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Setting Up a Business

Any business activity in the Czech Republic is generally subject to the issuance of a trade license (regulated by the Trade Licensing Act) or another specific permit (regulated by a number of specific acts), depending on the type of business activity.

Czech law generally provides that a foreign person may undertake business activities in the Czech Republic under the same conditions and to the same extent as Czech persons. Under the Czech Trade Licensing Act, a legal entity with its seat in another EU member state can temporarily provide its services within the territory of the Czech Republic based on the trade licenses issued in such member state. If this legal entity’s activities become more regular and meet the legal definition of a business activity (i.e., continuous business activity carried out independently and aimed at generating a profit), it should either apply for the respective trade licenses or other permits in the Czech Republic and subsequently register its branch in the Czech Commercial Register or set up a subsidiary company in the Czech Republic.

Branch office

Under the Czech Commercial Code, a branch office is a registered organizational unit of a foreign or domestic legal entity and, as such, may engage in business activities only within the limits set by the founding company. Since a branch office is merely an organizational unit of the founding company it is not regarded as a separate legal entity and does not have its own legal capacity. The branch office must be registered in the Commercial Register and the founder must appoint a director of the branch office who acts on behalf of the founding company, but this is only in relation to matters concerning the branch office.

Legal forms of companies

Legal forms of companies are regulated in particular by the Czech Commercial Code. Under Czech law it is possible to set up six different forms of business companies, i.e. a general partnership, limited partnership, limited liability company, joint-stock company, European Company, and European Economic Interest Grouping.

A general partnership is a separate legal entity in which at least two natural persons undertake business activity under a common business name and bear a joint and several liability for the obligations of the company with all their property. A limited partnership is an entity where one or more partners are liable for the obligations of the company up to the amount of the unpaid parts of their contributions as registered in the Commercial Register (limited partners), and one or more partners are liable for the obligations of the company with all their property (general partners).

The limited liability company is the most common legal form for a business entity in the Czech Republic. This company is a separate legal entity whose registered capital is made up of contributions paid by its shareholders. These shareholders are liable for the obligations of the company up to the amount of their unpaid contribution to the company capital as registered in the Commercial Register.

In a joint-stock company, the registered capital is divided into a certain number of shares with a specific nominal value. Shareholders of the company are not liable for the obligations of the company. The Board of Directors is the statutory body of the company, and it manages the company’s business activities and acts on its behalf. A joint-stock company formed on the basis of a public offering of shares must have at least CZK 20,000,000 in registered capital. The amount of registered capital of a joint-stock company formed without a public offering must amount to at least CZK 2 000 000 (80 000 EUR).

As a result of the implementation of EU regulations, Czech law also permits certain European companies to be set up here (i.e. a European Company and European Economic Interest Grouping). As of October 2009 there were 431 European companies registered within the EU, whereas more than 40% of them are registered in the Czech Republic.

Setting up a limited liability company

By far the most common form of a legal entity is the limited liability company. It is founded by a Memorandum of Association or a Deed of Foundation, in the case of a sole founder. These must both be concluded in the form of a notarial deed, which must contain the essentials as prescribed by law, such as the business name of the company, the first managing director(s), the amount of the registered capital, the scope of business and the registered seat. Once the company is duly founded, the shareholder(s) must pay the minimum prescribed amount of their contribution to the registered capital. Subsequently, the appointed managing director(s) must apply for the necessary trade licenses.

As soon as the above conditions have been fulfilled and the company obtains the respective trade licenses, the appointed managing director(s) may file a petition for registration of the company in the Commercial Register. If there are no errors in the petition for registration of the company in the Commercial Register, the company will be registered within five working days. The limited liability company comes into being as a separate legal entity at the moment of its registration in the Commercial Register. The average time needed to set up a business in the Czech Republic has been reduced to approximately 30 days.

10 steps to set up a limited liability company

  • Get extracts from the police record for future managing directors.
  • Request confirmation from the revenue authority for documents declaring that partners have no tax outstanding payments.
  • Produce statutory declaration and specimen signatures (authenticated) of future managing directors
  • Arrange the company's place of business (e.g. signing an occupational lease for using non-residential rooms, including documented landlord ownership by the real estate cadaster).
  • Produce partnership articles at the first general meeting; signing and verification by the commissioner for oaths.
  • Set up bank account for basic capital deposit (the bank usually requires an original of the partnership agreement); the bank will issue a written document about the payment of deposits by each partner afterward.
  • Register at Trade Licensing Office and license application (forms are on the Internet).
  • Within 90 days of establishing a company apply for registration in the Commercial Register. The application has this enclosure:
  1. two copies of the partnership agreement signed and verified by the commissioner for oaths,
  2. confirmation from the curator of deposits,
  3. bank confirmation of ability to make deposits,
  4. authorized copies of trade licenses,
  5. documents about the legal title of using real property - occupational lease,
  6. statutory declarations of managing directors and specimen signatures,
  7. extracts from the police records for managing directors,
  8. legal stamp valued at CZK 5,000.
  • Register at the Social Security Administration and a selected health insurance company no later than eight days after registering in the Commercial Register (registering may take some time, even months).
  • Registering at the Revenue authority within 30 days of establishing a company.

Joint-Stock Company

  • The company exists independently of its shareholders.
  • The shareholders are not liable for the debts/obligations of the company.
  • A Board of Directors and Supervisory Board must be elected.
  • The registered capital and all in-kind contributions must be recorded in the Commercial Register.
  • Articles of Association must be prepared.
  • A trade licence must be obtained from the Trade Licensing office.

