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Trade Act and types of trades

Does the boss annoy you? Are you tired of having to answer to someone at work? Try setting up a business. With a trade, you are on your own and it’s up to you how much work you do and how much you get paid for it. But equally, all the risk falls on your head. In this article, we’ll look at what types of trades we have and what Czech law says about sole trades.

8 minutes of reading

Chapters of the article

What is a trade

A trade is defined as “asystematic activity carried on independently, in one’s own name, on one’s own responsibility, for profit and under the conditions laid down by the Trade Licensing Act.” It is therefore a form of business where the sole trader works for himself. He does not have an employer or the advantages and disadvantages associated with employment, such as set working hours, paid holidays and the like. Working for oneself also means that the sole trader fully bears the risks of his or her business. A sole trader is also referred to as a self-employed person, or self-employed person, and is a natural person, not a legal person.

Tip: Are you self-employed but work for a company for a commission or fee every month? Are you an “employee” through a shvarcsystem? You might be interested to know that you are entitled to paid leave in this case as well.

There are many other ways to do business besides being a sole trader. This consists mainly in the establishment of a legal entity in the form of a company. The most typical one is a limited liability company. The main differences from a sole proprietorship are that more than one person can set up an LLC. In addition, the entire assets of the person are not liable, but only up to the amount of the company’s share capital. On the other hand, however, a limited liability company involves more complex administration and higher taxes.

Tip: Are you planning to set up an LLC? We will guide you through the process of setting up a company and offer you all the services you need for your business.

Legal regulation of the trade

The trade is regulated mainly by the Trade Licensing Act. In addition to the trades themselves , their establishment and conditions, it also regulates other related matters, such as business premises. It also regulates trade control and possible offences. Last but not least, it also regulates the trade register.

If you want to search for economic entities, you can use the online trade register. The Administrative Register of Economic Entities, or ARES, which brings together information from a total of 14 different registers of economic entities, is also a good alternative for finding information about trade authorities and the traders themselves.

Types of trades

Trades are divided into two basic groups:

1) Reporting trades

In order to start a reporting trade, it is sufficient to file a registration with the trade licensing office. It is not necessary to obtain special permits from other authorities, which simplifies the whole process of starting a business. This type of trade is also less regulated than licensed trades, although in certain cases specific training or experience requirements are imposed. Reporting trades are divided into three other groups:

Free trade

This is the least regulated form of business. No special professional qualifications or experience are required to operate it. You will only need to be legally competent and of good character to register as a free trade. However, even good character is not a prerequisite. In this case, it depends on what you have on your criminal record. The biggest obstacle may be crimes related to your past business, such as embezzlement.

Tip: Are you considering whether to stay employed or go freelance as a sole trader? How about trying both? Trade and employment. What are the advantages of such a combination and what can get in the way of your business? Find out in our next article.

To set up a free trade, all you need to do is file a declaration with the relevant trade licensing office. Examples of free trades include most business services and some other services such as various consultancy services.

Craft trades

The conditions of a craft trade include the need for a certificate that you are qualified to carry out the activity. You will therefore usually need to provide evidence of your education or re-training. If you do not have a degree in the trade, then you can still provide evidence of a degree in a related field + at least one year’s experience in your chosen trade or six years’ experience in your chosen trade.

If you have neither experience nor education, do not despair. There is still the option of a responsible representative. This is a person who has education and experience in the field and will vouch for you. This means that he or she will supervise your practice and give you feedback. Examples of trades include activities such as carpentry, hairdressing or plumbing.

Tip: Do you want to become more independent at work and adapt your work pace to your needs? Are you planning to work in an industry where employment is almost impossible? Are you looking for some extra income? In all these cases, a trade licence may be useful. Read our article on the five steps to setting up a trade with ease.

Bound trade

Bound trades, like craft trades, include activities for which specific requirements are placed on professional education, experience or other qualifications. However, these trades also have potential risks to the health, safety or property of customers. Therefore, in order to operate them, it is necessary to meet certain predefined conditions, which can be found in Annex 2 of the Trade Licensing Act. Most often these are various certificates from the relevant ministries, longer length of experience, entries in various registers, etc. Examples of tied trades include activities such as running a driving school, real estate activities or running medical services.

2) Licensed trades

In order to start a licensed trade, it is necessary to obtain a concession, i.e. a special permit issued by the competent authority (e.g. one of the ministries) based on the fulfilment of certain conditions. The concession is granted on a case-by-case basis, with the authority taking into account the applicant’s professional qualifications, integrity and other specific requirements given for the particular type of business. The specific requirements can be found in Annex 3 of the Trade Licensing Act.

This is because licensed trades are typically activities that may have a significant impact on health, safety, the environment or the public interest (e.g. operating a pharmacy, manufacturing weapons or operating a private security service). Moreover, the operation of a licensed trade is not only subject to obtaining a licence but also to compliance with stricter rules and is more often subject to state supervision.

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How to get a trade licence

You must apply for a trade licence at the trade licensing office. Today it is no longer a “paper”, but actually a trade licence as such. You will need the aforementioned ID card and, if necessary, a certificate of education or experience. You will also need a completed Uniform Registration Form, and if you plan to have your place of business outside your place of residence, then you will also need an extract from the Land Registry or a lease agreement. You will pay a fee of CZK 1,000 for processing.

In the case of reporting trades, your trade comes into existence on the day you register your activity with the trade office (if you have provided all the necessary documents). In the case of licensed trades, the trade comes into existence on the day the decision granting the licence becomes legally valid.

Why do the conditions differ?

The different conditions for each type of trade reflect the level of risk, expertise and potential impact on the public that these trades entail. The regulation of these trades has several basic objectives:

  • Consumer protection: one of the main reasons for setting specific requirements for trades operators is to protect consumers from poor quality services and products. For trades that directly affect the health, safety or financial well-being of customers (e.g. health services, construction work), it is important to ensure that providers of these services are properly qualified and able to meet strict standards.
  • Health and safety: Some trades may pose a direct risk to public health and safety (e.g. chemical handling, construction work, health services). Regulation of these areas is therefore necessary to ensure that these services are carried out safely and in accordance with relevant standards and laws.

Tip: Unfortunately, not every business is successful or promising. If yours isn’t bringing you the joy, money or anything else you originally anticipated, it may be the only solution for you to end it. If so, then read on to find out how to wind up your business.

  • Protecting the public interest and the environment: Some activities have the potential to negatively impact the environment or the public interest (e.g. mining operations, waste management). Regulations and requirements to obtain concessions or meet specific conditions are therefore put in place to minimise these impacts.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

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.

  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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