A public company (v. o. s.) is a specific form of business where the shareholders are liable for the obligations with all their assets. In this article, we will give you an overview of its advantages, disadvantages, legal regulations and also tell you how to set up a public company or how it works internally. You’ll learn who a v.o.p. is good for, what tax obligations it has, and what to watch out for when operating it.
A public company (v. o. s.) is one of the forms of commercial companies defined in the Czech legal system. It is a company in which at least two natural or legal persons conduct business under a common name and are liable for the company’s obligations without limitation with all their assets. This means that in this type of company, the partners may lose their personal assets and put their family at risk, for example, through bankruptcy.
This legal form of business has a long history. The origins of public companies date back to the guilds, when craftsmen and tradesmen set up companies on the basis of mutual trust.
The main reasons why entrepreneurs choose limited companies are the ease of incorporation. A public company also has lower administrative costs compared to limited companies. And the fact that a limited company can be actively managed without a complex organisational structure is also a major advantage.
On the other hand, the disadvantages of this type of company are that the shareholders are liable for their entire assets without limitation. Compared to a limited liability company, a limited liability company also has a higher tax burden and it is more difficult to find investors.
You may be on the cusp of deciding whether to start a business as a sole trader or set up a company. And if a company, which one? You can use our legal advice on this matter too. We will explain the differences between the different types of companies and discuss with you which type is right for your business.
In the Czech Republic, the public company is regulated in the Commercial Corporations Act and in certain passages of the Civil Code. The shareholders must fulfil their obligations towards the trade licensing authority, the tax administration and other institutions, for example, regarding tax returns and bookkeeping.
In recent years, legislation has been evolving to increase transparency and accountability of business entities, which may have an impact on future regulations of limited liability companies.
According to statistics from the Ministry of Justice, several thousand public companies are registered in the Czech Republic, making it a less common form of business compared to a limited liability company or a joint stock company. It is therefore one of the less used forms, just like a limited partnership.
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In order to establish a limited liability company, at least two partners must agree together. In this case, there can be both natural and legal persons.
The main document for establishing a limited liability company is the memorandum of association, which must contain at least the following information:
The company is established by registration in the Commercial Register. This process includes notarisation of signatures, drafting of the application for registration and payment of an administrative fee. This is most often around six thousand crowns. It is thanks to the simpler incorporation process and less official hassle that some smaller entrepreneurs resort to a limited liability company.
Shareholders have equal status in a public limited company. Should this not be the case, this should be enshrined in the memorandum of association. As far as the share of profits or losses is concerned, it is also distributed equally or again according to an agreed proportion. Not only for these reasons, we recommend that you have the memorandum of association drawn up by a lawyer so that you can be sure that these details are dealt with exactly as you wish.
When something needs to be decided, the shareholders must vote. Each of them usually has an equal vote when doing so. If the partners want to, they can also become employees of the company. However, their remuneration is then subject to the standard tax regime.
If the company wants to take on a new shareholder, this is possible, but only by agreement of the existing shareholders. Similarly, any partner can withdraw, which again requires amendments to the contract and the liabilities must be settled.
In a public company it is not common for shares to be transferred, but it is possible with the agreement of all the partners.
Again, the company can be dissolved by agreement between the shareholders, but dissolution can also occur if the company has achieved its agreed objective or if the court has ordered its liquidation. In liquidation, it is then necessary to settle the assets, pay off all debts and liabilities and delete the company from the commercial register.
According to a survey of entrepreneurs, 60% of companies with this structure operate on the basis of oral agreements between the shareholders. This shows a certain level of trust, but brings with it a lot of potential problems in case of future disagreements.
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Unlimited and joint and several liability means that each partner is liable for the company’s obligations with all of his or her assets, not just the business assets. This aspect is the main risk of this legal form. If you want to at least partially avoid the risk and protect your assets, we recommend that you treat the liability in relation to suppliers by contract and limit it. Asset segregation can also help.
In other types of company, liability is safer: in an LLC, liability is limited only to the amount of the deposit. Shareholders are also not liable with their personal assets. And in an LLC, the general partners are unlimitedly liable, but the limited partners are limited.
As such, a general partnership is not subject to corporate income tax. However, the individual partners themselves are subject to tax as individuals or corporations.
Accounting in a public limited company needs to be kept on a double entry system, so this type of company is obliged to record all economic transactions.
According to the CZSO, there were more than 3,500 public companies in the Czech Republic in 2022, with the majority having fewer than 10 employees.
A public limited company (p.l.c.) is a simple form of business for at least two partners who are liable for the obligations with all their assets. Its main advantages are low set-up costs and ease of management, but the disadvantage is high personal risk. The company is established by a memorandum of association and is created by registration in the commercial register. No corporation tax is payable, profits are taxed to the shareholders. Compared to an LLC, a v.o.s. is less administratively demanding but less attractive to investors. It is advisable to carefully consider all the risks before setting it up and to get the right legal and accounting advice.
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