EEIG may be people carrying on any industrial, commercial, or agricultural activity or providing the duties of liberal professions or other services in the Community.
European Cooperative Society
A European Cooperative Society (ECS) can be founded by at least 5 natural individuals or legal entities who must be residents of at least two different EU Member States. Alternate approaches to establishing an ECS are;
- a unification of cooperatives formed under the laws of two different Member States and with their registered offices and head offices within the EU, or
- by the transformation of a cooperative formed under the laws of a Member State, which has its registered office and head office within the EU if, for at least two years, it has had an establishment governed by the laws of another Member State.
An ECS must have a registered capital of at least EUR 30,000, the amount of registered capital plus the amount of members’ main contribution should be registered in the Commercial Registry.
An entrepreneur intending to enter the market and stay long term in the Czech Republic may consider getting familiar with the dos and don’ts of incorporating a company in the Czech Republic, in other words, let’s go ahead together and contact your Damalion expert now.
