The Czech Republic is one of the most developed European Countries.
It is located in the heart of Europe and offers some advantages over most other European countries for business start-ups. This includes an excellent infrastructure, a skilled and good educated workforce, and low labor costs.
Forms of Business corporations and minimum share capital in the Czech Republic
The Czech Republic Business Corporations Act, 2012 is the main legislation that regulates the registration and operation of companies in the Czech Republic.
The Czech Republic Business Corporations Act acknowledges a variety of legal entities and forms of business corporations under which it is possible to do business in the Czech Republic.
The legal forms of business corporations that are generally used and encountered by foreign investors are:
- Limited liability company (s.r.o. or společnost s ručením omezeným): an LLC is a company whose registered capital is made up of investments, agreed in advance, by its members. According to the Czech Republic Business Corporations Act, the minimum contribution of each shareholder is in the amount of CZK 1.
- Joint stock company (a.s. or akciová společnost): this company structure may be founded by a private agreement to subscribe for all shares, or by a public call for the subscription of shares. The minimum registered capital required is CZK 2,000,000.
- Limited commercial partnership (k. s. or komanditní společnost): in this form of Czech company, at least one partner must have unlimited liability and at least one partner must have his liability restricted to the amount of his/her registered investment in the company. The minimum contribution of the limited partner should be set in the Articles of Association.
- General commercial partnership (v. o. s. or veřejná obchodní společnost): this is a company of which each partner is privileged to act on behalf of the partnership and is unlimitedly, jointly, and severally responsible for the partnership obligation. There is no requirement of a minimum registered capital, for this company form.
- Cooperative (družstvo): this form of company can be established by a minimum of five natural persons or two legal entities. The Czech Republic Business Corporations Act does not set out the amount of minimum registered capital for this company form.
- European company (evropská společnost): the main purpose for the introduction of this company structure is to allow the creation and management of companies with a European dimension, free from obstacles arising from differences and limited territorial application of national company law.
- European economic interest grouping (evropské hospodářské zájmové sdružení): this company form can be created by at least two companies, which have their central administration in different Member States.
- European cooperative company (evropská družstevní společnost): this company can be founded by a minimum of five natural persons or legal entities-these must be residents of at least two different European Union Member States.
- Branch office (pobočka (if registered in the Commercial Register-odštěpný závod)): a branch office is not a Czech legal entity, but a commercial representation of its foreign parent. There is no minimum registered capital required for the Branch office.
Some of the company structures above must be registered in the Commercial Register.
Documents required to register your Czech company
The most significant document required when founding a company in the Czech Republic is the Articles of Association / Foundation Deed.
Other documents imposed are subject to conditions. Usually, the following are also required:
- evidence of an executive director on his ability to perform in a position of the statutory body of the company
- extract from the Criminal Registry for all representatives and partners of the company
- confirmation of registered capital payment
- lease agreement
- list of the company managers and their signature and consent for the registration into the Commercial Register
- a trade license or license for another type of business activity
Main steps to open your company in the Czech Republic
The process of company formation in the Czech Republic is as follows:
- Name selection: A unique name must be appointed for the company and the appointed company name must be checked with the Registry of the Regional Commercial Court.
- Selecting the type of business form: when starting a business in the Czech Republic, the owner must decide in what form the business should be established. Setting up a branch office of a foreign entity or establishing a company under the laws of the Czech Republic are the two main options to consider.
- Search and choose a legal address: the registered office must be in the Czech Republic and maintained in the Czech Republic.
- Open a company account in a Czech Republic bank and transfer the essential capital (if applicable)
- Prepare all necessary documents (such as the article of association) and certify them with a national notary.
- Register the company at the Commercial Register: once the company’s documents are signed and notarized, the company’s representatives must register the legal entity with the Commercial Register.
- Register with the tax office.
After completing all the steps, the company can safely and legally start its business activities in the Czech Republic.
Company Taxation in the Czech Republic
Just like other countries, the Czech Republic has many different taxes and other similar burdens. The most important ones and their rates are stated below:
- Corporate income tax: 19%
- Natural-person income tax: 15%
- Value-added tax (VAT): 21% for most products and services, 15% for food, plants, etc. 10% for special medicine, books, etc.
Requirements relating to company management in the Czech Republic
Limited liability company (společnost s ručením omezeným): this company is overseen by one or more managing directors, who can act for and sign on behalf of the company. Adaptable management can be given in the articles of association.
Joint stock company (akciová společnost): this company can either be managed by a board of directors and controlled by a supervisory board, or an administrative board can be established and a statutory director appointed.
Regarding other company forms, their statutory body will be indicated in the articles of association.
Note that members of the statutory body should be at least 18 years old, must have the legal capacity and there have to be no limitations to their operating of trade in agreement with the Trades Licensing Act and other legal regulations.
Regarding foreigners: foreigners who will form the company’s statutory body must prove their moral integrity by procuring and submitting the criminal background check from the state of citizenship.
In addition, concerning the identity of managing directors and shareholders of the company, it is publicly declared in the Commercial Register except for joint stock companies where the identity of shareholders is not publicly revealed.
Limitations for foreign individuals or companies about Czech Republic company
Foreign natural and legal entities enjoy the same rights and bear the same responsibilities as Czech persons and may not be segregated.
Foreign individuals or legal entities are authorized to conduct trade activities under the same circumstances and to the same extent as Czech companies.
They can become founders or co-founders of a company, or may join an existing Czech company. They may also purchase share/s in a company.
Meeting Requirements
Czech company shareholders are obliged to hold at least one annual meeting to vote on specific items, such as authorization of financial statements, payment of dividends or coverage of losses, and election of auditors. Meetings are obliged for normal decisions on the appointment of members of the board of directors, supervisory board, and changes to the articles of association.
A General Meeting of the company decides on the distribution of dividends within six months from the end of the previous accounting period.
At Damalion, we can assist with the whole process of your company incorporation in the Czech Republic. Contact your Damalion expert now to get started.
