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What is the deposit and share capital for an LLC?

Are you planning to set up a limited liability company and wondering how much share capital and what level of contribution to choose? We will advise you on what to decide and what obligations are associated with the deposit.

mladý muž přemýšlí o financích, vklad do společnosti, základní kapitál
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For several years now, the Civil Code has allowed us to set up a limited liability company at a relatively low cost. Of course, there are always fees for the notarial registration of the company, the issuance of a trade license, the court fee associated with the registration in the Commercial Register, and possibly the cost of a lawyer. However, all this should not exceed twenty thousand crowns. The company itself can then be established for as little as a crown (compared to the previous 200,000 crowns).

This has made the establishment of a company much easier and more accessible to the general public, but it is not always worth choosing the cheapest way. Why is it not ideal to choose the crown as the share capital?

Are you planning to set up an LLC?

Setting up an LLC can become a complicated and time-consuming procedure due to the official processes. If you need to start your business as soon as possible, we can set up a bespoke limited liability company (Ltd.) for you.

Your company doesn’t exist in a vacuum, but it will need customers, business partners and perhaps investors or a bank loan to operate. All of the above will be a bit more complicated if the share capital is one crown. This may make the company look untrustworthy and unpromising. An additional increase in share capital is possible, but it is an unnecessary and demanding administrative procedure.

This is a paradox. In practice, the share capital does not have to be held in a company account and thus does not provide security for the fulfilment of obligations. It is essentially a bookkeeping item, and the actual assets may vary by hundreds of thousands.

When determining the amount of share capital, therefore, you need to think first of all about how much the company needs to get going before it can make any profit. This can vary dramatically from company to company, depending, for example, on how much rent it pays, how many employees or associates it needs to operate, and the costs of any production or promotion. The number of shareholders and the general structure of the company is also important.

It follows from the above that if someone actually chose a share capital of one crown or a few hundred crowns, their company would be underfunded and would probably not even have the basic money to operate. Soon after its incorporation, it could find itself bankrupt.

What is the difference between a deposit and share capital?

By contribution we mean the value of the object of the shareholder’s contribution to the share capital, which is expressed in money. The aggregate of all contributions then constitutes the company’s share capital, the amount of which is entered in the Commercial Register.

The amount of each shareholder’s contribution is determined by the articles of association. It also determines the amount of the contribution per share, which may be set differently for each share.

The objects of a shareholder’s contribution may be

  • money in cash or in bank accounts (cash deposit),
  • movable property or immovable property (non-monetary contribution). These are then valued by an expert’s report. They may include, for example, a car, a building or production equipment.

Tip: 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? It doesn’t have to be. We’ve summarised the process, costs and conditions of setting up a limited company for you in our article.

Cash deposit

When establishing a company, a cash deposit must be made into a special bank account set up for this purpose by the deposit manager, who may be a notary public. The funds are then blocked there until you receive confirmation of the company’s registration in the commercial register. From that moment on, the newly formed company is the owner.

If you are setting up a limited liability company with a maximum share capital of CZK 20,000 or less, you do not even need to set up a special bank account. It is enough to pay the deposits by depositing them with the deposit manager.

It is also important that it is not necessary to collect 100% of all deposits to form a company. For a limited liability company, the law stipulates the necessity to repay at least 30% of each cash deposit at the latest on the date of registration in the commercial register and, if applicable, the entire deposit premium (if such obligation results from the articles of association). You may repay the remaining 70% within a maximum of 5 years (or even sooner if the articles of association so provide).

Non-cash deposit

If you don’t want to or can’t contribute cash to the company, you can also make a contribution in kind. This can be any item that can be valued in cash, even if the item itself is not essential or necessary for the operation of the company. You can imagine that it could be your cottage in the Bohemian Forest or your grandfather’s collection of gold coins. However, it should be taken into account that the company can sell such an item and use the money for its activities.

The only condition is that the item has a certain value expressed in money and that the item is valued by an expert and an expert’s report is prepared.

However, the amount on which the shareholder’s contribution is set off need not be the same as the amount on which the object was valued by the expert. If the contribution is calculated at a lower value than the value at which the item was valued, it is the aforementioned deposit premium.

Non-monetary contributions must be taken into account when drawing up the memorandum of association, as it must subsequently contain a description, valuation, information about the expert and other details provided for by law. Thus, the non-cash contribution is de facto introduced into the company before its formation and is accepted directly by the deposit manager itself.

If it is a movable asset, then it must be physically handed over against a handover protocol, if the nature of the asset allows it.

In the case of the deposit of immovable property, a written declaration of the deposit of the immovable property shall be transmitted.

Tip: You don’t have to have your deposit paid back when you set up your company. However, the amount to which the deposits are paid can affect another important thing, namely the liability of the partners. According to the law, they are jointly and severally liable with their private property to the extent that they have not fulfilled their deposit obligation. This is assessed according to the status registered in the commercial register at the time when they were called upon by the creditor to perform. The liability of the members of an LLC arises automatically by operation of law and is joint and several. Therefore, any shareholder may be called upon to perform, regardless of whether or not he or she has already paid his or her contribution.

What happens if a shareholder fails to meet the deposit obligation?

If a shareholder fails to pay the deposit by the due date:

  • he/she is obliged to pay default interest in the amount agreed in the articles of association or by law at the rate of 17% per annum,
  • or face expulsion from the company.

Change of share capital

It is possible to change the share capital in the course of business, but you can never avoid an administratively demanding process. This is one of the reasons why increases and decreases do not occur very often.

The change must be decided by the general meeting and the entry of the share capital in the commercial register must be amended. This is done by means of a notarial deed. A change in the share capital takes the form of:

  • additional contributions by the owners to the company when the share capital is increased,
  • transfer of profits to the share capital for the purpose of increasing the share capital,
  • the withdrawal of contributions when the share capital is reduced.

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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.

Education
  • 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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