Registration of legal form of business
Foreign legal entities may become founders or cofounders of a company, or may join an existing Czech company. Foreign companies may operate in the Czech Republic, either by establishing a branch office registered in the Czech Republic or by establishing a Czech company.
Opening of branches offices is governed by the rules set out in the Civil Code (89/2012 Coll.), Trade Licensing Act (455/1991 Coll.), The Act on Commercial Codes of legal and natural entities (304/2013 Coll.) and partly also in the Act on business corporations (90/2012 Coll.) and the Act on International Private Law (91/2012 Coll.).
- Trade Licensing Act (1,5 MB)
- Annexes to Trade Licensing Act (1,6 MB)
- The law on public registers of legal and natural persons
- The Civil Code
Legal forms of business
In the Czech Republic people may engage in business in two ways - as a natural person or as a legal entity.
The legal forms of business are as follows:
- sole trader (belonging to one person),
- joint-stock company,
- limited liability company,
- public trading company (with no obligation to generate registered capital),
- limited partnership,
The most common forms are limited liability companies and joint–stock companies.
Founding and establishing commercial companies
Commercial companies are formed in two stages. The first stage involves founding the company and the second stage involves establishing it as a legal person, as of the date of its entry in the Commercial Register. The actual founding of the company does not imply its legal existence. In the period between its founding and establishment, the company has no legal form (it cannot acquire rights or responsibilities, neither by its own acts nor the acts of other persons), nor does its statutory bodies exist. The shareholders of the company are only in the position of founders, not shareholders.
The legal proceedings relating to the founding, establishment, changes in, abolition or termination of a business corporation must be done in writing with notarized signatures, otherwise these acts are invalid. Nullity need not be argued before the court, since it is taken into account even without a petition.
Partnership agreement (founding charter)
If commercial companies are founded by more than one person, they are founded with a partnership agreement signed by all the founders. In the event a capital company is founded, i.e. a company with limited liability or a joint-stock company, the partnership agreement must be in the form of a public charter. One of the types of public charters is a notarial deed.
Every notary public prepares a notarial deed based on the documents and facts communicated and submitted to him by the founder or his legal representative. The cost of preparing the notarial deed is charged according to the notarial tariff (the price reflects the tariff value of the act).
In the event that the company is being formed by a single founder (the law permits this possibility for limited liability companies and joint-stock companies), the partnership agreement is replaced by a founding charter, which must be done in the form of a public charter.
The legal acts for the foundation must therefore always be in writing.
Obtaining a business license
Before forming the company, the company must obtain a business license (assuming that it is founded for business purposes), either a trade or other business license. A legal person is authorized to do business on the day its entry in the Commercial Register is announced, within the registered scope of its business. Under the Trade Act, the business license is a certificate from the Commercial Register and until the issue of the certificate, a copy of the announcement with confirmed receipt by the Trade Office. The license for other business activities is the authorization issued by the competent authority under other laws.
Commercial companies are formed as of the date of their registration in the Commercial Register. As of this date, the established company becomes a legal entity. Since the new Civil Code went into effect, a legal entity is not conferred legal capacity, i.e. not authorized to perform legal acts independently, and must therefore be represented by a statutory body or agent. If neither the partnership agreement nor founding charter indicates the duration of the company, it shall be formed for an indefinite period. The application for entry in the Commercial Register must be submitted to the competent registration court within six months (unless the partnership agreement provides a different period) of founding the company, otherwise, the same effects as occur during the withdrawal from an agreement shall apply.
The application for entry in the Commercial Register must be submitted on a special form, which is available on the website www.justice.cz. It can be submitted in paper or electronic form and must be accompanied by documents of the information that should be in the public register, and the documents that form the collection of documents in connection with the registration.
Also now possible is direct registration by a notary public under § 108 – 118 of the law on public registers of legal entities and natural persons. The notary public shall arrange the entry in the public register after the conditions for entering the required information via remote access are met. The law requires notary publics to meet this obligation without undue delay after filing the application for registration.
From the date of registration of the company in the Commercial Register – i.e. the date of establishing the company, the following deadlines are imposed on the company:
- 8 calendar days to register with the District Social Security Administration if the company has employees,
- 8 days to register with health insurance companies if the company has employees,
- 15 days to register with the tax authority.
Limited liability company - společnost s ručením omezeným (s.r.o.)
The most common form of entrepreneurship in the Czech Republic is the limited liability company, which can be established either by a natural or a legal person.
A limited liability company (LLC) is commonly used for small and medium-sized businesses.
