Establishing a New Business
Foreign legal entities are allowed to conduct trade activities under the same conditions and to the same extent as Czech entrepreneurs. They 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. The following document provides useful information on the process of establishing a new company under the Czech law.
Legal requirements
Entrepreneurship in the Czech Republic is covered by a number of legal regulations. The most important legal text dealing with companies` rights is the Commercial Code. The Trade Licensing Act stipulates the process and requirements for issuing a trade licence or concession document.
Legal forms of business
There are two ways of legal forms of entrepreneurship in the Czech Republic – a natural person or a legal entity. Issues related to natural persons conducting business on the basis of a trade are mainly stipulated in the Trade Licensing Act. Legal entities are governed by the Commercial Code.
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,
- cooperative.
The most common forms are limited liability companies and joint–stock companies.
Limited liability company - společnost s ručením omezenám (s.r.o.)
A limited liability company is commonly used only for small and medium–sized businesses. It may be established either by
- a founder`s deed by one entity (whether an individual or a legal entity) or
- by a memorandum of association concluded by a group of entities or individuals up to 50.
However, a limited liability company with one shareholder cannot establish or become the sole shareholder of another limited liability company. One individual may be a sole shareholder of not more than three limited liability companies. Both the founder`s deed and the memorandum of association must be executed in the form of a notarial deed. The incorporation document also determines whether or not a limited liability company will issue its articles of association.
A limited liability company does not issue shares. The ownership interest represents the shareholder`s participation in the company and the rights and duties derived from such participation. The size of the ownership interest is basically determined by the ratio of a particular shareholder`s investment contribution to the company`s registered capital.
Registered capital
The minimum registered capital is CZK 200,000. Non-monetary contributions must be fully settled before the company`s registration in the Commercial Register. The founder`s deed or memorandum of association must specify the non-monetary contribution and its value which is determined by an expert appointed by the court. At least 30 % of subscribed monetary contributions must be paid up before registration of the company in the Commercial Register; the total of paid–up investment contributions and the value of nonmonetary investment contributions must amount to at least CZK 100,000. If a company is formed by one person only, its registered capital must be fully paid up before registration in the Commercial Register.
Corporate governance
Corporate governance is simpler than that of a joint stock company. A limited liability company does not have a board of directors. Its statutory body is made up of one or more executive officers. The law does not restrict their number. The executive officer is appointed by the general meeting, the supreme body of the company, or by the sole shareholder exercising powers of the general meeting. Each executive officer acts on behalf of the company independently unless the founder`s deed or the articles of association (if adopted) stipulate otherwise. The law does not require the limited liability company to establish a supervisory board; however, a supervisory board can be established provided that the founder`s deed or memorandum of association so stipulates. The supervisory board consists of at least three members elected by the general meeting.
Ownership interest
Ownership interest in a limited liability company is not as easily transferable as the shares in a joint stock company. It requires a written agreement. With the approval of the general meeting a shareholder may transfer his ownership interest to another shareholder, unless the memorandum of association provides otherwise. If the memorandum of association so admits, a shareholder may transfer his ownership interest to another third party. The memorandum of association may make transfer of the ownership interest dependent on the general meeting`s approval. Should the company have sole shareholder, an ownership interest is always transferable to third parties.
Liability
Shareholders of a limited liability company are jointly and severally liable for company`s obligations only up to the unpaid aggregate of their investment contributions according to the entry in the Commercial Register.
- 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. It is established by
- a founder`s deed by one shareholder, being a legal entity, or
- a memorandum of association by more than one shareholder (whether individuals or legal entities).
Both the founder`s deed and the memorandum of association must be executed in the form of a notarial deed. A joint-stock company is obliged to issue its articles of association. Bearer shares are freely transferable while transferability of registered shares may be restricted but not excluded by articles of association. If the registered shares are bookentered shares, they are transferred by registering the new owner with the Central Securities Depository.
Registered capital
Minimum registered capital is CZK 2,000,000 or CZK 20,000,000 if the company is founded through a public offer of shares. A subscriber is obliged to pay the issue price of the subscribed shares within the time–limit fixed in the articles of association, but no later than one year after the company`s incorporation.
