Has your business grown and no longer suits you in its current form? Are you thinking of setting up a limited company but find it administratively and financially too complicated? You may be surprised to learn that it is far from it and there are some advantages over a sole proprietorship. We’ve summarised the process, costs and conditions of setting up a limited company for you.
Setting up a limited company is an important legal step in your business. A major advantage is the limited liability mentioned in the name, which provides more protection for your personal assets in case of business missteps. The relatively easy ability to transfer ownership rights can also be a plus. On the other hand, it is necessary to reckon with the greater difficulty in keeping the books and the impossibility of disposing of the company’s profits whenever you like.
Tip: We have discussed the advantages and disadvantages of sole proprietorship versus a corporation in a separate article.
The use of the term “company” can sometimes be a little misleading. In legal circles, it refers purely and simply to the business name under which the entrepreneur is registered in the commercial register. This time, however, we will leave the purely legal terminology behind and use the term in its more general meaning, i.e. as a business or company. If you are convinced that setting up a company is the right way for you and you are wondering how to do it, go through the whole procedure with us.
The whole process is also regulated by law. But don’t look for it in the Commercial Code anymore, the valid legal regulation can be found in the Business Corporations Act, which was passed at the same time as the new Civil Code (NCL).
Are you unsure about some of the steps involved in setting up an LLC?
If you want to start your business as soon as possible, entrust us with the establishment of an LLC and we will create a customized company for you. Everything will go smoothly and in the shortest possible time.
I simply want to set up an LLC.
If you are setting up the company yourself or by yourself, you will only need to draw up a memorandum of association. Multiple founders then require the legal form of a memorandum of association. However, both types of documents equally require notarial registration (if it is a basic version, it will also be significantly cheaper. In addition, the notary can then register the company directly in the register).
It is already necessary to have an agreement on the apt and original name and the registered office of the company (it is necessary to have a lease agreement or the owner’s consent if you are not the owner of the property where the registered office is located), to reconcile mutual ideas about the functioning of the company, to put together affidavits and signature samples of the future managing directors.
The memorandum of association must state the names and residences (registered offices) of all the partners, the registered office and business name, the objects of the business, the mutual shares (the share is usually determined according to the proportion of its contribution to that share attributable to the amount of the share capital, but the memorandum may provide for another procedure). As far as the registered office is concerned, it is recommended to indicate only the entire municipality, e.g. “Prague”. You will then not have to change the articles of association every time you move within the municipality and the address will only change in the commercial register.
The articles of association also specify the company’s organs. These are the general meeting, through which the individual members participate in the management of the company, and the managing directors, who are the statutory body. The managing directors of a limited liability company must have a clean criminal record. The company may have other bodies, such as a supervisory board, if the articles of association so provide.
Please note: Until now, it was necessary for a person elected to a position in a body of a business corporation (e.g., executive officers, members of the board of directors or supervisory board) to be above reproach under the Trade Business Act and not to be prevented from carrying on a trade. This included a final conviction for a crime committed intentionally and related to the business or its object. However, this requirement will change from July 2023 and the conditions for holding office on a corporate body will now be specified in a separate provision of the Corporations Act, which will list the factors that lead to ineligibility to hold office. To this end, a non-public register of persons disqualified from serving as a member of an elected body of a business corporation will be established. It will be accessible only to judges or notaries.
The Ministry of Justice has contributed to facilitating the formation of a limited liability company by publishing a universal electronic model of the articles of association, which contains all the mandatory elements of the legal act of incorporation of a limited liability company, supplemented by a brief explanatory commentary. This simplification will make it easier for you to create a memorandum of association, but it is advisable to consult a solicitor on the final form of the memorandum, who will add the necessary details relating specifically to your type of business.
Tip: Until the autumn of 2021, it was necessary to visit a notary at least twice when setting up a limited liability company, both for the notarial registration of the articles of incorporation or the articles of association and subsequently for the notary to verify that all obligations have been fulfilled (e.g. payment of deposits) and to issue a certificate for registration in the register. Now a personal visit to the notary is no longer necessary, it is sufficient to verify the identity via bank identity or ID card with chip. You can contact the notary by video call and everything can be done remotely.