Details in the Commercial Register include:

  • Czech and foreign individuals serving on the Board of Directors and the Supervisory Board must supply an extract from the criminal register in their home country or where they have lived continuously for the last three months in the previous three years.
  • A certificate of the Board of Directors signatures.
  • Evidence that contributions (or the required part) have been paid.
  • A joint-stock company must have a minimum registered capital of CZK 2 million however if it is established by a public offering of shares the minimum registered capital is CZK 20 million.
  • A non-distributable reserve fund is required to set up from the first year's net profit up to at least 20% of the net profit up to a maximum of 10% of the nominal value of the reserve fund.
  • A general meeting of shareholders must be convened at least once a year.
  • A joint-stock company is subject to a mandatory statutory audit if at least one of the following criteria are met for both the current and previous year:
  • The net turnover exceeds CZK 80 million
  • The total assets exceed CZK 40 million
  • The average number of employees exceeds 50

General Commercial Partnership

  • A general commercial partnership is formed by two or more natural persons or legal entities.
  • All partners are entitled to act on behalf of the partnership.
  • All partners assume unlimited liability for the debts/obligations of the partnership.
  • The partners' names and addresses or the partnership's registered office must be recorded in the Commercial Register.
  • A partnership agreement must be drawn up.
  • The audit requirements are the same as for a limited liability company.

Limited Partnership

  • A limited partnership is formed by two or more natural persons or legal entities of which at least one general partner must assume unlimited liability and is responsible for the obligations of the partnership.
  • The limited partners are only responsible for the obligations of the partnership up to the level of un-paid contributions as originally recorded in the Commercial Register.
  • A partnership agreement must be drawn up.
  • The entry in the Commercial Register must also include the partners' names and addresses or the partnership's registered office, a statement as to who are the limited and unlimited partners, the amount of paid-in capital by each limited partner and any outstanding amounts at the time of registration.
  • Only general/unlimited partners are permitted to actively manage the partnership.
  • The audit requirements are the same as for a limited liability company.

Co-operatives (Druzstvo)

  • Co-operatives are formed by at least 5 members (or at least 2 legal entities) to undertake business for the economic or social benefit of its members.
  • The amount of registered capital (minimum CZK 50,000) and the amount of each members' basic investment must be entered in the Commercial Register.
  • An indivisible fund of at least 10% of the registered capital must be created at the time of incorporation. At least 10% of the profits after tax must be must be transferred annually to the indivisible fund until such time as it reaches a minimum of 50% of the registered capital.
  • Members are not liable for the debts/obligations of the co-operative.
  • Foreigner individuals may only be statutory representatives of the co-operative if they have a Czech residency permit.
  • The audit requirements are the same as for a limited liability company.

Branch Offices

  • Branch offices of foreign registered entities can conduct business in the Czech Republic provided that they are registered in the Commercial Register.
  • Entries in the Commercial Register must include details of the foreign parent entity, the branch location/s in the Czech Republic, the scope of its business activities and, the name and address of the branch manager/s.
  • A trade license must be obtained from Trade Licensing office.
  • The branch office does not have limited liability.
  • The audit requirements are the same as for a limited liability company.
  • All branch offices are required to maintain double entry accounting records prepared in Czech.

The legal documents required to form a company include:

  • a draft of the company's Memorandum and Articles of Association or Deed of Formation (in the case of companies with a single founder)
  • expert valuations of any non-monetary contributions
  • the minutes of the first general meeting of shareholders or members
  • the authorization for trading activities issued by the regional Trade Licensing (Business Registartion) Office
  • proof that contributions to the registered capital have been paid
  • documenatry evidence of the person authorized to sign documents in the name of the company or the members
  • proof of identity of the members or shareholders
  • an extract from the criminal register, status review, etc., in respect of executives or responsible persons
  • the contract for the lease of premises or a similar document confirming the right to use the relevant address
  • evidence of a bank account in the Czech Republic (usually after formation but before registration in the Commercial Registry).

The Companies Register

The Companies Register is maintained by the courts. It is only after registration in the Companies Register that a legal entity has legal status and is entitled to commence business activity in the Czech Republic. Access to both, the Companies Register and the Sole Trader Register is free and available online.

The entry in the Companies Register includes the following information:

  • the name of the entity and the address of its registered office
  • its identification number
  • the scope of business activities
  • the type of entity
  • the names and addresses of the executives or directors, together with details of their authorization to act on behalf of the entity
  • details of any branches and their Heads
  • in the case of a joint stock company - the nominal capital, number and nominal value of the shares of each class, names and addresses of the supervisory board members. If a joint stock company has only a single shareholder, the name of the shareholder
  • in the case of a limited liability company - the names and addresses of the members, the proposed nominal capital, the amount of each individual members contribution and the names and addressses of the supervisory board members if established
  • in the case of a general or limited partnership - the names and addresses of the partners
  • in the case of a co-operative - the proposed registered capital and the amount of each individual's contribution
  • in the case of a branch - its business name and address in the country of incorporation, the scope of its business activities, the legal form of the company in its country of origin, the business address in the Czech Republic, the name and address of the Head of the Branch,

Helpful publications from the Ministry of Interior

A foreign national intending to stay long term in the Czech Republic may consider getting familiar with the general information booklet and overview of a long-term residency implications for non-EU nationals (i.e. relocation to Czech Republic and issues regarding housing.)