Basic characteristics of limited liability companies (LLC)
|the lowest number of founders||1 natural or 1 legal person|
|the highest number of shareholders||unlimited|
|minimum registered capital||1 CZK|
|the lowest possible stake||1 CZK|
|the highest possible stake||unlimited|
|scope of investment at the formation||30% cash deposit and 100% in-kind contribution|
|deadline for paying off the investment||determined by the partnership agreement, no later than 5 years from the formation of the company or the assumption of the investment obligation|
|number of votes per investment||1 CZK has 1 vote (the partnership agreement may specify otherwise)|
|liability of shareholders for the company’s obligations||jointly and severally up to the amount of unfulfilled investment obligations according to the status registered in CR when summoned for payment by a creditor|
|scope of business||the business, it can be founded for other purposes|
|statutory bodies of the company||General Meeting, statutory body – directors, supervisory board (optional), others according to the partnership agreement|
|founding document||partnership agreement or founding charter in the form of a public charter|
A limited liability company is founded by signing a partnership agreement, if founded by two or more founders. The founders of the LLC can be both natural persons and legal persons, both Czech and foreign persons.
A limited liability company can also be founded by a single founder, who draws up the founding charter. A single founder can be both natural and legal persons.
The law no longer precludes a limited liability company from being the single founder of another company with limited liability if the new company has only one shareholder (either natural or legal person).
The partnership agreement or founding charter of an LLC must be in the form of a public charter. The failure to follow this prescribed form will render the agreement void.
The partnership agreement (founding charter) must contain at least the following particulars:
- Name and address of the company,
- Identification of shareholders by giving their names and residence or headquarters,
- Scope of business (activities),
- Determination of the types of shares of each shareholder and the rights and obligations associated with them if the partnership agreement permits the creation of various species of shares,
- The amount of registered capital and the amount of investment or investments allotted to the share or shares of each shareholder,
- The number of directors and the manner of their proceedings on behalf of the company
The Business Corporations Act imposes no obligations on a limited liability company to establish a website (as opposed to joint-stock companies), but if an LLC establishes one, it is under the same obligations as for a joint-stock company, i.e. it must publish the information it is required to give in its business documents on its website. If it publishes information about the amount of its registered capital on its website, this information must relate only to the part of it that has been paid-up.
- More information on a limited liability company (in Czech language - use Google translator)
Joint–stock company – akciová společnost (a.s.)
A joint-stock company is used for large companies
Basic characteristics of a joint-stock company (Inc):
|the lowest number of founders||1 natural or 1 legal person|
|the highest number of partners||unlimited|
|minimum registered capital||2,000,000 CZK or 80,000 EUR|
|the lowest possible stake||such that the sum is at least 2,000,000 CZK|
|the highest possible stake||unlimited|
|scope of investment at incorporation||30% of the nominal or book value of the subscribed shares and any share premium|
|Period for paying off the investment||determined by the statutes, no later than the filing of the application for entering the company in the Commercial Register|
|number of votes per investment||votes attached to shares (the same number of votes for shares with the same nominal value)|
|liability of shareholders for the company’s obligations||not liable|
|scope of business||the business, it can be founded for other purposes|
|statutory bodies of the company||General Meeting, statutory body – board of directors, supervisory board, others according to the statutes|
Formation of the company
A joint-stock company can be founded by a single founder, and this single founder can be a natural or legal person. Even the state can be this founder.
Only the adoption of statutes is required for founding the company; it is no longer necessary to prepare a founding agreement or charter. Whoever adopts the statutes and participates in the subscription of shares is a founder. The statutes include:
- the name, address and scope of business (activities),
- the amount of registered capital
- the number of shares and their nominal value, the determination of whether and how many shares will be denominated in registered or bearer form, or whether they will be issued as registered securities, or information on the limitation of the transferability of shares, or information on whether the shares are immobilized,
- if different species of shares are to be issued, their name and description of the rights attached to them,
- the number of votes attached to one share and the manner of voting at the General Meeting; if shares of different nominal value are to be issued, the statutes shall also include the number of votes relating to whatever amount is given for the nominal value of the shares and the total number of votes in the company,
- information about which of the systems of the internal structure of the company was chosen, and the rules for determining the number of members of the board or supervisory board,
- other information as provided by the law.
When founding the company, the statutes should also include:
- information on how many shares the founder is subscribing, at what issue price, the method and period for paying the issue price, and the form of investment for paying the issue price.
- in what amount must the registered capital be paid at the time of incorporation,
- i.e., if the issue price of shares is paid with in-kind contributions, the name of the contributor, description of the in-kind contributions, as well as the number, nominal value and class of shares issued for this in-kind contribution, their form or information that they will be issued as registered securities, and the appointment of an expert to make a valuation of the in-kind contribution,
- determination of the value of in-kind contributions at the time of incorporation,
- at least an approximate amount of costs arising in connection with incorporation,
- indication of who the founders nominate as members of the statutory bodies of the company, to be elected, according to the statutes, by the General Meeting,
- indication of the deposit administrator and
- i.e., if shares are to be issued as registered securities, the numbers of the securities accounts where the registered securities are issued.
