Opening a limited liability company is an important legal step for your enterprise. As its name suggests, limited liability represents a major benefit, protecting your private assets, should the company come under financial distress. In addition, the ownership rights can be relatively simply transferred. As a downside, a limited company’s accounting is more complicated, and the profit isn’t at the owner’s constant disposal.
Tip: We’ve written a separate article that compares the pros and cons of running a trade versus owning a business as a legal entity.
How to set up a company
If you’ve decided to open your own company in the Czech Republic, you can become familiar with the whole process in this article. Don’t consult the Commercial Code any longer; the legal regime is now defined in the Business Corporations Act, which was passed along with the new Civil Code.
Are you unsure about any of the steps of setting up a limited company?
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Deed of association, or foundation charter?
If you’re the only person setting up the company, you only need to draft the foundation charter, also known as deed of foundation or founder’s establishment. Multiple founders, on the other hand, need to enter into a deed of association, sometimes referred to as a partnership contract. Both agreements must be recorded at the notary – the basic version comes significantly cheaper; moreover, the notary can subsequently register the company as well.
Firstly, however, you need to choose a fitting name and the location of the headquarters (unless you own them yourself, you must secure the lease or the owner’s permission), harmonize your views of how the company should work, prepare the statutory declarations and specimen signatures of the future executives.
The partnership contract must include the names and permanent residences of all the associates, the company headquarters and name, type of business and the amount of the individual shares. Although a share is usually determined on the basis of a shareholder’s investment-to-basic-capital ratio, the founders are free to agree otherwise in the deed. We recommend to only state the municipality name as the company headquarters, e.g., “Prague”. Thus, the deed of association needn’t be updated each time the company relocates within the same town or city; the address will only be changed in the business register.
Furthermore, the partnership contract appoints the leading bodies: the general assembly, through which the individual members participate in directing the company, and the executives, who represent the statutory body. The executives of a limited company in Czechia must have no criminal record. The deed of association may also establish other bodies, such as an advisory board.
Tip: What are the specifics of the Czech criminal record? What is recorded there, and when can you petition for its erasure? Such questions are answered in the article titled Criminal Offences and their Differentiation.
Visit the official offices
Once your company is founded, you ought to take the notarial record to the bank, where you create a business account to which you deposit the basic capital. To create the account, you’ll need to provide the partnership contract.
As the following step, register the company at any branch of the Trade Licensing Office to obtain a trade licence. For this, you’ll need to bring both the legal title authorizing you to use the future headquarters and the deed of association, and you’ll need to pay the administration fee. To register a regulated trade or concession, an authorized representative must be appointed.
It’s practical to also obtain your spouse’s consent with your business. However, this, as well as the statutory declarations, can be attested to at the notary, whom you must visit anyway.
Subsequently, you must register your company at the business register. This can be done either at a registration court, or at the notary who prepared all the documents. The notary is authorized to access the register remotely.
Finally, you need to register with the Tax Office. It might be faster to do this while at the Trade Licensing Office, which is also authorized to register you there.
If you intend to launch a specific type of business, such as an employment agency, you need to be familiar with the field’s particularities as well. In this case, you’d need the permit to mediate employment issued by the Employment Office of the Czech Republic in addition to the usual authorized representative. The Employment Office in return needs the acknowledgement of the Ministry of the Interior. Moreover, you’d have to pay the deposit of 500,000 CZK to the Employment Office’s account and take out business closure insurance. The last two points don’t concern you if you plan to employ your clients yourself and merely allocate them to your clients.
Tip: Do read about the 7 most frequent errors made by start-ups to avoid them yourself.
The costs of setting up a limited company
The good news is that you’ll definitely have the capital to launch the business itself after you set it up. If you manage to handle everything yourself, the total expenses shouldn’t exceed 10,000 CZK; however, this only holds true provided that you take the easiest route of fulfilling nothing but the barest legal requirements and that the capital stock is paid as a monetary investment. Upon meeting these two conditions, the establishing will be exempt from the court fee.
Shareholders’ investments and liability
The minimal basic capital required to launch a limited company is a single crown, which significantly simplifies matters. Several years ago, at least 200,000 CZK was needed.
A partner’s share must also amount to at least 1 crown. The period for depositing the basic capital is negotiated in the partnership contract; upon founding the company, at least 30% of the amount must be paid in case of a monetary investment and 100% with a non-monetary investment. The remaining sum must be paid within 5 years of founding the company.
A limited company is held liable for all its assets, i.e., not only the money on its account, but also its other tangibles and intangibles. The shareholders themselves are liable up to the amount of their unpaid shares as of the day the obligation was claimed. Bear in mind that all the shareholders are held liable jointly and equally regardless of who did or didn’t pay their share. For example, if the basic capital amounts to 900,000 CZK, one shareholder has paid their share of 300,000 CZK in full and the remaining two have both paid only 180,000 CZK so far, they are held liable for up to 420,000, which may be collected from either one of them.
How long does setting up a limited company take?
The experts’ views somewhat differ regarding this question. Ideally, everything can be completed within several days; however, delays may occur at any office. According to a study conducted by Doing Business World Bank (an institution comparing business procedures in 190 countries) in 2020, establishing a limited company in the Czech Republic takes 24.5 days on average. To speed matters up, you’ll need to turn to experts, who are familiar with each and every detail of the process and know how to time its individual phases.
Setting up a limited company doesn’t pose a serious problem at all. If you’re nonetheless afraid of making an error, we’ll gladly guide you through the whole process, while providing full legal services.