Once the company is established, you need to go to the bank with the notarial deed. Here you will open a bank account into which the share capital will be deposited. To set it up, you need to submit a drawn up and certified memorandum of association.
The company must also be registered with the trade office and obtain a trade license. To do this, it is necessary to go to any trade office, pay an administrative fee and provide proof of the legal title to use the future registered office. Here, too, a memorandum of association is submitted. A responsible representative must be appointed to register a trade or craft, as well as to obtain a licence for a licensed trade.
Nowadays, however, there is no longer any need to wait for the verdict of the trade licensing authority, as you can apply for registration of a legal entity in the public register and apply for a trade licence at the same time. In fact, both processes can take place simultaneously, which should speed up the whole process and allow you to start your business sooner.
This change was brought about by the Act amending certain laws in connection with the use of digital tools and procedures in company law and the operation of public registers. It also reduces the additional administrative burden on company founders. For example, it will no longer be necessary to document certain data duplicated both when registering a company in the Commercial Register and when declaring a trade to the Trade Licensing Office (typically the legal reason for the use of the premises where the company will have its registered office).
The company would not be formed unless it was registered in the commercial register. This can be done through the registry court or with the notary who prepared all the documents. The latter may make remote access to the register.
The registration in the commercial register should be followed by the registration of the company with the tax office for the relevant taxes. Alternatively, tax registration can also be done via the trade licensing office.
If you are seeking a specific form of business, such as setting up an employment agency, you need to know the specifics of the industry in addition to the general requirements. In this particular case, in addition to a responsible representative, you would also need a permit from the Labour Office of the Czech Republic to provide employment (the latter will also request a consent opinion from the Ministry of the Interior of the Czech Republic), a deposit of CZK 500,000 to the account of the Labour Office of the Czech Republic and bankruptcy insurance or bankruptcy guarantee insurance (the last two points apply to you if you plan to employ your clients and assign them to individual employers).
Tip: It is also practical to add your spouse’s consent to your business. However, both this and the affidavits can be easily verified by a notary, whom you must contact anyway.
The good news is that after setting up an LLC, you still have enough money to start the business. If you can manage everything on your own, your costs should not exceed CZK 10,000. You can achieve a lower amount provided you take the easy route, do only what the law requires of you and make the deposit in cash. In this case, the establishment will be exempt from court fees.
Theshare capital required to start an LLC is just 1 crown. This is undoubtedly a sum that simplifies the whole process considerably. A few years ago, you needed a minimum of 200,000 CZK as a basic deposit.
Thecontribution of one shareholder should also be at least 1 crown. The time by which the entire deposit must be made is set by the articles of association, and 30% of the amount must be paid at the time of incorporation for a cash deposit and 100% for a non-cash deposit. The remaining amount is to be paid within 5 years of the company’s incorporation.
A limited liability company is liable for its obligations with its entire assets. This means not only the money in the account, but also other movable and immovable property. The members themselves are liable to the extent that they have not fulfilled their deposit obligations at the time of the call for payment. Note that the partners are all jointly and severally liable, irrespective of who has paid their deposit. Thus, if the share capital is CZK 900,000, one partner has paid his entire deposit of CZK 300,000 and the other two partners have paid only CZK 180,000 so far, they are liable up to CZK 420,000, which can be enforced against any of them.
Tip: Are you considering setting up a company and don’t know what form to choose? Apart from the financial and administrative complexity, the liability of the individual partners or the company in general can be an important aspect of the decision. Therefore, read on to find out how an LLC and its partners are liable for debts.
This is where the experts’ opinions diverge somewhat. Ideally, it is possible to set up an LLC within a few days, but in practice there may be a delay at some office. According to the World Bank’s Doing Business 2020 study, which compares business procedures in 190 countries, it takes 24.5 days to set up a company in the Czech Republic. To speed up the process, it is possible to use the services of experts who know the whole process intimately and know what and how to time it correctly.
Incorporating an LLC is really nothing you shouldn’t handle. However, if you are still worried about making a mistake, we will guide you through the whole process of setting up an LLC and provide you with all the service you need.
We will safely guide you through the entire process of setting up an LLC and provide all related services. We will handle everything quickly and professionally so that you can enjoy your own company as soon as possible. For a pre-determined price and throughout the country. You can pay only after the service is provided.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