This information can be released after incorporation and fulfillment of the investment obligations under the statutes.
Structure of the company
The Business Corporations Act offers the possibility of incorporating not only as dualist, but also as monist. While the dualist model of incorporation, already known from the Commercial Register, is based on the duality of management (board of directors) and control (supervisory board) bodies, the monist system of incorporation envisages the establishment of only a single body - management board - and in addition to it, a statutory director, who can also be its chairman.
The Commercial Code allows the board of directors to have a single member only if the company has a single shareholder, but even so the company has to establish a supervisory board with at least three members. According to the new Commercial Code, it is possible to establish, regardless of the number of shareholders, that the management board has only one member, and this single member can also be the statutory director of the company.
The management board determines the basic focus of the company’s business and oversees its proper operation. It is not, however, authorized to act with third parties for the company. The statutory body authorized to act externally for the company is the statutory director, who is appointed by the management board.
The company can change the chosen system of internal structure by amending the statutes.
As of 1 January 2014, joint-stock companies are required to publish, immediately after their incorporation and on an ongoing basis, the information it is required to give in its business documents in a manner that enables remote access, i.e. information relating to the name of the company, address, identification number, entry in the Commercial Register, invitations to the General Meeting, and other information as laid down by law.
- More information about joint-stock companies (only in Czech – use Google translator)
Trades and other business activities
The Trade Act distinguishes between the following types of trades:
- reporting trades (these include crafts, qualified and unqualified);
- licensed trades.
In order for the person concerned to operate a trade, it is necessary to meet the general conditions for operating a small business, in addition to other requirements laid down according to the type of trade. These basic conditions include
- a clean record
- full legal capacity (the court consent can substitute for the consent of the legal guardian of a minor => new conditions, where even a minor can do business with court consent)
A person is not deemed to have a clean record if he has been convicted of:
- a crime committed with intent, either alone or in combination with other criminal acts, and he was given a prison sentence of at least one year, or
- a crime committed with intent not covered by the provisions of the preceding paragraph if the crime was committed in connection with business and it appears as if he were not convicted.
A clean record is shown, according to § 6 paragraph 3 of the Trade Act, by citizens of the Czech Republic obtaining an extract from Criminal Records; for persons who are nationals of another member state of the European Union, evidence pursuant to § 46 paragraph 1 letter a) of the Trade Act, and for persons who are not citizens of the Czech Republic or another member state of the European Union, evidence pursuant to § 46 paragraph 1 letter b) of the Trade Act and an extract from Criminal Records. The Trade Office is authorized to require an extract from Criminal Records by special law. The request for an extract from Criminal Records and the extract from Criminal Records shall be transmitted in electronic form, in a manner allowing remote access.
It is necessary that the person intending to take up a trade is not inhibited by some of the barriers for performing the trade. The Trade Act itself states the barriers for performing the trade as these situations:
- The property of a natural or legal person is declared bankrupt; in which case the trade cannot be performed from the date of the sale of the business by a single contract or from the date of the decision by the court to terminate the operation of the business.
- An insolvency petition was dismissed because the debtor’s assets are insufficient to cover the costs of the insolvency proceedings or because the debtor’s property is entirely insufficient to satisfy creditors.
- A natural or legal person was imposed with a penalty or sanction prohibiting operations involving the trade in the given sector.
- The entrepreneur’s business license was revoked on the grounds that he seriously violated the conditions laid down in the decision granting the license, if he did not meet his obligations to the state, or if the business had not been run for more than 4 years.
If the operator of the trade is a legal person, the conditions for operating the trade must be met by the authorized representative of the legal person.
It furthermore lays down special conditions for operating a trade:
- The special conditions for operating a trade are professional or other qualifications required by the Trade Act or other laws. Most involve substantiating formal education or the length of experience in the given field.
- The special conditions for operating a trade are defined for crafts in § 21 and 22 of the Trade Act. The special conditions for operating a trade for qualified trades are contained in Annex 2 of the Act and for licensed trades in Annex 3.
- Operating an unqualified trade requires only that the general conditions for operating a trade be met; meeting the special conditions for operating a trade is not required.
- More information about trades
- Step by step instructions
Other business activities
Other business activities not considered trades include so-called freelance professions, e.g. lawyers, doctors, veterinarians, notary publics, patent attorneys, tax advisors, experts, interpreters, stock appraisers, brokers, etc. These activities are regulated by special laws.