Statutory bodies
The statutory body of a joint–stock company is the board of directors. The board of directors must have no fewer than three members, this shall not apply in the case of a company with sole shareholder. Its members are generally elected and recalled by the general meeting or by the supervisory board if the articles of association so stipulate. The board of directors decides on all matters that are not reserved to the general meeting or the supervisory board.
Each joint–stock company must establish a supervisory board, which monitors the activities of the board of directors and the operations of the joint–stock company. The supervisory board consists of at least three members and the number of its members must be divisible by three. If the company has more than 50 fulltime employees, the latter elect one–third of the supervisory board`s members. The resolution of the company`s general meeting regarding the increase of the registered capital or the articles of association may determine that employees can receive company shares under better conditions than other shareholders. However, the total of portions of the issue price or the purchase prices of all shares, which are not subject to full payment by employees, may not exceed 5 % of the company`s registered capital at the time when the decision on such employees` subscription is made.
Liability
Shareholders of a joint–stock company are not liable for the company`s obligations.
- more information on a joint stock company (in Czech language - use Google translator)
Trades and other business activities
Trades are regulated by the Trade Licensing Act and other business activities are regulated by specific legislation.
Trades
The Trade Licensing Act identifies the following types of trades:
- notifiable trades (these include vocational, professional and unqualified),
- permitted trade.
The Trade Licensing Act sets out the general conditions for pursuing a trade that are common to all types of trade:
- a minimum age of 18 years,
- legal capacity,
- good character.
It also sets out special terms and conditions for pursuing a trade:
- evidence of training or evidence of length of experience in a given field (Sections 21 and 22) in the case of skilled trades,
- terms and conditions pursuant to Annex No 2 of the Trade Licensing Act (completion of education),
- the certificates and licences required under specific legislation in the case of restricted trades.
- more information on trades (in Czech language - use Google translator)
- step by step guidelines
Other business activities
Business activities that do not comprise trades include pursuit of the so–called liberal professions, for example the activities of lawyers, doctors, vets, notaries, patent agents, tax advisors, experts, interpreters, stock market valuers, stockbrokers etc. These activities are regulated by specific laws.
Administrative procedures
Points of Single Contact
Information on various activities falling under the trade licence are provided by Points of Single Contact. The electronic version of Point of Single Contact brings detailed and granted guidelines for more than 180 business activities in various sectors. The guidelines describe procedures for acquiring all permissions required for conducting a business activity, including all forms and applications.
Establishment of a company
The establishment of a company is the first phase of creating a company and precedes its foundation. In this phase, registered capital (or at least a part thereof) is also created through deposits from the individual partners.
- The process of establishing a company (in Czech language - use Google translator)
Getting a business licence
In order to conduct business, a company must obtain a business licence prior to its foundation – either a trade authorisation or another type of business licence. To obtrain a licence, an applicant shall submit a request to the Trade Licensing Office (or at a so-called Czech Point).
Any Trade Licensing Office can be used for notification about a business or an application for a trade licence, and as a contact point with the public administration (Czech Point). A trade office is obliged to enter the trade notification into the Trade Registry within five days of receipt of such a notification. An entrepreneur must support the trade authorisation or licence with an excerpt from the Trade Registry that he/she will receive from the Trade Office as confirmation of an entry into the registry. However, companies hold the trade authorisation only as at the date of an entry into the Commercial Register.
- Czech Point – contact points for the public administration (in Czech language only)
Business registration
Within a maximum of five days, the Trade Licensing Office will enter your application in the Trade Register and provide you with confirmation of registration. This document will be appended to your trade licence or concession (concessions without confirmation documents are not valid).
- Trade Register - electronic submissions
Trade authorisations may still not be considered valid at this stage as you still have to register in the Commercial Register. Once completed, companies and cooperatives become legal persons, with all the rights and obligations associated with this.
