A joint stock company is one of the most common types of business in the Czech Republic, next to a limited liability company. This form is mostly chosen by large and medium-sized enterprises, mainly due to its flexibility and the possibility to raise capital through shares. In this article, we will introduce the joint stock company, its establishment, structure and financing. You will get a comprehensive overview of what a joint stock company is and how it works.
A public limited company is a type of legal entity whose share capital is divided into shares. However, shareholders do not guarantee the company’s liabilities, which distinguishes a public limited company from some other types of company. Well-known joint stock companies include CEZ, Škoda Auto and Komerční banka.
The main legislation governing joint stock companies is the Commercial Corporations Act. It is also covered by the Civil Code, which regulates general legal issues related to business.
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The big disadvantage of a public limited company is that you will have to dig deep into your pockets to set it up. The share capital of a public limited company is CZK 2,000,000, or EUR 80,000 if it is a company with its registered office in the Czech Republic but with a share capital in euros. At least 30% of this share capital must be paid up before the company is registered in the Commercial Register. It is the amount of the share capital that is sometimes decisive, because you only need 1 koruna to set up a limited liability company.
The incorporation of a public limited company is carried out in two steps: first, the memorandum of association must be concluded and then the registration in the commercial register must be made.
The founders draw up the memorandum of association if there are more than one of them. If there is only one founder, then he or she must prepare the articles of incorporation. These documents include the articles of association, which regulate the internal functioning of the company.
You must then go to a notary who will draw up a notarial deed stating that the company has been established. After this registration, you must file a petition for registration in the commercial register. This petition is filed with the regional court under which the company’s registered office falls.
We have discussed the actual incorporation of a joint stock company in more detail in a separate article.
We already know what a joint-stock company is, how much money is needed to establish it, so now let’s dive into the organs of a joint-stock company. The supreme body of a joint stock company, which decides on key issues such as changes to the articles of association, who becomes a member of the bodies, or how profits are distributed, is the general meeting.
Another body of a joint stock company is the board of directors. This is the executive body that is responsible for the management of the company.
The Supervisory Board, as its name implies, is the controlling body that oversees the activities of the Board of Directors and protects the interests of all shareholders. Shareholders have the right to attend the general meeting, vote, receive dividends and share in the liquidation balance should the company be dissolved.
At the same time, there are two systems of management of a joint stock company. The first is the dualistic system, where the company has a board of directors as the executive body and a supervisory board as the controlling body. The second is the monistic system, where the company has a board of directors and a statutory director.
Tip: A public limited company belongs to the capital companies. But what are all types of corporations? And what makes a cooperative different from a corporation? Find out in our article.
As we mentioned at the beginning, in a public limited company the capital is divided into shares. But what are shares really? They are securities that represent an ownership interest in a given company. If you buy a share in a company, you become a shareholder. You get, for example, the right to share in profits, to vote at general meetings (this applies to ordinary shares) and thus to influence the management of the company, or the ability to appreciate the value of your investment (if the share price rises, you can sell it at a higher price).
The basic types of shares are then divided according to the following criteria:
According to the rights attached to the shares
By form and transferability
Depending on the form
In some jurisdictions, we may also see other special types, such as golden shares, which give the state or the founder special rights. Then there are also employee shares, which are intended for the employees of a given company.
A public limited company can raise its capital in various ways – most commonly by issuing shares, issuing bonds or going public on the stock exchange. A share issue means that the company issues new shares to raise additional capital for its development.
If a company does not want to issue new shares, it can issue corporate bonds, which are securities that represent the company’s debt to investors. The investor gives the company money and the company agrees to pay the bondholder the face value of the bond at a certain date and to pay interest periodically.
Another way for a public company to raise money is through an IPO, where a private company becomes publicly traded and its shares are offered to investors on the stock exchange for the first time.
Then dividend policy can also intervene in financing, where the company can decide whether to pay out profits to shareholders or reinvest them.
Each method of financing has its own specifics and is regulated by the legal framework, in particular the Business Corporations Act and the Czech National Bank.
Tip: Wondering how investment funds work? They are supervised primarily by the Czech National Bank. Find out how you can invest in funds and what it all entails.
The principal advantages of a public limited company include the limited liability of the shareholders. They are not liable for the company’s obligations with their personal assets, but only up to the amount of their contribution. Because a public limited company can issue shares or bonds, it can quite easily secure additional finance for its growth and investment. Since the management is distributed among the members of the board of directors and the supervisory board, there is no risk of dependence on a single shareholder and his arbitrary decision-making.
On the other hand, it is not easy to set up a public limited company, not least because of the high share capital and the complex administration. In addition, a public limited company must keep double-entry books. The founders also have to be careful not to issue too much stock and lose control of the company because of it. If an investor were to acquire a decisive share, he or she could easily control the entire company.
The public limited company is one of the most common forms of business in the Czech Republic, particularly popular with medium and large companies due to its flexibility and the ability to raise capital through shares. Shareholders are not liable for the company’s obligations, which distinguishes it from other legal forms. Incorporation requires a minimum share capital of CZK 2 million and takes place in two steps: drawing up the incorporation documents and registration in the Commercial Register. The structure comprises a general meeting, a board of directors and a supervisory board, with the option of a dualistic or monistic management system. Financing is done by issuing shares, issuing bonds or going public on the stock exchange. The main advantages are limited shareholder liability and the possibility to raise large amounts of capital, while the disadvantages are higher costs and more complex management compared to other business forms.
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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.
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