Entry in the Commercial Register
A company comes into existence by registering in the Commercial Register maintained by the respective Registry Court. The statutory body of the company must apply to the Commercial Register to register the company within 90 days from the date the company was founded or the company`s trade
licences or similar business authorisation were issued and delivered. As of 1 July 2005, obligatory but standardized forms for applications to the Commercial Register are available. The Registry Court is obliged to register the company or to deliver another decision within the period of 5 working days, otherwise it is considered that the registration was performed on the following day after this period has expired.
When submitting an application for entry in the Commercial Register an administrative fee is charged. The fee amounts to CZK 5,000 for a first-time entry, i.e. if you are requesting the registration of a company not previously registered.
The following documents must be attached to the application in particular:
- documents, not older than three months, showing the valid incorporation of the founder and the power of its representatives to act on its behalf; incorporation documentation, i.e. founder`s deed or memorandum of association;
- specimen signatures of directors (members of the company`s statutory body);
- evidence that the company`s registered capital was paid up in the minimum required amount (usually shown by a bank statement);
- a statement of credibility signed by each member of the statutory and supervisory body and the consent with the entry into the Commercial Register
- extracts from the criminal registry for each proposed representative and supervisory board member (extract from the Czech Criminal Register and, if the representative is a foreigner of an EU country, an extract from the Criminal Register from country of his/her origin or from the Criminal Register of an EU
- country of his/her last stay and, if he/she is not a citizen of an EU country, an extract from the Criminal Registers of the country of his/her origin; all of these documents/extracts must not be older than three months);
- extract from the Trade Licences Register or other authorisation relating to its business activity;
- evidence of title (ownership right or the consent of the owner) to the premises where the registered office of the company will be situated;
- powers of attorney for any person (obligatory for foreigners without a delivery address in the CR) to be registered in the Commercial Register in relation to the incorporation of the company (e.g. executive officers).
Applications for entry in the Commercial Register and applications to amend existing registrations may be submitted only on the specific forms. Samples of these forms for all types of company may be found on the Ministry of Justice website.
- Commercial Register - forms, addresses of Courts of Registration
- Commercial Register – electronic access (currently in Czech language only)
Tax registration
Information on the submission of tax declarations may be found here:
Aside from its smooth establishment and foundation, a company as a business entity must have the right business strategy and secured financing.
Foundation of a legal entities
Commercial companies and cooperatives originate as of the date of their entry in the Commercial Register. On such a day the established company becomes a legal entity that can acquire rights and obligations.
- The process of establishing a company (in Czech language - use Google translator)
Leasing property
When renting a business property in the CR, a tenant shall be aware of legal and tax issues, such as signing an agreement, paying an income tax, provision of parking places and how to proceed when terminating the agreement with the lessor.
Steps and costs
A summary of bureaucratic and legal hurdles an entrepreneur must overcome in order to incorporate and register a new firm, along with their associated time and set-up costs. It examines the procedures, time and cost involved in launching a commercial or industrial firm with up to 50 employees and start-up capital of 10 times the economy''s per-capita gross national income.
Useful information
The following governmental and non-governmental institutions and web portals offer further information and useful services.
- Notarial Chamber of the Czech Republic
- Official portal for business and export
- Portal of the public administration of the Czech Republic
Data Boxes
All legal entities and company branch offices registered in the Commercial Register must have their data boxes for electronic comminication with state authorities.
Personalised help and advice
There are 15 points of single contact (PSC) set up at selected trade licence offices which help entrepreneurs commence their business activities. PSC also mediate contacts with relevant competent authorities. You can place your inquiry concerning business activities in the CR or another EU member state through the following PSC questionnaire.
- PSC questionaire - sending inquiries
- Addresses and contacts of the Points of Single Contact (PSC) network
The Enterprise Europe Network is an extensive network (with 600 host organisations and 4,000 full-time staff) providing information and advice to entrepreneurs through its local partners.
SOLVIT provides entrepreneurs with quick and practical help where they face problems doing business abroad as a result of incorrect application of EU market rules by public authorities.
Document created in co-operation between Your Europe - Business (EU portal for companies), CzechInvest Fact Sheet and BusinessInfo.cz.
